Child-Lens Investing is a groundbreaking framework that aligns the power of global finance with the well-being of the world’s 2.2 billion children, UNICEF’s Child-Lens Investing Framework (CLIF) is an emblematic example of this approach, recognized by TIME as one of the best inventions in 2024. It is a pioneering tool designed to integrate child-related considerations into investment strategies, bridging the sustainable investment gap but also highlighting the financial potential of investing in children.
This initiative was the focus of a recent interview featuring Sjoerd Rozing, Portfolio Manager at Triodos Investment Management, and Radha Kulkarni, Lead of Innovative Financing at UNICEF. Their discussion explored the motivations behind this framework, its application in investment strategies, and its transformative potential.
Why Focus on Children?
According to Kulkarni, Child-Lens Investing responds to two needs: the needs to have better resources to support the development of children and the needs of investors to manage risk and deliver impact.
“Children make up one-third of the world’s population, […] They are one of the most important stakeholders because they are future consumers, they are future voters, future decision makers. Yet 50% [of them] do not have access to even basic services, such as clean drinking water or nutritious food,” says Kulkarni.
Beyond the moral appeal of empowering future generations, Kulkarni argues that it is also an appealing investment, due to its strong multiplier effect, “Evidence [overwhelmingly] suggests that investments in childhood offer a very special window of opportunity that can break cycles of poverty and uplift entire communities, creating a more equitable and productive societies. Every dollar invested in early childhood development can yield up to $17 in lifetime earnings,” Kulkarni adds. Given these dynamics, she notes that Child-Lens Investing is a very effective way of addressing the “increasing financing gap” related to the UN Sustainable Development Goals (SDGs).
Kulkarni argues that Child-Lens Investing is also a particularly relevant approach for impact investors. “Investors are increasingly interested in the impact of investments, particularly through the double materiality lens, [focusing on] the financial materiality, as well as the impact materiality. [The latter] includes assessing their effects on external stakeholders, such as children. When an investor fails to identify the child-related impact, whether it be child labor exposure or supply chain risk because parents do not have living wage and do not have the means to take care of their children, [they are missing] blind spots that can yield significant risk to a portfolio,” Kulkarni continues.
What is the Child-Lens Investing Framework?
Despite these clear benefits, child-related considerations feature in investment decisions too rarely, still. As Kulkarni puts it, “there are no frameworks or standards to assess the impact of investments on children.”
The negligence suffered by children is a result of their lack of economic agency. “Today’s children are overlooked by the investment community simply because they are not economic agents today. They are not employees. They are not the direct purchasers of goods and services produced by companies, so they are not direct consumers. [As a result,] the investment community is not systematically measuring the positive and negative impacts of investment on children. We are aiming to fundamentally change this,” Kulkarni says.
UNICEF’s CLIF is a flexible tool to help investors systematically incorporate child-related considerations throughout the investment cycle, from pre-investment to divestment.
“CLIF is interoperable with other frameworks, lenses and best practices, which then facilitates easy adoption. [It provides] flexible approaches that investors can adopt through its [Child-Lens] taxonomy. So, it’s really designed to be applicable across all portfolios, asset classes, regions, markets and investment strategies,” Kulkarni adds.
“For example, [CLIF is suitable for] a child-centered impact fund [such as] a fund that invests in affordable health technologies to advance maternal, newborn and child health. [The framework is also appropriate to] a child inclusive impact fund where children are direct or discreet beneficiaries, say investments in climate or sustainable agriculture or affordable housing,” Kulkarni continues.
Triodos IM and the Child Lens
Impact investor Triodos IM uses CLIF for its children-focused Future Generations strategy. Rozing, who manages the strategy, shares how the framework aligns with his investment philosophy.
“One thing that [Triodos IM] always emphasizes is that we are an impact investor. This means that we put impact, risk and return on the same level. We aim to make the same type of returns on our investments as a traditional investor. We just have a different focus: impact,” Rozing says.
“When I started [working] in finance, I believed that money could be a powerful tool for change,” Rozing says, noting that investors can influence company decisions. “As a shareholder in a company, you have a vote you can use at Annual General Meetings (AGM). I wanted to use that influence as an investor. As a father, I realise that the decisions I make today directly shape the world my children will inherit,” he adds.
Describing Triodos IM’s investment approach, Rozing highlights the 5 transitions themes the firm has identified which, when solved, would “change the world into a much more equal society on a planet that stays within its boundaries, natural boundaries”: the food transition, the energy transition, the resources transition, and the societal and well-being transition.
