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Working conditions in our supply chain

Dealing with the effects of Covid-19

From the start of the coronavirus pandemic, adidas has taken steps to mitigate the impact of the crisis on workers in the company's global supply chain. These measures included specifications for the control of infectious diseases as well as occupational safety and worker welfare. The company has maintained its standard production conditions, including the protection of workers' rights, and helped key suppliers secure financial support from banks to weather the Covid-19 crisis. Ensuring business continuity and a functioning supply chain saved workers from losing their jobs and the vast majority of subcontractors were able to keep the workforce, albeit with reduced hours due to lockdowns or suspension of work. adidas has worked to ensure that all legal requirements regarding compensation and benefits are met for all employees on an ongoing basis and has tracked working conditions in each individual company. Where manufacturing companies have had to cut jobs, we have ensured that released workers have received their statutory severance payments and other benefits to which they are entitled in full.

We knew that these measures alone would not be enough. That is why we signed the International Labor Organization (ILO) 'Call to Action'. The aim of the initiative is to counter the effects of the coronavirus pandemic on the textile industry. The ILO has set up a global working group that is committed to safeguarding the health, income and jobs of workers in order to secure financial resources to maintain business continuity, to ensure wages are paid and to implement income-supporting and job-preserving measures. The measures also included a commitment to the development and expansion of social security systems for workers and employers in the textile industry, in accordance with Recommendation ILO 202 of the International Labor Organization.

Labor and human rights groups like the Workers Rights Consortium ‘have assessed how adidas responded to the pandemic outbreak. The measures taken by adidas were recognized in the Baptist World Aid Australia’s 2020 Covid Fashion Report, for which around 100 brands were asked about their approach to the Covid 19 crisis.

Working conditions in the supply chain - our approach

Our commitment to fair labor practices and safe working conditions in the factories in our global supply chain is a fundamental part of our commitment to upholding human rights. Our workplace standards, a code of conduct for suppliers, form the basis of our actions. The workplace standards are part of the manufacturer's framework agreements that we conclude with our suppliers. They guarantee healthy and safe working conditions as well as environmentally friendly processes in the production facilities. Our standards are in line with the human and labor rights conventions of the ILO and the United Nations as well as the code of conduct of the World Federation of the Sporting Goods Industry (WFSGI). Furthermore, we try to expand our reach by delegating responsibility to our partners in order to identify and address potential and actual risks in connection with possible labor law violations before and after the manufacture of our products. In the guidelines on employment standards, adidas makes specific reference to the core labor standards of the ILO. All policies and implementation processes of the employee rights program are reviewed and approved by senior executives in Procurement and Social and Environmental Affairs (SEA).

Our program for compliance with social standards is constantly being developed and is based on three core concepts:

  • Power: In 2021 we will move from our 'C-KPI' - a key figure for assessing compliance, with which management systems and individual responsibility of suppliers are assessed - to new social indicators that measure results such as reduced accident frequency, higher retention rates or improved employee satisfaction (S-KPI ). We will use our new S-KPI tool to report annually on workplace conditions and the effectiveness of our initiatives to empower employees. The goals for 2025 will be set in 2021.
  • Transparency: As part of our more comprehensive risk management processes, we will increase the scope and implementation of human rights due diligence (HRDD). Our goals for 2025 are to achieve 100% coverage of all 'risky' activities and to ensure that HRDD compliance is anchored in the entire organization. We consider activities to be 'at risk' that are identified in our annual inventory for risks of human rights violations as potential activities with negative effects on the human rights situation and that require preventive measures or remedial action.
  • Fairness: The focus is on gender equality, wage equity and responsible procurement practices that support fair wages for workers. Our goal is to make continuous improvements to all fair pay benchmarks and to achieve gender pay equality for workers and their supervisors by 2025 at each of our Tier 1 strategic suppliers.

Evaluation of the supplier companies

We regularly evaluate the extent to which suppliers offer fair, healthy and environmentally friendly working conditions. To this end, we carry out announced and unannounced audits with our own employees or recognized external auditors. Using a rating system for compliance with social standards (C-KPI), we assign the result a rating from '1' (worst value) to '5' (best possible value). Based on the results, our procurement and SEA teams jointly decide on the further course of action, from training to enforcement measures such as B. a warning or hiring external consultants to improve the respective program can be enough.

If the audits reveal violations of the workplace standards, the companies concerned are given a deadline to remedy these violations. A similar scoring system is used when selecting new suppliers and contracts are only awarded with the prior consent of the SEA team. We offer several complaint channels through which employees or third parties can submit complaints about violations of workplace standards and human rights in general. Every complaint from third parties is examined and investigated and the result is published on our company website. The conditions in the production facilities are also assessed by independent auditors as part of our cooperation with the Fair Labor Association (FLA), which adidas co-founded in 1999 - an example of the fact that we rely on independent and unannounced inspections of production facilities and the verification of our programs by external bodies put. Since then, our program has been accredited three times by the FLA.

