Nike - scope 3 decarbonization

The Story

In 2015, Nike, the world leader in footwear and apparel had a vision - but not a plan. The company wanted to be a trailblazer in its use of clean energy. Not just in its owned and operated facilities, but also for its scope three supply chain emissions. To bring its vision to life the company partnered with Eric Jen, Founder and CEO of Ren, to explore how it would be possible to transition its supply chain to renewable energy. The result? In 2018 Nike was rated #1 in the world for its corporate renewable energy program and its approach to tackling scope 3 emissions. The secret? Aggregation.

Nike works with 12,000+ factories in 36 countries, making it logistically impossible to take the whole supply chain renewable one facility at a time. More importantly, aggregating a portfolio of factories into a single Request for Proposal (RFP), and releasing that RFP to the market as a single development opportunity, provides several economic and financing benefits. But how to go about it? How do you go from no plan at all to #1 in two years? And once you’ve got a plan, how do you execute? That’s where Ren comes in.

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The Process

The process for Nike began with a series of questions: how many facilities do we have? What is in scope? How do we, Nike, define “renewable energy”? Is “additionality” a requirement for our renewable energy projects? What are our top priorities? These questions and more were part of an in-depth discovery process whereby the company came to understand the extent of its opportunity, and where exactly it wanted to draw the line between what it could pursue and what it couldn’t - at least to start. Nike decided in 2016 to pursue renewable energy projects at the factories it envisioned partnering with for years to come, what the company called its “Focused Factory List”.

Once the opportunity was clearly scoped the real outreach and number crunching began. Eric helped organize and lead the Nike team through interactions with everyone from managers on the factory floor to leaders of the factory groups, and a number of stakeholders internal to Nike. Through the interactions Eric helped Nike acquire the energy data and buy-in necessary to make the effort a success. Then, with data in-hand, Eric worked with contacts at the National Renewable Energy Laboratory (NREL) to analyze and understand which renewable energy technology made the most sense for groups of factories, and what the economic opportunity was for each technology. In the end Nike received a clear roadmap detailing the next steps in its renewable energy journey. The key pillar found throughout that roadmap was then a novel concept - aggregated portfolios.

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Aggregated Procurement

The first step of Nike’s journey to scope three decarbonization was decarbonizing some of its key suppliers in China. To do so Eric identified a portfolio of facilities with credit rating and energy use to warrant renewable energy procurement. One of the benefits to aggregation is that smaller facilities or facilities with lower credit ratings can be grouped with larger or more creditworthy facilities so all of them can take renewable action simultaneously. Though the ultimate goal of the endeavor was to improve economics and decrease carbon emissions, crafting the RFP and analyzing the received bids required several considerations outside just asking for the lowest electricity price.

Crafting any renewable energy strategy, and its associated RFPs, is as much art as it is science. The science comes from the predictable number-crunching and financial hurdles that must be met by any commercial project, but the art lies in understanding how the grey area of local policy, customs, technological maturity, and developer experience play into the ability to hit those financial hurdles. Eric helped guide Nike through the confusing mix of policy headaches and industry jargon to identify which renewable choice made sense for this first RFP, and landed on rooftop solar. Given land constraints, the fact that the factories were spread across different grids, resource availability, and other factors, the RFP was launched in search of a local developer large enough to install panels at locations across the country while benefiting from the economies of scale inherent in moving on many facilities at once.

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To guide the developers in their bids Nike and Eric provided specifics about the projects' required commercial structure and technical requirements. They also made it clear that the factory groups, including companies like Feng Tay, Pou Chen, and Ching Luh would be paying the newly reduced electricity bills, not Nike - an important clarification when Nike is the one publishing the RFP. The bidders were also provided with information regarding the factory locations, schematics, site visit dates, roof condition, and general specifications for constructing and operating on and around each factory. All these factors naturally needed to be scoped and understood ahead of time to result in a successful RFP process, setting the groundwork for a long and prosperous partnership between Nike, the factory, and the renewable energy developer.

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The China RFP was released in the fall of 2018 and helped solarize fourteen different factories. China was followed closely by similar RFPs in Vietnam (16 factories) and Indonesia (12 factories). These RFPs were the most complex as they aggregated across multiple factory ownership groups, but there were many many more that Eric released as well. During his time working with Nike, Eric fulfilled RFPs in Brazil, Italy, Bosnia, India, Sri Lanka, Turkey, Jordan, Egypt, Mexico, Honduras and more. By 2018 Nike’s supply chain was sourcing 18% of its energy from renewable sources, no small feat given the lack of data or direction when Eric joined in 2016. Each RFP released was unique in its considerations of local policies, resource availability, level of factory participation, and how those all factored into the economic thresholds required by the portfolios. Through the process of releasing RFPs, analyzing bids, and preparing PPAs Nike and Eric gained valuable insights into how renewable energy projects come to succeed with suppliers, experience they’ve each been building off of ever since.

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Conclusion

Nike has continued to make progress on its goals despite changes and challenges along the way. The original roadmap has required some updating along the way to account for changes in policy and advances in technology, but overall the aggregated approach makes more sense today than it ever has. Countries and companies continue to set increasingly ambitious carbon goals. For those driven organizations who are moving in the same direction, towards the same goals, it only makes sense logistically and financially to do so as a group. Aggregated procurement enables the scale and speed necessary to move brands and the planet towards a decarbonized future. Nike reached #1 by embracing that truth… will your company be next?

Ren is built off of these foundational lessons. Our company was built to spread this approach across as many companies as possible, and has built the technology and the team to do so. Contact us today to learn more about how we can empower your business to achieve carbon neutrality.

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