Investment Recommendation Memo

TO:            Profes

TO:                Professor Clark Hansen, CEO, AMDP

FROM:         Scott Kunihiro

DATE:           March 1, 2019

SUBJECT:    Investment Recommendation Memo

As a member of Anima Mundi Development Partner’s Research and Development, I am tasked with recommending socially responsible, environmentally sustainable, and profitable businesses as possible investment or funding opportunities. Here at AMDP, we proudly support social entrepreneurs and enterprises who are focused on supporting local living economies. After extensive consideration, I strongly recommend that AMDP consider Adidas, a renowned global footwear and apparel manufacturer.

AMDP Investment Standards

Triple Bottom Line

Consisting of 4 P’s, the Triple Bottom Line is a holistic, ethical framework that expands the evaluation of a firm from its financial profitability by incorporating the organization’s social and environmental impact. This approach allows the company to view its effect on not just shareholders, but all who are influenced by the organization’s actions and activities.

Profit: considers the financial inflows and outflows of the company, like that of a traditional accounting framework.

People: refers to the just and beneficial business applications concerning its inter-reliant human capital; such as the firm’s workforce, consumers, and community.

Planet: measures the efforts to minimize the harm caused by such operational activities, implying its degree of environmental awareness.

Corporate Social Responsibility

The societal awareness and impact of the firm. This can be expressed through a business’s values, policies, and operations, further exhibiting its commitment to the well-being of its societal stakeholders.

Social Enterprise

An organization that deploys profitable strategies while raising awareness and achieving objectives to address and influence societal and environmental issues at local, national, and global levels.  

Carbon Footprint

A Carbon Footprint is a product’s or organization’s cumulative emission of greenhouse gases: “Carbon Dioxide (CO₂), Methane (CH₄), Nitrous Oxide (N₂O), HFCs, PFCs, and SF₆” (Carbon Trust). Carbon Footprints are calculated by measuring greenhouse gases that are emitted when producing a product or service. The reduction of carbon footprints is imperative for individuals and organizations alike as the influx of emissions are largely attributed to environmental harm and climate change in particular. Thus, strong efforts to repurpose waste and minimize its carbon footprint must be apparent as AMDP would not invest in an opportunity that does not clearly shares values of social and environmental responsibility.

Adidas

Founded in 1949, the German-based company is a multinational company that manufactures footwear, apparel, accessories, and sporting goods. Adidas also consists of Reebok, a sportswear business and retailer, as well as TaylorMade, a golf sporting goods and apparel producer. Adidas claims to outsource the majority of its production to form a supply chain that spans 55 countries, constituting its global influence (Adidas 1). With revenues growing to 21.22B in 2017 at a 14.8% growth rate and increased capital expenditures, Adidas is reinvesting in themselves and the future.

For the People

Adidas takes pride in being a social responsible corporation, maintaining transparency through consistently high rated Ethical Fashion Reports and achieving recognition for its strong supply chain disclosure. The global giant is the “only one of five major footwear brands to disclose activities to address forced labor in specific countries” (Hymann).  In 2016, the Australian Fashion Report assessed and graded over eighty companies in 4 key elements of the labor rights management system:

4 Key Elements of Employment	Grade
Policies	A+
Knowing Your Suppliers	A
Auditing & Supplier Relationships	B+
Worker Empowerment	B
Overall	A-

          (Baptist World Aid 6)

Adidas raised its mark from the B+ received in 2015, showing its outstanding commitment to labor policies and suppliers. Furthermore, Adidas is a member of the Fair Labor Association and as such, the company allows the FLA to conduct “unannounced audits” of every one of its factories whose results are then compiled and published online. By establishing an agreement with the FLA, Adidas further exemplifies its efforts to providing just wages and working conditions for all of its employees. The improvement and performance in the aforementioned reports also suggest the company is continuously making strides to improve them on a year-to-year basis.

