Green Wash Accounting: Ernst & Young Audit of Nike Corporate Plant in Vietnam Prompts Positive Steps from Green Wash to Green Initiatives
David M. Boje
23 October, 1999, Last Revision Dec. 8, 1999

Green Wash Accounting is defined as making it appear to the public that green accounting is going on, when it is just a story told to keep customers, investors, and regulators at bay.

We begin with a well-documented analysis of the Nike Corporation whose Green Wash came to light when their contracted Ernst & Young Environmental Audit of a Vietnam sneaker plant was released to the public.  Nike is a transorganization, a network of 450 subcontracting factories, NikeTown outlets, subcontracts to FootLocker and numerous other outlets, contracts with sports teams to wear Nike logos and apparel, including contracts with university athletic programs.  Nike employs 450,000 workers of which 85% are women.

We also look at Intel in New Mexico, McDonalds and other cases involving Green Wash.  In each case, as public exposure brought the Green Wash practices to public attention, the corporation did attempt to move from Green Wash to Green, with varying degrees of success.

Each case appears to follow the following steps toward Green Enlightenment, from denial, Green Gloss (the second stage of Green Wash) to awareness, acquisition, to actual implementation of Green Accounting. In short, a transition from functionalist environmental (denial, risk limitation, and green wash) accounting to green accounting practices.

FIRST CASE: NIKE - This is a case study of Nike Corporporations' awakening to the need to use Green Environmental Accounting (EA).  The Nike Corporation now reports on its web site that it has implemented Green EA practices to deal with key Environmental Problems: RESPONSE 1 - From 1960 to 1992. Nike engaged in Response 1: Denial. Nike blamed any an all environmental and labor problems on 450 subcontractor firms. Nike claimed it had a Code of Conduct (press here) and subcontractors were not in compliance.  
RESPONSE 2 - From 1992 to 1996 Nike engaged in Response 2: Threshold awareness. Nike hired 800 public relations experts which they dispatched to produce counter-stories. They hired Ambassador Andrew Young to write studies to counter charges and studies of activies.
RESPONSE 3 - From 1996 to 1998 Nike is engaged in a Limited Response 3: Strategic Awareness. Environmental and social audits (limited) have been conducted by major accounting houses, but no changes were implemented in any environmental agenda until the release of the Andrew Young audit by a "disgruntled" Nike employee to the press was a major source of embarrassment to Nike. It has resulted in front page articles, ESPN reports on television, and is the subject of movies, such as Michael Moore’s "The Big One." This is the first time that an accounting firm's labor and environmental audit of any apparel company has ever been made public.

RESPONSE 4 - Strategic Acquisitiong of environmental aduting. Nike had audits for several years before the realse of the 1997 report, but the major activities in enaivonrmental action began in 1997 and continue to the present moment.   At least, I assume this is when Nike took proactive control over its supply chain and 450 sub-contractor plants to change labor and enviornmental conditions at the factory level.

RESPONSE 5 - Flagship Implementation towards Sustainability seems to have happened at an accelerated rate in 1998 and 1999.  The scale of activities has intensified and Nike is now making its bid to do all the documentation required to become ISO 14000 certified.

Environmental Auditing Case Study
I am including excerpts from the "Ernst & Young Environmental and Labor Practice Audit of the Tae Kwang Vina Industrial Ltd. Co., Vietnam," 6 January 1997 below. To read the entire report including copies of letters from Ernst & Young to Nike and Nike to TRAC press here. I would also like to begin by listing academic univeristy scholars who have looked at enivironmental and labor practices of Nike in its Asian factories. Much of their work is on the web.  
Figure One: Nike Product Life Cycle (Source press here).
The Nike Life Cycle reads "The path a Nike shoe runs from design to manufacturing to marketing to post consumer use can be compared to any type of athletic endeavor. Each step, from selecting  the right gear to teaming together, is as important as the next in  meeting the sporting challenge." As a transorganization, "Nike has also teamed up with manufacturing partners and materials suppliers  to develop lists of materials and chemicals that eliminate commonly used substances known or suspected to be harmful to human and/or ecological systems." This is step #1 on the illustrated model. One result of this team-work at step #2 is "replacing conventional cotton with organically grown cotton in various apparel items." Another tangible result is "Nike's own patented REGRIND® technology reuses the excess rubber from our outsole molds, a program that keeps millions of pounds of solid-rubber waste out of landfills each year."  Nike also reports "Moreover, we're freshening up footwear production methods by replacing volatile organic petrochemical-based solvents with cleaner water-based alternatives." 1.3 million gallons of solvents have been reduced from their process. To box its shoes at #3 in the chart, Nike "created a 100 percent post-consumer recycled corrugated cardboard design."  At Step #4, Nike helps consumers recycle, "Reuse-A-Shoe has already kept more than 7.5 million post-consumer and defective shoes out of landfills." Finally, in step #5, downcycling, Nike uses the collected sneakers and save rubber scraps in various projects: "We grind up the shoes you bring back through the Reuse-A-Shoe program and  make carpet padding, equestrian trails, basketball and tennis courts, running tracks and playground surfaces."

