LONDON/NEW YORK: Investor pressure on Nike is building ahead of Tuesday’s annual shareholder meeting, with Norway’s sovereign wealth fund pledging to back a resolution demanding the company consider ways it can improve working conditions at garment factories.

Nike is struggling with sliding sales and also faces criticisms over its supply chain. Investment research firm MSCI downgraded its ESG (environmental, social and governance) rating for Nike in 2022 and 2023, and rates it as a “laggard” on supply chain labor standards.

The resolution proposed by a group of investors including Domini Impact Equity Fund says current approaches in the industry “often fail to identify and remedy persistent rights abuses such as wage theft, inadequate health and safety or gender-based violence.”

Domini was among more than 60 investors last year to sign a joint letter to Nike urging it to pay $2.2 million in wages to workers at suppliers in Cambodia and Thailand whom rights groups said were denied severance pay owed to them after factory shutdowns during the pandemic. Reuters could not independently verify the allegations, and Nike has denied them.

In a statement, Nike said its corporate governance team had been in touch with all the co-filers of the resolution.

“We greatly value the opportunity to engage with and solicit feedback from our shareholders, and we believe that maintaining an open dialogue strengthens our approach to corporate governance practices and disclosures,” it said.

The resolution reflects a push from some investors for Nike to create binding agreements with workers at factories and suppliers in countries where worker exploitation is a problem.

It asks Nike to consider whether binding agreements with workers would improve its ability to address human rights issues when sourcing from high-risk countries.

Nike sources from five factories in Pakistan, according to its own supply chain disclosures, yet it is not a signatory to the Pakistan Accord, a binding health and safety agreement between workers’ unions and brands that peers including Adidas and Puma have signed.

‘TOTAL SILENCE’

Several investors told Reuters that Nike’s lack of response to the 2023 letter, and to requests for meetings, were concerning.

“The total silence is the thing that worries me,” said Frank Wagemans, senior engagement specialist at Achmea Investment Management in the Netherlands. “We signed the joint investor letter last year, we also reached out to Nike ourselves and we didn’t get a reply which was quite astonishing to me because supply chain is probably the key ESG topic for Nike.”

The decision by Norway’s fund, Nike’s ninth biggest shareholder, went against recommendations by Nike’s management for shareholders to reject the resolution.

Nike has also urged shareholders to reject a separate proposal from investor Tulipshare, which urges Nike to assess the effectiveness of its supply chain management.

Tulipshare made the same proposal at last year’s shareholder meeting, where it won support from 11.7 percent of voters. Norway’s fund has said it will not support the Tulipshare proposal.

Shareholder advisory firms Glass Lewis and ISS also recommended voting against both resolutions.

Frankfurt-based Union Investment said it would back both proposals.

“We would like to see concrete efforts to enhance Nike’s understanding of gaps in its strategies to mitigate legal, reputational, and human rights risks,” said Janina Bartkewitz, ESG expert and analyst at Union Investment.

“Protecting vulnerable workers is of paramount importance.”

Marie Payne, responsible investment officer at Cardano in London, said new regulations like the European Union’s Corporate Sustainability Due Diligence Directive increased the need for companies to strengthen supply chain practices and to report on their efforts.

If any of the proposals get 20 percent of votes or more, that would send a signal to Nike that these issues are important to shareholders, said Caroline Boden, director of shareholder advocacy at Mercy Investments.

“Part of the strategy is to get the attention of the company, but another part is to signal to other shareholders that there’s a group of investors that perceives this issue as material, and which could pose further risk to the company,” she said.