Stockholm (NordSIP) – One of the main arguments in favour of investments that consider their social impact on local communities is that respecting human rights is good for business. It decreases risk to the company and strengthens its license to operate. A company that harms its surroundings is not sustainable in the long term.
In a recent study, the Global Child Forum together with the Boston Consulting Group, considered whether the same logic holds true for children’s rights. To solve this question, the partner organisations matched the results of their 2019 Global and 2020 Southeast Asia State of Children’s Rights and Business reports with measures of corporate profitability and size/revenue, and registered controversies around human rights. The results were both interesting and counterintuitive, respectively.
Good For Business
As expected, the study finds that companies’ score in GCF’s benchmark study correlates positively with revenue and profit-margins. Companies with a higher score (those that GCF and BCG describe as “Leaders” and “Achievers”) have larger revenues, EBITDA-margin and profitability than those with a lower score.
Tests focusing only on the children’s rights showed that the median EBITDA-margins are slightly higher than for the overall score, indicating a higher profitability on average for companies that are scoring well on the children’s rights component of the benchmark.
The Controversies Paradox
At the same time, companies with a higher average score (those that GCF and BCG describe as “Leaders” and “Achievers”) are also more involved in controversies, be in general or specifically those that are described as ‘significant’ to ‘severe’ or that relate specifically to children.
While the findings might appear counterintuitive the report suggests this is not necessarily the case. The benchmark captures the companies’ own reporting on children’s rights, rather than their actual impact, which could be slow to react to the controversies. As there is a lag between the reported controversy and the collection of information for the benchmark. As a result, it is possible that companies involved in controversies reported by media or NGOs, eventually address these issues in subsequent reporting.
GCF recognises that there is also a risk that the paradox is a reflection of whitewashing on the part of companies through their reporting, which is captured by the benchmark. However, it argues that “from interviews with companies that have high benchmark scores, we know that they generally act first and then report, rather than the other way around. This can be interpreted as a precaution: if you’re already under scrutiny, trying to gloss it over without addressing the actual issue could result in for example an even bigger media scandal.”