As of the end of 2020, adidas has 520 independent suppliers1 worked together (2019: 631), who manufactured products for our company in 49 countries (2018: 52). This decline is due to our overarching goal of further consolidating our supply chain. In 2020, this mainly related to South Korea. In the future, we want to work with fewer production sites, enter into long-term partnerships and place more orders with these partners. 66% of our suppliers' production facilities (2019: 69%) are located in the Asia-Pacific region. The number of licensees we work with has slightly decreased compared to 2019 to 56 (2019: 62), who manufactured products in 375 production sites (2019: 372) in 37 countries (2019: 38).

Onboarding

In 2020, our main focus was on maintaining relationships with our existing suppliers rather than entering into new partnerships. We carried out 112 initial assessments - both as the first approval stage for entry into our supply chain and in newly built companies at existing locations (2019: 143). Of these, 31 production sites (2019: 49) were either rejected directly after zero tolerance violations ('Zero-Tolerance') were found or received the status 'Rejected with second check' after one or more borderline issues ('Threshold Issues') were identified. This means that these companies were rejected, but were given the opportunity to remedy the compliance violations within a specific period of time. The vast majority (94%) of all initial assessments were carried out in Asia (2019: 84%). 50% of these took place in China (2019: 38%).

 

 

2020

 

2019

Total number of rejections after initial assessment1

 

31

 

49

Share of rejections after initial assessment

 

28 %

 

34 %

Total number of final rejections2

 

2

 

6

Proportion of final rejections

 

2 %

 

4 %

At the end of 2020, the rate of newly visited production sites that were directly rejected was 28% and thus slightly below the value of the previous year (2019: 34%). The inclusion of fewer production sites and their targeted support have helped us to reduce the rate of 'final rejections' to below 2% in 2020. The elimination of problems in the production facilities helps the employees insofar as the standards for better and timely pay, improved performance, a reduction in working hours and legal protection of formal employment contracts shift in their favor, as well as significant improvements in the basic requirements for occupational safety Workplace can be achieved. Suppliers identified with borderline cases are typically given three months to correct the issues before a second final inspection.

Employee engagement and empowerment

Since 2017, we no longer rely solely on local employee hotlines for complaint systems. We have created a software-based 'Workers Voice' platform, a complaint tool for workers that is tailor-made for the respective company. We have gradually expanded the use of this company complaint mechanism, and in 2020 almost 450,000 employees in 111 production sites in twelve countries had access to this system. Two strategic suppliers had to postpone the introduction of the platform due to the coronavirus pandemic. For this reason, we did not achieve our 2020 goal of having the Workers Voice platform implemented at 100% of our strategic suppliers.

A robust grievance mechanism is the linchpin at which workers can raise their concerns so that remedial action can be taken. Access to a digital complaints tool was particularly valuable during the coronavirus pandemic, as 128% more complaints were received from employees. In 2020, nearly 46,000 complaints of labor and human rights violations were filed. The top three concerns raised were benefits, general facilities, and communications. 98% of these complaints were successfully resolved by the management.

Responses received via the Workers Voice platform are carefully tracked by adidas using KPIs and dashboard reviews, complaint satisfaction ratings and employee surveys. In this way, we can evaluate the effectiveness of the complaint channels and monitor important cases in real time so that we can intervene in good time if necessary. It also helps us understand the key challenges and labor law issues in a manufacturing facility and keeping track of how the facility management and their HR teams resolve the cases and communicate their findings. Our rating contributes to the overall rating of the production facility in terms of compliance with social standards. It remains to be seen that the satisfaction rate, which gives employees the opportunity to rate how satisfied they are with the handling of complaints, has risen continuously, from 39% in 2019 to 58% in 2020.

2020 target

 

2020

 

2019

 

2018

'Workers Voice' platform implemented at 100% of the strategic suppliers

 

98 %

 

98 %

 

97 %

In addition to the various complaint channels, we introduced the 'Worker Pulse' project in 2020. This is a digitized short survey with which we record the employees' perception and awareness of their labor rights in certain areas such as communication, harassment and abuse as well as complaint systems. We carried out this digital survey in 63 production facilities in nine countries, and more than 22,000 employees took part voluntarily. The survey was sent to the employees via a smartphone app.

78.6% of respondents said that they would recommend their workplace to friends and relatives as an attractive place to work. 77% felt that complaints made through the complaint mechanisms were taken seriously by management. The factories are required to develop and follow up plans to improve the workplace based on the feedback received through the Worker Pulse.

'Worker Pulse' builds on our existing employee satisfaction survey, which was first started in 2016. This is a comprehensive survey of around 60 questions that helps suppliers gain insights into the workplace environment from the perspective of workers and supervisors and identify areas that need improvement. So the workers z. B. asked for their feedback on the effectiveness and performance of the company's complaint mechanisms, which in turn helps to find ways to improve and further refine these systems.

In addition to the training courses organized by the production facilities, we have also been offering tailor-made training courses as part of the Women Leadership Program (WLP) since 2016. More than 1,300 employees had already taken part in this program by the end of 2019. It includes courses and training units for the exchange of skills as well as the 'Women Supervisor Forum' (WSF), which is intended to give female supervisors the opportunity to deepen their knowledge, learn best practices or receive support information and guidance on various topics to improve their competencies to expand as a supervisor. Due to the global pandemic, however, the opportunities for personal training in the production facilities were severely limited. As a result, only 195 supervisors were able to participate in the WLP training program in 2020, and the expanded rollout of the WSF had to be interrupted.