In sum, in all these ways, Nike uses its transorganizational relationships with research firms, suppliers, subcontract factories, retailers, and consumers to effect positive changes in its environmental practices.  Nike's new 1999 environmental policy is "We at Nike are implementing the idea of sustainability into our business practices" (press here for source).

"Nike will eandeavor to -

In short, between 1997 at the time of the release of the Ernst and Young environmental audit and 1999 with the revised environmental policies on Nike's web sites, it would appear that Nike has moved from Response 4 - doing enviornmental audits to Response 5 - flagship implementation of those audits.

I would like to suggest that the realease of the Ernst and Young audit to the media and into consumer and investor awareness was a stimulus to this transorganizational change and development.  It represents a major change by 450 factories, hundreds of firms in the supply chain, NikeTown, Footlocker and other outlets who together recycle two million pairs of shoes a year, and reduce the use of millions of gallons of solvents. Nike tells its saga of environmental enlightenment as dating back to 1993.  Nike, for example, " has over 85 Reuse-A-Shoe collection partners in 13 major metro areas across the US" (press here for source document). Nike indicates it began its MESH program in 1998, which just follows the release of the Ernst & Young environmental audit.

Nike dates many of its initial enviornmental efforts to 1993: The current 1999 efforts include the Airt To Earth (ATE) program of Nike training of grade school students in the U.S. in the manufacture of its athletic shoes. It is in the area of improved reputation that Nike has the most to gain from moveing from Response 1 - Deinal, to Response 2 - Green Wash onto Response 5 - Flagship Implementation of ISO14000 and ISO14001 environmental practices throughout its transorganizational network of suppliers, manufacturers, distributors, and sports team relationships.  While I contend that the public release of the Nike Ernst & Young environmental audit in 1997 accelerated Nike's interest in improving its environmetnal reputation, Nike says otherwise. For example instead of saying it is using less toxic or non-toxic solvents, Nike's story is it is doing it for the consumers' allergies to chemicals: Nike works with two consulting firms to implement its ISO14000/14001 certification: In sum, Nike is moving rapidly to change its public image of its labor and enviornmental practices by implementing environmental auditing recommendations of Ernst & Young, NGO recommendations by Dara O'Rourke and others, and seeking ISO certifications.

Academic Studies of the Nike Environmental and Labor Practices Initiatives - There is a growing list of Academic researchers who are studying Nike's environmental and labor practices. They are comparing Nike documents with statements collected in interviews and media reports on Nike behavior.  Here is a list with links to many of their studies.

OTHER ITEMS TO CONSULT FOR BACKGROUND BEFORE CONTINUING Where the Major Shift Happened In Nike's New Environmental Strategic Posturing

In what follows, I also intersperse photo from Dara O'Rourke, TRAC Research Associate and United Nations consultant, who was able to  independently document conditions at the site of the Ernst & Young audit, the Tae  Kwang Vina factory in Vietnam. Mr. O'Rourke conducted walk-through audits of environmental and working conditions, interviewed management personnel, met with Tae Kwang Vina's managing director and interviewed workers confidentially outside the factory.

The critical PR issue for Nike is that its "Code of Conduct," was apparently not being followed. The release of the Ernst & Young environmental audit to the public called into serious question the relationship between what Nike's officials said it was doing and what auditors found in this factory, dangerous working conditions that persisted even with audit reports from several prior years.

Above "Photo" by-Paul Kitagaki Jr. of Oregonian is first day at work at Nike-Vietnam Factory.

