Adidas Group

CEO statement

Progress in 2011

Two milestones highlight the progress we are making in managing social compliance in our supply chain:

1. Our direct suppliers' performance is rated through a key performance indicator, or C-rating, on a scale of 1C-5C. In our direct supply chain, which accounts for four-fifths of our sourcing volume, nearly 40% of our direct suppliers and 62% of our strategic tier 1 suppliers were rated as 3C factories or better. So we are on track to meet our 2015 targetto see 60% of our direct suppliers reaching at least 3C.

2. We aimed to improve the lowest performing suppliers in our direct supply chain and we had remarkable success: reducing the lowest rated factories (1C) from 19% of our supply chain in 2010 to 8% by the end of 2011.

In the environmental area, we continued to increase the number of products containing environmentally optimised components. The amount of adidas footwear meeting our baseline environmental criteria more than doubled in 2011 and now accounts for 65% of all adidas athletic footwear.

The starting point for delivering our Environmental Strategy 2015 is to have the right systems and guidelines in place. We have met our 2011 milestone to develop a format for these guidelines and we have introduced a new system to record and track our key environmental data covering around 80% of our own operations' footprint.

We cannot reach our goals without engaged employees. Following our global employee engagement survey, we began a comprehensive Results-to-Action process to maintain our top scoring areas and improve upon areas of weakness. We now have action plans in place covering more than 83% of the organisation.

Engagement and collaboration

Engaging with stakeholders has remained an important element of our sustainability strategy in 2011. This engagement helps us to understand issues and be responsive to concerns raised. It also leads to collaborative working. We recognise that many of the issues we face cannot be solved by the adidas Group alone and working with other actors in our industry helps drive lasting change.

So for example, the adidas Group acted as the lead party in a supplier-brand caucus formed in 2010 to engage with Indonesia's trade union movement. Its aim was to develop a basic framework for the exercise of trade union rights in the workplace. An agreement was finally reached and signed in Jakarta in June 2011. The protocol is recognised as a landmark achievement in Indonesian labour rights.

When Greenpeace launched its Detox Campaign calling for an end of discharge of hazardous chemicals in the textile industry, we worked with a coalition of other brands to develop a joint roadmap towards the zero discharge of hazardous chemicals by 2020.

Preparing for London 2012 - the 'Sustainable Games'

As the Official Sportswear Partner of the London 2012 Olympic and Paralympic Games, adidas has an important role to play in delivering the 'Sustainable Games' vision.

All London 2012 adidas products and services must be sourced and manufactured to environmental, social, and ethical guidelines and standards set by the London Organising Committee of the Olympic and Paralympic Games (LOCOG). Suppliers and factories have been briefed on these standards and regular audits are conducted to ensure that all products are sourced and transported in an ethical manner. Around 90% of all adidas Olympic articles have some sustainable content.

In July 2011, we published a complete list of the names and addresses of the factories producing adidas clothes, shoes and equipment for the London 2012 Olympic Games. The list also shows the status of worker or trade union representation and whether there is a Collective Bargaining Agreement in place at the individual facility.

Recognition

We value feedback from stakeholders on our sustainability strategy and programmes. For the 12th consecutive year, in September 2011, adidas AG was selected to join the Dow Jones Sustainability Indexes (DJSI), which track the performance of leading sustainability-driven companies worldwide. Based on this result, adidas AG was not only rated as SAM Sector Leader 2012 in managing sustainability issues but was also classified as SAM Gold Class in our industry. Furthermore, our company was once again acknowledged to be one of 'The Global 100 Most Sustainable Corporations in the World'.

The future

There are challenges ahead. The rising costs oflimited resources create a commercial and environmental imperative to adopt more sustainable practices. Calls for greater social justice demand business plays a part in tackling poverty and poor living conditions. Addressing these and other concerns requires us to embed our sustainability strategy deeply into our company. I am particularly excited about innovative programmes such as our virtualisation and product excellence projects contributing to a significant reduction in resource use. Their positive impact on both our financial and environmental performance represents a strong alignment between our business and sustainability goals.

By focusing our report around our 2011 milestones, we hope we have provided a clear account of the first stepson our five-year journey towards our sustainability targets for 2015. There is still much for us to do but we are confident we are on the right track.

Please let us know what you think at sustainability@adidas-Group.com. Thank you.

Herbert Hainer

Chief Executive Officer,
adidas Group