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| 3 minutes read

Nike urged to do more to prevent human rights abuses from occurring in its supply chain

The activist investment platform Tulipshare recently filed a shareholder proposal urging Nike to adopt stronger environmental and social commitments, particularly in relation to preventing human rights abuses from occurring in its supply chain.

Tulipshare, which owns 276 Nike shares, is notable for its involvement in other causes, such as lobbying for Amazon workers’ rights and urging Apple to introduce fair and accessible repair policies.

Tulipshare’s proposal asks Nike to issue “a report to shareholders assessing the effectiveness of its existing supply chain management infrastructure to ensure alignment with Nike’s equity goals and human rights commitments”. It recommends the report includes:

  1. an assessment of whether Nike’s existing policies and implementation mechanisms “ensure alignment throughout the value chain”;
  2. methodology and metrics “to track and measure performance on forced labour and wage theft risks”;
  3. a review of whether Nike’s practices are consistent with the OECD Guidelines, UN Guiding Principles on Business and Human Rights and the UN Sustainable Development Goals;
  4. consideration of the American Bar Association Model Contract Clauses on human rights in the supply chain (the “MCCs”); and
  5. whether the assessment undertaken by Nike results in any “changes to company policies, decision-making and implementation mechanisms”.

Human rights shareholder activism

Nike is not alone in receiving ESG-related proposals from activist shareholders. Between 2016 and 2022 activist campaigns with an environmental or social objective tripled as a proportion of campaigns overall (from 10% to 31%).[1] Stakeholder attention appears to be moving beyond low-hanging fruit (e.g. the largest fossil fuel companies) to target a broader range of corporates. Activist shareholders range from institutional shareholders to full-time ESG activists such as Tulipshare.

Whilst the emphasis has largely been on climate-related activism to date (spearheaded by the so-called “Say on Climate” votes, launched in 2020, which request that corporate transition plans are put to a shareholder vote annually), Tulipshare’s proposal indicates that investors and shareholders will increasingly look to hold businesses to account for their human rights records. The growing range of voluntary and mandatory ESG disclosures (many of which touch upon human rights-related issues) might provide opportunities for activists looking to apply pressure on companies, and businesses can expect any public statements, targets or commitments that they make regarding these issues to be carefully scrutinised.

The rise of the ‘S’? 

The initial focus of shareholder activism on climate-related issues is perhaps indicative of a greater focus on the ‘E’ in ‘ESG’ historically. However, thought is increasingly being given to ‘S’ issues, driven in no small part by legislative developments.

When commenting on the proposal, Tulipshare made reference to the draft Corporate Sustainability Due Diligence Directive (“CSDD”), which we discussed in detail in December last year (see here). Tulipshare noted that the CSDD will require companies like Nike to identify, prevent, end or mitigate adverse impacts on human rights. The CSDD, in its current form, will require companies to investigate their own operations, those of their subsidiaries, and also those of their business partners where they relate to a company’s chain of activities. Companies will be required to take “appropriate measures” to address adverse environment and human rights impacts. This includes seeking contractual assurances from certain business partners, and cascading that requirement down to other businesses in the company’s chain of activities.

Tulipshare likely had this requirement in mind when requesting that Nike considers including the MCCs in its supply chain contracts. The MCCs provide for a regime of human rights due diligence, requiring the contractual parties to take steps to identify and address adverse human rights impacts. The clauses encourage remediation of human rights harms over typical contractual remedies (such as monetary damages).

The Tulipshare proposal, and more generally the CSDD, represents a shift from a relatively passive approach involving transparency through disclosures to more proactive intervention. Businesses will soon be expected to conduct effective due diligence and move swiftly in addressing material social and environmental impacts which may arise from their own operations or from within their value chains. This will likely require expending considerable resources and investing in expertise to understand and monitor a company’s social impact.

There is no need to wait to be prompted by a proposal from Tulipshare either – for larger companies that are likely to fall within scope of the CSDD, it is worth spending some time now thinking about where “adverse impacts” may occur, both within a company’s own operations and in its value chain. Resources such as the MCCs may prove useful in prompting discussions about effective supply chain management and could be thoughtfully tailored to a company’s needs as appropriate.


[1]Shareholder Activism in Q1 2022 (April 2022).