Background. In November, 1997, Corporate Watch's parent organization, the Transnational Resource & Action Center (TRAC) released a secret, internal Nike document which had been leaked to Corporate Watch.  According to Corporate Watch (press here) "The hard hitting critique of Nike's Vietnamese  sweatshops also generated a series of scathing articles and columns on the business pages and sports pages of newspapers across the U.S. and around the world." There were 33,000 letters from concerned customers sent to CEO Phil Knight after the news reports.

Before beginning the case study, I need to reiterate what Dara O'Rourke (1997) reported:
Shortcomings of the Ernst & Young Audit (press here) -- for full text.

Ernst & Young Audit Report Excerpts (press here for original). Note: Despite methodological flaws, the report does come to a number of striking conclusions about the working conditions inside Tae Kwang Vina. The following are direct quotes from the origial Ernst & Young Audit Report::

I. Site
The total Vietnamese workers as of December 1996 was approximately 10,000. (200 office staff; 335 supervisory levels and 9,465 worker). The average age of the workers ranges from 18 to 24. Majority of them are recruited from Bien Hoa City and adjacent cities within 10 km distance from the factory.
II. Production facility compliance and waste tracking system
Improvements can be done on the following points noted to comply more with the Vietnamese Environmental Regulations and to improve the environmental and working condition of the employees.
1.In Stitching shop, the number of workers is enormous (approximately 2,000 persons) but there are only 4 main doors which are not sufficient. The electrical ventilators and natural air booths can not reduce too much heat and dust inside.
2.In Mixing chemical warehouse, ventilation system (cyclones) does not work efficiently and requires repair to reduce dust of harmful chemical powders that can affect workers' health.
3.In P.U. Shop, harmful fume (caused by Toluene used for out-sole cleaning) needs more of VT's attention.
Protective equipment (PE)
Personal protective equipment (gloves, masks) are not daily provided. In many places, workers do not wear protective equipment for reasons cited by the workers as follows:
1.Protective equipment are inconvenient in performance of their work.
2.Ventilation in shops are not adequate causing more discomfort for wearing PE.
3.Absence of strict implementation of PE's usage.
4.The workers' inadequate understanding of the harmful effect of chemicals.
Black smoke fumed from the stack
Firing non-reusable garbage in combustors caused exhaustion of black smoke into the air. The company should consider that matter and accelerate measures and application to reduce black smoke.

Photo by Dara O'Rourke with caption that reads:
"Burning Scrap Rubber in a Boiler - Which Emits Pollution, Violating Environmental  Laws"
Dust in Mixing Shop exceeded the standard 10 times (based on inspection done by VT under the contract between VT and the Ho Chi Minh City University of Technology- called Environment Impact Assessment Report) [Emphasis, mine]. 
Dust concentrators are available but they are inadequate to meet the dust requirements of the factory.
Harmful use of chemicals

Dara O'Rourke Photo - "Working on Nike Uppers with Glue and Solvents and No Protective Gear"
Measures should be taken in using Toluene for sole cleaning both VT authority and workers.
From a "sample of 165 employees from Mixing, P.U., Roller sections, there are 128 employees (77.57%) getting respiratory disease..." (E&Y Page 9. References in this section are to the Ernst & Young Report which is included as an Appendix.)  

Toluene concentrations "exceeded the standard from 6 to 177 times" in several sections of the factory. (E&Y Page 8) Toluene is a chemical solvent that is known to cause central nervous system depression, damage to the liver and kidneys, and skin and eye irritations.  Source: O'Rourke (1997). 

Measures taken by V.T regarding Toluene:
According to Nike's Chemical Procedures, V.T needs more consideration while storing, handling and using Toluene because it is flammable and it is harmful to one's health. Protective equipment are as follows: safety glasses, lab coat, vent hood, proper gloves, and class b extinguishers.

