The State of Children's Rights and Business 2021

‘S’ in the Spotlight and the Crucial Role of Children

Global Child Forum

Social issues are becoming more and more important and relevant to the business world. Children make up a huge part of society and investors need to understand and integrate children’s rights into their investment models if they are to become truly socially sustainable. Global Child Forum’s benchmark and underlying data are available to the investors seeking to improve their impact on society and children. To find out more, please contact Matthew Goodwin, Sustainable Finance Manager at Global Child Forum.

ESG’s Neglected Middle Child Coming of Age

Sustainable responsible investing is on the rise. Ever since the world adopted the United Nations’ Sustainable Development Goals in 2015, the importance of environmental, social and governance (ESG) aspects of investing has been growing and accelerating. Yet, while environmental awareness has improved dramatically and governance is always at the forefront of a prudent investor’s mind, the social dimension of the trio has only recently started to gain momentum.

Arguably, ‘S’ is the least standardisable and measurable of all sustainability criteria. Most investors would agree that the way a company manages its relationships with its various stakeholders, from employees and customers to society at large, provides valuable information about its future performance. Despite being rather logical, however, the financial materiality of social sustainability can be difficult to prove and quantify. Social issues are often perceived as positive externalities that are observable but not measurable. And there is a broad consensus in the financial industry that you can only properly manage things that you can measure.

Children’s rights is one of those ‘S’ areas often viewed as particularly elusive. Yet, it is at their own peril that businesses and investors might ignore the interests of this important group of stakeholders. Thirty per cent of the global population is under 18-years-old. Children may be an underrepresented and vulnerable group, but they are a force to be reckoned with. Precisely because of their vulnerabilities, they also constitute a helpful baseline: treating children’s rights seriously most likely means treating the rest of the ‘S’ issues in an equally responsible manner. “There can be no keener revelation of a society’s soul than the way in which it treats its children”, as Nelson Mandela so eloquently put it.

With a growing understanding of the need to protect children, investors can turn to Global Child Forum for support. They were founded by the Swedish royal family in 2009 and work with companies globally to improve the impact they have on children. They produce the most comprehensive children’s rights in business benchmark in the world and are using this data to help investors incorporate a children’s rights perspective into their investment strategies.

‘S’, no longer the neglected middle child of ESG

So, what explains this surge in interest for the previously neglected ‘S’ in the middle of ESG? The recent outperformance of responsible investments, for one, might have provided a welcome extra push. Notably, socially sustainable companies performed much better during the market meltdown in March 2020, showing remarkable resilience. To be fair, ESG investments, in general, have fared well. Analysing 26 ESG exchange-traded funds and mutual funds with more than 250 million USD in assets under management, S&P Global Market Intelligence found that the majority of those outperformed S&P 500 from March 5, 2020, to March 5, 2021. ESG indices also saw less drawdown during periods of extreme stress.

Apart from drawing more positive public attention lately, socially sustainable companies and ventures are, crucially, starting to attract more investments. A recent survey by CREATE-Research and DWS concludes that “48% of respondents recognise the growing materiality of social issues in business performance and investment outcomes.” When asked how the share of socially sustainable funds in their total portfolio is likely to change over the next three years, 66% of the survey’s respondents expect it to ‘increase’, 32% expect it to ‘remain static’, and only 2% expect it to ‘decrease’.

Encouraging as it is to pile on evidence that the ‘S’ pillar is not just about doing good but also about doing well financially, most long-term investors are aware that performance can be rather fickle. The desire for good financial returns alone is not enough to accelerate the development and channel more capital towards funding desirable social outcomes.

On the other hand, the push from regulators is something that both business and finance can count on. The EU, boasting the most advanced suite of ESG regulatory measures of any global region, is making serious efforts to address social sustainability issues in a systematic and structured way. The directives on non-financial reporting and the recently introduced proposal for a social taxonomy are reshaping the ecosystem of markets. Definitions and standardisations are essential, so the epic attempt to clarify what constitutes a substantial social contribution and significant social harm is a welcome development.

Covid-19, a watershed moment for the ‘S’ pillar

If we single out one particular explanation for the recent push of social issues as an economic reality, it would undoubtedly be the global pandemic still holding the world in its grip. It has amplified the importance and accelerated the rise of the ‘S’ pillar, shining a spotlight on the weak points of societies.

Covid-19 has made today’s inequalities in key areas such as health, job security, education, and racial discrimination impossible to ignore. Mandated lockdowns have provided explicit confirmation that sustainable economies need sustainable societies. It is, therefore, not surprising that according to the abovementioned survey by CREATE-Research and DWS, 59% of respondents cite “the need to tackle the inequalities exposed by the pandemic” as a key factor driving their allocations to the ‘S’ pillar.

Children’s rights: an essential part of the ‘S’ pillar

One group of society has been dealt a particularly hard blow by Covid-19. Children have always been among those most vulnerable, of course. Undergoing significant physical and psychological changes means that detrimental impacts on their development can be significant and long-lasting, much more so than adults. Alarmingly, the pandemic is affecting their education progress, job prospects and mental health in ways we are just beginning to comprehend.

Thanks to the efforts of organisations such as Global Child Forum and UNICEF, businesses and investors are gradually beginning to realise that children’s rights are an integral part of the ‘S’ pillar. Indeed, how could an organisation claim to take social issues seriously and understand the potential investment risks involved if it does not consider children, that large segment of society, so vulnerable yet so important for the future of humankind? Despite some progress, however, incorporating children’s rights and needs into business and investment strategies is, sadly, still lagging.

Global Child Forum: Combating misconceptions with data

The stereotypical misconception that ‘S’ in general and children’s rights in particular are difficult, if at all possible, to measure and manage is perhaps the foremost challenge that advocates of the cause are facing. Combating this perception, Global Child Forum, in collaboration with the Boston Consulting Group (BCG), has regularly been benchmarking companies on children’s rights issues since 2014.

To date, their joint efforts have produced two global and six regional studies of the Nordic region, the Middle East and Northern Africa, Southern Africa, South America and Southeast Asia, covering more than 2,600 companies across 9 industries. These benchmarks and underlying data are now being used to help the financial sector incorporate a children’s rights perspective into their investment strategies and processes.

Coming of age

Dealing with all aspects of social sustainability that are material yet difficult to measure, including children’s rights, calls for proactivity. Fortunately, more and more companies realise that the leeway on social issues awarded to them in the past is unlikely to continue as investors’ expectations increase. On that note, investors, too, would benefit significantly from assessing their exposure to social issues and encouraging investee companies to stay ahead of the curve.

Challenging as it might be, working proactively on the ‘S’ pillar of ESG has its rewards. It is also quickly becoming a must. Luckily, as in any other area saturated with intelligent and highly motivated professionals, solutions and frameworks emerge once you start looking for them. ESG disclosures, mandatory as well as voluntary, are improving, and a consolidation of the various reporting standards is on the horizon. Investors and regulators, aided by academia and NGOs, have come far in defining specific indicators to look for and tools to measure even the most elusive aspects of the social pillar, such as those related to children’s rights. The long-neglected ‘S’ of ESG seems to finally be coming of age.

The State of Children's Rights and Business 2021

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