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Climate

Investing through the eyes of a child

They make up more than half the world’s extreme poor and more than two-fifths of its displaced citizens. And, as tomorrow’s adults, they are all of its future. Yet few consider children when building investment portfolios — or how those investments might affect them. But this could be changing with the emergence of a new investment strategy: child-lens investing.

The approach is a holistic one. Take, for example, pay-as-you-go solar power services for rural or low-income communities in developing countries. By providing affordable lighting, they enable schoolchildren to study at night, improving academic results. However, they also benefit everyone in the family, as healthier, safer alternatives to kerosene lamps and a source of power to charge phones, which are essential for mobile banking and other digital services.

Up until now, though, few investors have adopted the approach, says Cristina Shapiro, president at the Impact Fund for Children, the investment division of Unicef USA. Last year, it published a child-lens investing framework and toolkit, including due diligence questions and principles for measuring impact, to help asset owners and portfolio managers put child-lens investing into practice. The concept is not new, she says. “But it’s a very disaggregated and disorganised field.”

Companies’ poor records on upholding children’s rights also make it difficult for investors to build child-lens portfolios from public equities. In its most recent report, Swedish non-profit foundation Global Child Forum, which assesses the impact on children’s rights of a range of companies across 28 sectors worldwide with a combined revenue of $32.6tn, found standards had fallen in 2023, compared with 2021.

Global Child Forum found that, while 87 per cent of companies had a child labour policy aimed at preventing exploitation, only 49 per cent used audits or supplier assessments to verify their implementation. Just 30 per cent reported on incidents or risks of child labour. And 131 of the 795 companies studied in the report did not even deem their impact on children in the workplace, marketplace, environment and communities to be material to their business.

A woman in a royal blue blouse poses next to an adjustable desk in a well-appointed office, with personal photos in the background, including one of smiling children
Cristina Shapiro, president at the Impact Fund for Children, the investment division of Unicef USA © Pascal Perich for the FT

While this is worrying, the fact that investors rarely consider children as material to their investment strategies is not surprising, suggests Shapiro. “Children are not economic agents,” she points out. “They’re not making decisions on rentals or consumption. But they are being impacted by all those decisions.”

There are plenty of wealthy individuals, as well as social and environmental impact investors, now funding mission-driven social enterprises, non-profits and foundations that provide learning, nutrition, healthcare and other services for children.

Very few, however, consider themselves to be child-lens investors. “It’s usually expressed in healthcare or education, but not in tangential sectors like renewable energy or affordable housing,” says Jennifer Pryce, president and chief executive of Calvert Impact Capital, a non-profit investment firm.

Unicef USA hopes its framework and toolkit can change this situation, making more private capital available for efforts to improve children’s lives today — and their prospects as they grow up to become workers, consumers, voters, and leaders. “Philanthropy will continue to be critical and is the right solution to reach the most vulnerable,” says Shapiro. “But investment dollars also need to come in.”

So, can inventing a new investment term, and publishing a framework, shift enough investment dollars in this direction?

History suggests it might. After all, a little over a decade after the term gender-lens investing first emerged, it has become a criterion used in institutional investments totalling $868bn, according to the US Sustainable Investment Forum.

Child-lens investing remains in its infancy but asset managers and impact investors are starting to explore or adopt the principle. Calvert Impact Capital, for example, is integrating the approach as part of its investment strategy, as are individual investors and their wealth managers.

A medical examination in progress, with a doctor in a white coat and protective face gear gently holding a baby’s arm, while the baby looks on, securely held by a woman in a vibrant green headscarf
A child is vaccinated against measles at a health centre in Hargeisa, Somaliland © UNICEF/Naftalin

“I like the Unicef framework because it’s forced us to think about investing with a child-lens,” says Kevin Teng, chief executive of Wrise Wealth Management Singapore. “We haven’t changed our investment policy at this point,” he adds. “But it’s certainly got us thinking.”

An important element of child-lens investing involves risk mitigation. This strategy, well known among ESG (environmental, social and governance) investors, requires due diligence work to ensure that portfolios do not contain holdings in companies that are, for instance, marketing alcohol to children, or using child labour in their supply chains.

“This is something that we, in the impact investing community, can learn from,” says Amy Nelson, chief strategy officer at Rethink Capital Partners. The firm is engaging in child-lens investing through Rethink Education, its venture capital fund, which focuses on early-stage ed-tech companies. Investors include family offices, foundations, endowments and high-net-worth individuals.