O'Rourke Photo -- "Workers Without Respiratory Protection Using Gloves"
In storing chemical, VT strictly followed procedures:
Keep away from heat (isolated warehouse, Toluene containers being used are kept far from production line)
Avoid contact with eyes, skin, clothing. Avoid breathing vapor. V.T stipulates users to read and follow procedures posted on containers.
Storing area is cool, dry, well ventilated, flammable liquid stage area. (Except in TPR Shop)
Despite the above, usage of Toluene still poses some problems:
Absence of safety glasses totally in the whole factory
Absence of proper gloves (TPR Shop, PU Shop use only cotton-fiber gloves)
Vent hood is used but rarely in production process. The reasons are already cited above.
III. Compliance with permits and requirements by Nike, Inc.
VT has complied with Code of Conduct and Memorandum of Understanding as required by NIKE.
IV. Employees health and safety measures

Name Disease Working Place Before 5/96 Working Place in 10/96
1. Le Ngoc 
Heart Roller Roller
2. Nguyen Van 
Heart P.U. P.U.
3. Tran Thi 
Respiratory P.U. P.U.
4. Hoang Cong 
Skin Mixing Mixing
5. Do Van Toan Skin P.U. Roller
6. Bui Van Khai Skin Roller Roller
Not Reported --      
8. Nguyen 
           Quoc Hoc
Skin P.U. Roller

Source: The information on the working place of employees with sickness
          were obtained from the payroll register. The information on the worker's
          diseases were obtained from the Summary of Regular Check-up of
          Employees dated 21 May 1996.
Chemical releases have led to an "increasing number of employees who have disease [sic] involving skin, heart, allergic, [and] throat working in chemical involved sections." (E&Y Page 8, as cited in O'Rourke, 1997) 
Chemical safety
1.More then half of employees in Mixing, Roller, P.U., Stockfit, lamination, TPR (sections using chemical) do not wear protective equipment (mask and gloves) even in highly-hazardous places where the concentration of chemical dust, fumes exceeded the standard frequently.
2.In Stockfit section where the employees can smell Toluene fumes, only thin cotton mask and gloves are available while according to requirements of NIKE, mask, protective suite, polyvinyl gloves are essential.
3.Chemical information sheets and standardized chemical information sheets are not found in Mixing, Roller and TPR sections.
4.The employees just know such chemicals are harmful for their health but they do not know what these chemicals are and how to deal with them because the employee have no training on chemicals.
5.Generally, chemicals are properly situated in the factory, spaced adequately except one warehouse whose location is close two tanks of F.O, D.O about 25m.
6.There are no training on proper handling of chemicals for related employees in daily exposed to chemicals.
Hazardous machines
Production machines in the factory are new (year of production 1995) and in good condition. They have stable covers and the contents are separated from the users.
On 12/06/96, the Health Care Center of Dong Nai checked the labor environment condition of the Company. Following are the results:
1.Heat: The permitted standard is 28oC while the heat level at Pressing, Boiler and Assembly room is from 32-33oC.
2.Noise: The permitted standard is 85-90dB(A). The noise in the Cutting, Pressing, Rotary P.U, and Assembly exceeds the standard (85-101 dB(A)). If the noise is 90 dB(A), the working time can not exceed 8 hours/day. At present, working time at the above sections is 9 hours/day.
3.Dust and Toxic fumes:
Toluene: the level at Assembly I-sole fit, Assembly Ultra Violet, Sole sinking, Attaching room of Stockfit section; Sole fit Ultra Violet, Attaching room of Assembly line and Mixing section exceeded the standard from 6 to 177 times (emphasis, mine).
Aceton: the level at Assembly I-sole fit, Assembly Ultra Violet, Attaching room of Stockfit section; Sole fit of Ultra Violet of Assembly line exceeded the standard from 6 to 18 times (emphasis, mine).
4.Dust in mixing room exceeded the standard 11 times (emphasis, mine).
5.Ventilation in most of sections is below the standard


