1. Better Cotton Chain of Custody Rules © Better Cotton Initiative

2. Better Cotton Chain of Custody CLAIMS BY RETAILERS AND BRANDS How can adidas make this volume-related claim? Credible Verifiable Proof Proof = Receipt of BCCUs How many BCCUs do they need? 1 BCCU = 1 KG of BC sourced Enough BCCUs to equate 30% of its overall cotton foot print for all orders

3. Traceability System (Volume not Fiber) Proof = Receipt of BCCUs BCCUs are received from suppliers and passed onto the customers as proof of Better Cotton sourcing in the supply chain Retailers and brands collect these BCCUs from their suppliers to make their total claims Chain of custody rules provide suppliers with a set of rules that explains how fiber can be used in production and how the reporting of BCCUs can be made

4. Receiving proof from vendors Traceability and documentation requirements Ginners Traders Spinners Fabric Mills Garment Man. Retailer Ginners Traders Spinners Fabric Mills Garment Man. Retailer BCCUBCCU Ginners Traders Spinners Fabric Mills Garment Man. Retailer ODF issued by a spinner ODF issued by a fabric mill Electronic receipt of BCCUs + ODF issued by a fabric mill

5. Example of Output Declaration Form

6. BCCU Allocation to products Calculation of BCCU allocation to yarns & other products BCI’s traceability system uses two average conversion rates to calculate the lint volume used in spinning These conversion rates help the system allocate the correct number of BCCUs to various products

7. Better Cotton Chain of Custody OVERVIEW

8. Better Cotton Chain of Custody GIN LEVEL – PHYSICAL SEGREGATION Better Cotton is kept physically separate from conventional cotton at the gin level in all countries 100% Better Cotton Bales Total available lint Better Cotton globally

9. Better Cotton Chain of Custody MASS-BALANCE SYSTEM BASICS – AFTER THE GIN LEVEL 3 kg of Cotton Purchased BCI Credit: 2 BCCUs Mass-balancing applies to bales, yarns, fabrics and garments It allows the “natural flow” of cotton through the supply chain to remain undisturbed Same Specs + Same Quality = Same Product with BCCUs

10. Better Cotton Chain of Custody MERCHANTS – MASS-BALANCE W/ A COUNTRY SCOPE Strict middling cotton from a BCI licensed US Grower Middling cotton from a non-licensed US grower BCCU Warehouse in SC Warehouse in TX The rules:  Merchants don’t have to ship physical BCI bales to spinners  BCCUs can only be transferred between bales of the same origin Needs middling cotton for a BCI order Spinning Mill in China Strict middling cotton from a BCI licensed US Grower Needs strict middling cotton for a conventional order Warehouse in TX Warehouse in SC Spinning Mill in NC Merchant ships middling cotton to the mill Spinning Mill in NC And allocates BCCUs to this shipment Spinning Mill in NC BCCU Mill allocates BCCUs to yarn shipment Spinning Mill in NC BCCU Merchant ships physical Better Cotton to the mill Spinning Mill in China Yarn spun and shipped using strict middling Spinning Mill in China

11. Better Cotton Chain of Custody MERCHANTS – MASS-BALANCE W/ A COUNTRY SCOPE Supima cotton from a licensed US Grower Middling cotton from a non-licensed US grower BCCU Warehouse in SC Warehouse in CA The rules:  Merchants don’t have to ship physical BCI bales to spinners  BCCUs can only be transferred between bales of the same origin Spinning Mill in NC BCCU Spinning Mill in Turkey Supima cotton Middling cotton for a BCI order Supima cotton from a licensed US Grower Warehouse in CA Warehouse in SC Middling cotton Spinning Customer in NC BCCU Warehouse in CA

12. Better Cotton Chain of Custody MERCHANTS – MASS-BALANCE W/ A COUNTRY SCOPE Supima cotton from a licensed US Grower Shankar 6 cotton from a non- licensed INDIAN grower BCCU Warehouse in INDIA Warehouse in CA Spinning Mill in Punjab BCCU The rules:  Merchants don’t have to ship physical BCI bales to spinners  BCCUs can only be transferred between bales of the same origin Shankar 6 cotton for a BCI order Warehouse in INDIA Supima cotton from a licensed US Grower Warehouse in CA

13. Better Cotton Chain of Custody SPINNERS – MASS-BALANCE W/ A SITE SCOPE Spinner Better Cotton (Any Origin; Any Specs) Conventional Cotton (Any Origin; Any Specs) BCCU The rules:  Spinners don’t have to consume physical BCI bales to make the yarn  BCCUs can be transferred to any yarns made with any fibers regardless of the country of origin of fiber used

14. Better Cotton Chain of Custody SPINNING MILLS - MASS-BALANCE W/ A SITE SCOPE 1 kg Better Cotton (Any Origin) 1 kg Conventional Cotton (Any Origin) BCCU Better Cotton Yarn Conventional Cotton Yarn Better Cotton Tracer Inventory Physical Cotton Inventory Spinners don’t have to use the physical Better Cotton bales BCCUs can be transferred between bales of different origins Spinner can keep their existing blend

15. Better Cotton Chain of Custody TURKISH SPINNING MILL Better Cotton from Burkina Faso, Brazil, and Turkey Conventional cotton from the US and Greece BCCU Better Cotton Yarn (Greek, BF, Turkish, US Blend) Conventional Cotton Yarn (Greek, BF, Turkish, US Blend) Better Cotton Tracer Account Inventory Physical Cotton Inventory Spinners don’t have to use the physical Better Cotton bales BCCUs can be transferred between bales of different origins Spinner can keep their existing blend

16. What takes place in the supply chain? Placing BCI Orders - Impact Retailers & Brands Retailers & Brands 50% BCI Better Cotton + BCCU Garment Order Yarn Order Fabric Order Lint Order 50% Better Cotton 50% of cotton footprint 4 the order is now Better Cotton Total cotton footprint 4 the order It is not about procuring products that contain Better Cotton It is about transforming your supply chain into a more sustainable one

17. »Automated reports »Country of origin report (Brands/Retailers) Traceability Updates Fall 2015 SUMMARY Between 1 January 2015 and 1 January 2016 your company has sourced 18,500 metric tonnes of its cotton consumption as Better Cotton. This Better Cotton was sourced by 27 spinners based in 8 countries. Your company’s orders have contributed to these 27 spinners sourcing a collective total of 83,000 metric tonnes equivalent of Better Cotton, from 11 origins.

18. BCI Supply Chain Team: Lea Michalczik – BCI Traceability Systems Coordinator lea.michalczik@bettercotton.org Kerem Saral – BCI Supply Chain Manager kerem.saral@bettercotton.org Direct Line: +41-22-939-1293 Skype ID: keremsaral Manish Gupta - India Supply Chain Coordinator manish.gupta@bettercotton.org Muhammad Shuiab – Pakistan Supply Chain Coordinator muhammad.shuaib@bettercotton.org Leo Xiao - China Supply Chain Coordinator leo.xiao@bettercotton.org Seyma Karacay – Turkey Supply Chain & membership Officer Seyma.Karacay@bettercotton.org Team Contacts