VBDO: Investors must take a stronger stand against child labor

July 23, 2024

_{This column was originally written in Dutch. This is an English translation.}

By Pauline Neefjes, Senior Advisor Better Business for Children at UNICEF​, and Manon Koelewijn, Project Manager Sustainability & Responsible Investment at VBDO

It seems as if we all accept child labor as a fact of life. At least, that is the conclusion you might draw when looking at everyday investment practice.

We have been 'celebrating' the World Day Against Child Labour on June 12 for more than 20 years now. On this day we reflect on this violation of children's rights, which occurs in the production of, among other things, our cars, our clothing and especially our food. Child labor on a global scale has not decreased since 2016. The financial sector is also responsible for maintaining child labor. After all, it invests in companies that may or may not contribute to human rights violations.

To tackle this problem, more action must be taken from the financial sector. However, when investors are made aware of the lack of action, they often pass on responsibility. In particular to the so-called ESG rating agencies, which provide both financial data about companies and data on the impact on people and the environment. They claim there are insufficient data available on the performance of companies regarding the theme of child labor.

The lack of data

It is true that information about how rating agencies arrive at their assessments is not always publicly available, let alone transparent. Different rating agencies also use different criteria. This makes it difficult for investors to determine whether or not they should include companies in their portfolio.

A possible way to deal with this is for investors to directly request data on children's rights from companies. Companies also have a role in this. They must ensure that data corresponding to their activities and those of their suppliers in the field of child labor are presented in a clear and accessible manner. Rating agencies in turn must make their methodologies transparent.

Cooperation is key

Cooperation is therefore necessary. Collective action can be taken in various ways, for example by using engagement. This is already happening to some extent, for example, at the Living Wage Financials Platform. Here, cooperation between investors forms the basis for achieving a living wage in the supply chain of different sectors. Cooperation is therefore not only necessary, it is also possible and immediately creates a level playing field. This creates space for companies and investors to make a positive impact and tackle child labor.

Finally, there is help from Europe. Investors can now rely on new European regulations: in particular the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These should provide more clarity about the positive and negative interaction between company and society, which must then be acted upon in practice. Based on these reporting obligations, the social impact of those companies can be included in the assessment of investors. This also applies to human rights and child labor.

In short, investors should put child labor higher on the agenda. The financial sector has plenty of opportunities to integrate children's rights more prominently into portfolio management and to contribute substantially to the eradication of child labor. And that is necessary, so that in twenty years we do not still have to remember World Day Against Child Labour. A vote against child labor is a vote for a just society.