6.According to report on Environmental Impact Assessment, employees' petition and our investigation, the ventilation in 2 old buildings is not sufficient because of high density of employees and heat from machines (P.U, Stitching).
7.The employees working in sections with noise > 85dB (A) have had no earplugs yet for noise >90dB(A) still worked >8 hours/day.
8.The protective devices are still cotton mask, gloves. Minimal number of employees wears available protective devices.
9.Toluene and Aceton are still at high levels.
10.Increasing number of employees who have disease involving skin, heart, allergic, throat working in chemicals involved sections.
Recommendations are as follows:
1.Equip the employees working in areas with noise > 85dB(A) with earplugs.
2.Employees working in Mixing, Roller, P.U section need adequate equipment such as protective glasses, mask (professional), long sleeved shirt, polyvinyl gloves.
3.Toluene and Aceton in Stockfit section exceed many times to standard. The Company must equip ventilation system and fumes treatment system.
4.The Company must prepare the list of chemicals used in details and the solution to deal with them then submit the list to Hygiene & Anti-epidemic Center in order to be notarized and approved.
Medical issues
1.Medical room of the factory has 3 staff (1 doctor, 2 nurses). According to chief of medical room, the number of staff is not sufficient to serve such a large number of employees.
2.There is regular medical check-up in the factory -2 times/year, 3 or 4 times for employees in special section as Mixing, Roller. This regular check-up bases on random basic (200-300 employees/time).
3.Per result of checking health by Hygiene - Anti Epidemic Center of Dong Nai dated 21 May 1996 on the sample of 165 employees from Mixing, P.U, Roller sections, there are 128 employees (77.57%) getting respiratory disease and 7 employees (4.24%) getting heart disease (not resulting from working condition). The report said that employees getting diseases of heart, allergy, respiratory should not work in chemical-involved labor environment.
4.We have checked the change of working place of some employees getting the above diseases and working in chemical environment and found that they are still working in the same section (based on payroll register).
Labor accident
From 1st April 1996 to 30 October 1996, there are 73 cases of labor accidents is the carelessness of employees. There are 2 accidents in which 32 cases happened at pressing section. The major reason of most accidents caused by "the employees inadequate understanding to operate the machine".


Dara O'Rourke did an analysis of the Ernst & Young Environmental Audit Report in 1997.
The following are excerpts from Dara O'Rourke (1997) (press here for entire text).


          In my interviews with employees, I was given information about
          numerous violations of Nike's Code of Conduct that were not discovered
          by the Ernst & Young audit. I was informed that managers of Tae Kwang
          Vina have:

               Violated Vietnamese labor laws on maximum overtime hours.
               Night-shift workers in the stitching section told me that their
               "standard" work week is 10.5 hours per day, six days per week. This
               basic work week can lead to 700 or more overtime hours per year,
               well over the legal maximum of 200 overtime hours per year.;
               Forced overtime. Workers complained that they have no choice in
               whether or not they work overtime. Workers are told one day in
               advance that they must work overtime. If they "choose" not to work
               overtime more than twice, they are likely to be fired .;
               Violated Vietnamese labor laws on pay. Tae Kwang Vina is required
               to pay increasing wages based on workers' skills. Workers at skill
               level 1 should be paid the minimum wage ($40/month) times a
               multiplier, skill level 2 should be paid $40 times a hi gher multiplier,
               etc. One staff member told me the company ignores this legal
               requirement, giving annual salary increases much lower than
               Broken strikes. Tae Kwang Vina management have repeatedly
               threatened to fire all workers who wouldn't return to work during
               strikes over the last two years. An office staff member explained that
               "managers investigate who incited the action, and don 't fire them,
               but make them change jobs, and treat them very badly until they
               Physically and verbally abused workers. I was told numerous stories
               about managers hitting workers. Reportedly, in one case the director
               of security hit a Vietnamese guard. In another case, a manager hit
               several women workers with a broom while tr ying to force them to
               leave the factory in a single file line.
               Sexual harassment. Several workers told me that a Korean manager
               allegedly attempted to rape two women workers last year, and then
               fled the country. This was widely reported in the Vietnamese press.9
               Independent monitors on the ground in Vietnam wou ld have been
               aware of this case and would have followed up on these issues.

          Tae Kwang Vina is the most technically advanced of Nike's subcontractors
          in Vietnam, and according to Nike is no worse on labor or environmental
          issues than the other four Nike factories in Vietnam.10 In fact, Tae Kwang
          Vina received the highest score of Nike's five factories in Vietnam in a
          self-assessment procedure.11

          The serious omissions and biases in the Ernst & Young findings point out
          the weaknesses of using accounting firms to audit labor and environmental
          practices. These auditors are not trusted by workers, and their findings are
          never submitted to public scru tiny.