The child-lens approach, Nelson says, has prompted the firm to add questions in its diligence process about whether a company includes provisions for children in its codes of conduct or marketing policies — and whether it has mechanisms in place to respond to any negative effects its operations have had on children.

Child-lens investing also has a strong focus on investments that have a positive impact on children’s lives. But, unlike traditional investments in, say, infant health or early childhood education, the approach takes into account anything that might affect their wellbeing.

“Children don’t live in silos,” says Pryce. “Children can have educational opportunities but, if they don’t have a house, they’re not going to grow up to be productive citizens.”

Joining the dots in this way means that individuals investing in the health and welfare of children could have an even bigger, and broader, impact with their money, argues David O’Leary, founder of Kind Wealth, a Canadian family office that serves business owners and affluent families. “It intersects with gender equality and even climate,” he argues. “The more we can think about children in the investment landscape, the more it could lead to improvements in other areas.”

A training programme for mothers in Ghana © Motherfood Intrnational

Impact investor Jeffrey Baikowitz agrees. His focus is on child malnutrition. Along with other wealthy entrepreneurs, his personal foundation invests in the social enterprise he created, called Motherfood International, to help women in the developing world make and sell nutritious foods.

Baikowitz believes the scale of the hunger crisis, which contributes to more than 3mn deaths of children under-five a year, calls for new forms of capital and new ways of deploying it. “The problem is so huge and, coincidentally, has the highest social return on investment, that we need to create sustainable holistic systems to change the pattern,” he explains.

For some, applying a child-lens to investing can bring a new focus to existing portfolios. This is the case for California-based Sobrato Capital, the investment division of the family-owned Sobrato Organization, which also has real estate and philanthropic divisions.

Victoria Fram, Sobrato Capital’s managing director of impact investments, points to affordable housing, where investments include homes with playgrounds and other safe spaces for children, or climate investments that tackle air pollution, which can disproportionately affect children. “In our portfolio, there are a lot of investments that one could call a child-lens investment,” she says, “even if we haven’t explicitly been using that language around it.”

Indeed, adopting child-lens investing does not mean reinventing the wheel. One of the strategies proposed in Unicef’s framework, for example, is to use existing standards and measurement metrics that have been developed for other forms of sustainable investing. “It’s not as though once you apply this tool you need to revamp any set of existing practices,” points out Fram.

This was an important consideration for Unicef USA when developing its framework. “We wanted to make sure this was constructed in a way that fund managers could use it and it worked within existing impact investing and ESG standards,” says Shapiro.

Investors in public equities can turn to Global Child Forum’s annual benchmark to assess the impact — positive or negative — that companies’ commercial activities are having on children and, similarly, impact investors have a range of existing tools to turn to.

These include the Global Impact Investing Network’s IRIS+ (Impact Reporting and Investment Standards), the UN’s Principles for Responsible Investment, and the Operating Principles for Impact Management, developed by the International Finance Corporation — the World Bank’s investment arm.

A group of students in school uniforms are washing their hands at an outdoor water trough under the sun, with lush greenery and a school building in the background. They are at the Cogon Elementary School in Brgy. Cogon, Tanauan III, Leyte as part of the COVID prevention measures
Using water from a solar pump, pupils wash their hands at an elementary school in the Philippines © UNICEF/Piojo

Nevertheless, some worry about the risk of child-lens investing being seen as profiting from children. This, says Calvert’s Pryce, is why it is important to ensure that “profit” is measured in terms of the benefits to the next generation’s health and wellbeing. “Children are not what we monetise — they are what we need to have a healthy future,” she stresses.

For this reason, says Netherlands-based impact investor Edward de Jager, children should be able to contribute to conversations about sustainable development. As a venture capitalist and impact investor, de Jager founded We Share Forward, a non-profit foundation that describes itself as a “revolving fund for impact”. It pursues venture philanthropy and impact investing to advance early childhood education.

“You have to include them in the discussion,” says de Jager. “Why not invite kids at a younger age, in a playful manner, to discuss ideas that shape the future, rather than pushing solutions on them?”

Another shift that will be needed before child-lens investing can start to drive positive change is in the way investment timelines are viewed. “The structural problems we have with capitalism and markets work against what is good for children,” says Pryce. “We have to invest in them to have a healthy society in the long term, but the markets just don’t think that way.”

Some, however, hope that child-lens investing could, itself, be the catalyst for change. “Decisions get made in a different way if you focus on how future-oriented we need to be in investing,” says Fram. “And the child-lens framework is one way of doing that.”

This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment

Read the full article here

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