Environmental Consciousness

In response to the growing environmental consciousness, specifically toward manufacturers and their impact, the company launched its Green Company Program in 2008. The company-wide initiative set a framework for addressing such social and environmental effects caused by their processes. For instance, Adidas developed a series of objectives to tackle environmental sustainability:

KPI	2020 Target	2017 Incremental Achievements
Energy & Carbon	Reduce absolute CO2 emissions by 3% annually	29% accumulated absolute CO2 emission reduction
Water	35% water savings per employee	27% accumulated water savings
Waste	50% diversion rate in owned operations Reduce paper per employee by 75%	37% accumulated diversion rate 48% accumulated reduction

           (Adidas 2, 6)

Adidas progress regarding its pledge to enabling Carbon Neutrality by the end of 2020 has been aided by regular monitoring of emissions along its supply chains. Green tariffs and renewable energy use have also helped the company’s strides. The company’s compliance with UN Climate Neutral Now has casted it in a positive light among multinational companies due to the accompanying obligation to persistently “measuring, reducing, and offsetting” their carbon releases (Adidas 2, 7).

Their efforts in water conservation are noteworthy, accumulating 27% in accumulated water savings per employee in 2017. With its use of metering, the company has been able to monitor irrigation efficiency. The importance of avoiding unnecessary usage is also emphasized in employee education helping the company make significant progress toward their goal of 35%.

In terms of waste reduction, the company is on track to meet its 2020 target for diversion. However, it has underperformed in its reduction of paper usage. Adidas attributes this setback to “increased shipping volumes at the Distribution Centers” (Adidas 2,  4).

Sustainable Collaborations

As an industry leader, the company understands its influence on consumer behavior and promises to promote environmental issues. Adidas is a founding member of the Better Cotton Initiative, a non-profit organization which encourages increased standards in the farming and production of the industry commodity. Since it aligned with BCI, Adidas has regularly exceeded Better Cotton sourcing benchmarks (Adidas 3, 24).

In 2016, Adidas secured a partnership with Parley for the Oceans, an environmental services non-profit focused on ocean preservation and eco-sustainability. Together, they’re pioneering the reduction of marine plastic pollution through fashion and education. The two initially joined to develop a line of sneakers; each is composed of 95% recycled plastic bottles sourced Parley for the Oceans. However, after successful shoe lines, the two have expanded their collaboration to sportswear and apparel. To promote awareness of marine waste reduction, they’ve launched the “Run for the Oceans” campaign; hosting a series of running events in major cities across the U.S., Europe, and China. For the campaign, Adidas pledged to donate $1M to Parley for the Oceans. The collaboration has also developed jerseys for professional sports teams in Major Leagues Soccer and for the National Hockey League’s 2019 All-Starr Game and Skills Competition.

My Recommendation

Although AMDP may prefer a smaller company for investment, I believe that, given our investment criteria, Adidas presents an exciting and impactful investment opportunity. The company exemplifies our socially and environmentally responsible requirements and shows continual effort to improve despite exceeding multiple compliance standards. Even if Adidas has underperformed in reduced paper use relative to their projections, AMDP could monitor the paper use throughout its supply chain as the manufacturer should rely on digital or non-paper resources to meet this target. By investing in Adidas, AMDP could obtain a unique opportunity to pioneer social and environmental change through fashion, education, and popular culture.

References

Adidas. “Supply Chain Structure.” Adidas. Web. Accessed on 4 March 2019. https://www.adidas-group.com/en/sustainability/

Adidas. “2017 Green Company Performance Analysis” Web. Accessed on 4 March 2019. https://www.adidas-group.com/media/filer_public/

Adidas. “2016 Sustainability Progress Report” Web. Accessed on 4 March 2019. https://www.adidas-group.com/media/filer_public/

Baptist World Aid. “The 2016 Australian Fashion Report” Baptist World Aid. Web. 20 Apr. 2016. https://baptistworldaid.org.au/wp-content/uploads/2016/

Carbon Trust. “Carbon footprinting guide” Web. Accessed on 2 March 2019. https://www.carbontrust.com/resources/guides/

Hyman, Y. “Nike vs Adidas – Who’s More Ethical?” Good on You. Web. 9 Apr. 2016. https://goodonyou.eco/nike-vs-adidas-whos-more-ethical/