German institutional investors, in rare move, engage with Adidas on Indonesia supply chain

Sign that greater corporate dialogue is in the pipeline.

German institutional investors have been engaging with Adidas over the sporting goods giant’s supply chain in Indonesia in a sign they are ramping up their dialogue with companies.

Major German institutions have rarely gone public with their corporate engagement activity. But Responsible Investor has learnt that Union Investment, the €224bn Frankfurt-based asset manager, decided to engage with Adidas on labour rights. This coincided with an investigation by an NGO called Südwind.

Südwind claimed it had evidence that two of Adidas’ main suppliers in the country were not paying all of their workers the legal minimum wage. Adidas disputed this, saying the firms involved were “fully compliant” with regulations.

RI understands that earlier this year, Union raised the issue with the company.

Beyond its own responsible investment policy, Union engages on ESG issues with companies for German churches, among other institutional clients. Union owns just under 1% of Adidas, which is based in the Bavarian city of Herzogenaurach.

Südwind’s investigation found that in spite of last year’s increase in Indonesia’s legal minimum wage, Adidas suppliers PT Nikomas Gemilang and PT Glostar Indonesia were not paying all their workers the new wage. In the case of PT Nikomas, some workers received €152.02 a month, or under the €155.24 legal minimum for the region where the supplier is based. PT Glostar, meanwhile, paid some of its workers €100.56 a month, which is below the €103.89 minimum for the respective region.

RI understands that after the problem was brought to Adidas’ attention, the company, which has a policy ofensuring that all its suppliers honour the legal minimum wage, corrected it.

But RI has also learnt that Union Investment was not the only big shareholder to engage on the issue. Another is the €3bn Evangelical-Lutheran Church of Bavaria (ELK), which has €3bn in assets. Contacted by RI, both Union and the ELK declined to comment.

For its part Adidas, denies it intervened with PT Nikomas and PT Glostar. “Both PT Nikomas and PT Glostar have been fully compliant with Indonesia’s legal minimum wage. Therefore, no intervention was needed from us,” said Silvia Raccagni, Adidas’ spokeswoman for sustainability issues.

But she did confirm the company was approached and met with some of its investors regarding the two Indonesian suppliers. She said the company was able to produce evidence showing that the two suppliers were adhering to the minimum wage.

The episode offers a rare glimpse into how German church investors engage on ESG issues. And it may also be a sign of things to come, as RI understands that the ELK, together with several other Protestant church institutions, are in the midst of agreeing a joint responsible investment policy that would include heightened engagement.

According to a source from Germany’s Protestant community, this group of church investors would represent €30bn in assets. “That’s considerable, but my expectation would be that, because of its size, Union Investment would handle the engagement with companies for the group,” said the source, who asked not to be identified.

Union has €60.4bn under management for institutional clients like churches.