          In following Nike's instructions for the audit, Ernst & Young failed to
          comprehensively analyze labor and environmental conditions inside the
          Tae Kwang Vina factory. The audit is missing important information
          regarding occupational health and safety, env ironment, and general
          working conditions. An audit should be designed to determine normal
          operating practices within a factory, to evaluate recognized hazards and
          how they are controlled, and to analyze how new hazards are identified
          and controlled.12 I n order to do all this, auditors need to be trained in
          hazard recognition, and must be able to independently assess management
          actions. Ernst & Young failed to adequately analyze both existing hazards
          and procedures for resolving new hazards.

          An Industrial Hygienist who performs worker health and safety compliance
          inspections for the State of California13 noted that if Tae Kwang Vina had
          been operating in the U.S., it would have been cited and fined on
          numerous counts, including:

               chemical over-exposures;
               inadequate ventilation;
               noise over-exposures;
               lack of personal protective equipment;
               absence of a hazard communication program;
               lack of job-specific training for operating machinery; and,
               lack of drinking water in high heat stress environments.

          The Ernst & Young audit failed to examine any of these issues in detail,
          and ignored exposures to other hazardous chemicals such as Methyl Ethyl
          Ketone and glues in the plant. The audit also failed to examine why
          employees with respiratory illnesses were still working in areas of
          exposure without controls, and why no safety committee exists in a factory
          with 9,200 workers.

          The audit should have also examined issues that are common points of
          concern in Nike plants around Asia, and that have been specifically raised
          at the Tae Kwang Vina plant. Workers should have been interviewed
          off-site with guaranteed anonymity regarding physical and verbal abuse by
          managers, sexual harassment, general working conditions, and pay issues.
          Lora Jo Foo, Managing Attorney for the Asian Law Caucus and President
          of Sweatshop Watch, asserts that "it is impossible to do an analysis of
          minimum w age or overtime compensation without having information on
          the actual hours worked, and the take-home pay of the workers, both of
          which were missing from the Ernst & Young audit. A proper analysis
          would involve unannounced monitoring of working hours, an d interviews
          with workers away from the factory."14

          The environmental section of the Ernst & Young audit similarly misses
          most of the key environmental issues in this factory. At a minimum the
          audit should have listed all chemicals used in the plant, noted that burning
          scrap rubber in the factory's boiler s is violating Vietnamese environmental
          laws, and proposed alternatives to burning rubber.

          A truly independent audit of labor and environmental practices would
          involve a more complete analysis of the system within the factory which
          affects working conditions, health and safety, and the environment. This
          includes: management policies and action s, company organization, worker
          training, hazard prevention programs, and existing and potential physical
          and mental hazards. A long-term auditing program would also include
          comprehensive health studies of workers in hazardous sections of the
          plant. This type of audit obviously requires well trained auditors that are
          committed to independent analysis of the conditions inside the factory.


Implications of the Nike Case
  1.  We have gotten a rare glimpse of environmental auditing in a major transnational corporation.
  2. The release of the environmental audit violates the confidentialy agreement between auditor and client.
  3. Nike's behavior since the release of the audit has been to implement OSHA safety and health standards, raise wages, and invite additional monitoring.
  4. Nike continues to draw subcontractor behavior into tighter compliance to Nike's espoused code of conduct.
  5. I conclude that Nike began monitoring to appease consumer and investors, but with the public relations storm following public release of the Ernst and Young environmental and social audit, Nike began making actual changes in its labor and environmental practices.
 In 1999, Dara O'Rourke revisited the same plant that was studied in the Ernst & Young audit.  He forund that numberous areas of the plant were significantly upgraded, but that there was more to be done. In sum, I have reviewed how Nike is restorying itself since the whistle was blown by a disgruntled Nike employee. I reviewed how desperate and oppressive work and environmental conditions were in a frequently audited Vietnam plant.  I contend it was the release of this audit to the public arena of awareness that led to a shift in Nike's environmental strategic posturing.  The good news is that with the strategic shift, Nike may be able to attain ISO14000/140001 standards certification. And Nike may move from the stages of denial, throught its GreenWash to becoming a Flagship implementer of positibe labor practices and eco-sustainable strategies. I would caution that a good deal of NGO and certified environmental auditing needs to take place to verify Nike's strategic shift and claims.

SECOND CASE - INTEL (press here). Still under construction

THIRD CASE McDonalds - under construction

Press for TD Consulting Gameboard,
Green Accounting Gameboard
or Storytelling Organization Gameboard.
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