ESRS 2 General Disclosures

SBM-2 – Interests and views of stakeholders

Is reported under ESRS 2 SBM-2

SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model

The adidas business model is based on an outsourced global supply chain that extends upstream from strategic manufacturing partners to component and materials suppliers to raw material sources, such as cotton, leather, and natural rubber. Due to the nature of our business operations, we do not have direct dependencies on affected communities and therefore do not have any material risks or opportunities related to affected communities in our supply chain.

We are linked to the employment of hundreds of thousands of workers through our third-party partners, contract manufacturers, and licensees. We know that potential impacts could occur in communities living or working around our own operations. However, we recognize that the most adverse human rights impacts on affected communities are most likely to occur through our upstream supplier relationships. adidas has identified two topics where material potential impacts on affected communities can occur; these relate to access to clean water and sanitation and impacts on human rights defenders.

Potential impacts on access to clean water and sanitation

Although occurring very rarely, there are potential impacts on access to water and sanitation that can occur in the Tier 1 upstream supply chain, where facilities with large workforces consume water for non-production purposes including cooking, cleaning and sanitation, which may be supplied from groundwater. Tier 2 suppliers that carry out leather tanning and fabric washing and dyeing also use water-intensive wet processes that consume large amounts of water and chemicals and generate large volumes of wastewater effluent. As a result, there may be potential environmental impacts that could affect surrounding communities, including but not limited to:

• Depletion of groundwater levels, limiting community access to sanitation and clean water.
• Pollution of surrounding water bodies and soil due to the discharge of large volumes of wastewater.
• Generation of hazardous waste, e.g., chemical waste and sludge from treated wastewater.

We have adopted a strategy to promote water efficiencies and deploy mechanisms to prevent water pollution from chemicals, effluents, and hazardous waste, so as to minimize possible impacts on affected communities. These measures include ensuring that our policies set out clear requirements for legal compliance with environmental permits and for regular monitoring of water extraction, wastewater treatment and disposal, hazardous chemical management, and waste handling. We also implement monitoring, remediation, and enforcement actions at our suppliers.

For more information on pollution and chemical management see E2 – Pollution. SEE E2 POLLUTION.

Potential impacts on human rights defenders

In the context of adidas’ own operations and the business activities that occur in our supply chain, we recognize trade union organizers, environmental interest groups, human rights campaigners, and labor rights advocates as human rights defenders (HRDs). They can be of any gender, any age, from any part of the world and with different backgrounds and different interests. In our supply chain, the greatest potential for adverse impacts on HRDs occurs in our direct upstream supply chain, where HRDs, such as trade unionists and labor rights advocates, may have been unfairly dismissed or otherwise discriminated against by their employer (Tier 1 supplier). Adverse impacts on HRDs include cases in which threats, intimidation, violence, retaliation or reprisals against human rights defenders are committed by actors with whom we are involved, either through our own operations or as a result of our business relationships.

Over the past five years, we have intervened and sought the reinstatement and/or financial compensation for over a dozen trade union leaders and organizers whom we consider to be HRDs, where we found that they had been unfairly dismissed, discriminated against, or intimidated in breach of our Workplace Standards. These cases were identified through our own monitoring activities, investigations triggered by worker complaints, or grievances received from external advocacy groups or trade unions. Worker reinstatements have taken place in sourcing locations including Cambodia, El Salvador, Indonesia, and Turkey. We have also actively supported advocacy groups to operate freely in contexts where they have been targeted by government restrictions.

We have applied a consistent approach to addressing potential or actual adverse impacts on HRDs, which has not necessitated adapting our business strategy as a result. For more details on this approach, see our Human Rights Defenders Policy.

Affected communities in our value chain

We included and considered all affected communities that could be impacted through our business operations or the business activities occurring in our supply chain. However, due to the nature and location of our own operations (e.g., corporate offices, retail locations, distribution centers, etc.), there is limited potential impact on communities living or working around such sites. The types of communities who are most likely to be impacted by our own operations or as a result of our business relationships in our upstream supply chain are:

• Human rights defenders: HRDs may be considered an affected community in and of themselves (see above for the groups that we consider to be HRDs). Additionally, we acknowledge that athletes and players can sometimes assume the mantle of HRDs.
• Communities potentially affected by water/sanitation impacts:
  • Local communities living or working around our own retail operations and distribution centers.
  • Local communities living or working around the factories, facilities, or other physical operations of our business partners in our upstream supply chain (e.g., Tier 1 suppliers, Tier 2 suppliers, etc.).
  • Local communities affected by the operations of suppliers’ facilities as a primary area of potential impact; these would be the most affected by negative impacts, and to a lesser extent, those affected by the activities of logistics or distribution providers who are responsible for transporting adidas products to market.

We have limited visibility and leverage over the endpoints of our value chain (e.g., harvesting of raw materials, waste/recycling sites) and only a limited direct impact on affected communities, including Indigenous Peoples. However, we recognize that there is potential impact on communities related to water/sanitation at both of these endpoints that may reduce community access to both the quality and availability of water, including: water usage for raw material commodities, including cotton and cattle (leather); the usage of water in processes related to recycling materials, including recycled polyester; and other related impacts not yet identified in our upstream due diligence system. We also recognize that there may be potential adverse impacts on HRDs at the far upstream endpoint of the value chain (e.g., raw material harvesting) as it relates to HRDs advocating for local livelihoods or land rights and their ability to do so without interference from producers or other actors, this includes vulnerable groups such as Indigenous Peoples.

Any material negative impacts that occur are typically individual incidents. This may include, for example, isolated incidents in our supply chain where we have found HRDs to have been unfairly dismissed, discriminated against, or intimidated in breach of our Workplace Standards. Negative actual impacts related to water and sanitation have also been individual incidents, such as local community reports of improper waste disposal in communities near supplier facilities. Such reports are investigated, and facilities must take immediate remediation actions.

Our stakeholder engagement allows us to develop a better understanding of how affected communities may be at greater risk of harm. To facilitate engagement with affected communities, we maintain an active, open, and ongoing dialogue with local and international non-governmental organizations (NGOs), labor rights advocacy groups, human rights advocacy groups, trade unions, investors, analysts, national and international government agencies and academics. This helps us gain local insights to identify and address the most important impacts that our upstream business activities can have. adidas’ stakeholders are a diverse group, which translates into a diverse range of engagements, some of which are continuous and span many years, and some of which are targeted, based on current issues or trends requiring critical feedback.