“CLIF adds to this by making certain topics much more visible,” Rozing says, noting for example, that access to healthcare for children requires unique considerations because they are more vulnerable to certain health risks. “The transitions that we have identified are very beneficial for children. But zooming in with the Child Lens allows us to carve out a niche with very interesting areas that are relevant for children as well. [The Child Lens] is a subset within the five transitions that we have identified,” he adds.
Working Together for Children
Partnerships such as the one between Triodos IM and UNICEF help to shift perceptions about children and raise awareness about their relevance as unique stakeholder.
“Together, we aim to amplify the voice of children across the world. We do that in two ways: We engage with all of the portfolio companies to make sure that they start recognising children as a separate stakeholder and that they need to take into account their needs. But we also try to inspire our peers in the industry to follow [our lead, so that] they start to realize that applying the Child Lens to their investment decisions actually makes a lot of sense,” Rozing explains.
UNICEF co-developed CLIF with 100 plus global stakeholders and drawing from learnings of other investment frameworks to ensure it was market relevant. There are five aspects to UNICEF’s partnership approach. “First, [we want to maintain a] deeper engagement with the cohort of six diverse asset managers who provided us detailed practical feedback so that this framework is market relevant. Second, we will continue to work on creating a compelling business case for Child-Lens Investing, be it through additional studies, insights, research or guidance including our work with asset managers,” Kulkarni says.
“Third, we aim to continue to harmonize children’s investing with existing approaches, standards and frameworks, because there’s just so much fatigue around multiple kinds of standards and frameworks. We also aim to build a community of practice with asset managers so that we can develop adoption standards for children’s investing in the future, which are compatible with the existing ones like OPIM or PRI, amongst others. Fourth, (…) we plan to (continued to) collaborate with asset managers to build their capacities on UNICEF’s Child-Lens Investing. Of course, UNICEF does not endorse any investment advisor, investment specific investment company or product and makes no recommendations to investors as to their investment. However, what we do is to build investors’ capacities on the Child-Lens Investing framework. Lastly, we plan to co-build this field with diverse stakeholders and take everyone along this journey,” Kulkarni adds.
Diversifying Portfolios Through Child-Lens Investing
According to Rozing, Triodos IM’s use of CLIF has led it to develop a diversified portfolio of global small-cap companies across multiple sectors. “The strategy is mainly focused on smaller-mid caps, [which represent] a little bit more than 75% [of the portfolio],” Rozing says, noting that “companies are more impactful when they are smaller.”
Although larger companies can also be impactful, Rozing notes that the impact is diluted by the size of the company, which means that their contribution is not as material as in the case of smaller companies. “Our standards require every company that we invest in to derive 33% of its revenue from activities that contribute to the five transitions that we would like to see,” he adds.
Triodos IM’s Future Generations’ approach is neither geographically nor sectorally restrictive. “We invest globally, from New Zealand’s to the Netherlands and the US. Any country is investable as long as the shares are liquid enough to allow us to keep growing overtime,” Rozing explains. He also notes that sectoral diversification is where Child-Lens Investing framework differentiates the strategy from other impact investors who tend to be disproportionately invested in environmental themes.
“If you look at our universe, there are a lot of companies from the healthcare sector, […] because children need specialised care. We also own [a few] industrial companies […] because many companies that contribute to access to clean water are industrial companies. The other sector that has a significant allocation is consumer staples, because children need access to healthy food,” Rozing says.
Zurn Elkay Water Solutions, a US-based company that provides water filtration systems to schools in the USA offers an example of the benefits of applying a Child-Lens Investing approach, according to Rozing. “They contribute to access to clean drinking water for children in the US. […] It’s also a very well-run business. It’s a company that consistently performs aligned with our expectations. It’s very capital light so it doesn’t require a lot of investments to be run, [which means that] there’s a lot of cash coming out of the company and it generates good returns. It’s a very impactful business with very solid fundamentals,” he explains.
Activating and Engaging Investors
Kulkarni takes a holistic approach. “The Child-Lens Investing framework basically wants to bring to the fore that all investor actions impact children, whether directly or indirectly,” she says later in the discussion before using the example of renewable energy. “Investments in renewables may enable access to electricity for children so that they can study later in the night or evening. This in turn may enhance education outcomes or reduce dropout rates. These connections exist but they are not recognised. It is critical to guide investors step by step to incorporate child considerations in their investment strategies and processes. This will enable us to align that capital towards outcomes that benefit children,” Kulkarni continues.
Once these connections have been identified, investors are able to see the relevance of Child-Lens Investing and leverage it in their engagements with investee companies. “[Investors can] support investing companies to identify as well as address any gaps that there might be that can contribute to positive outcomes for children,” Kulkarni adds.
She notes that investors can leverage all their tools through active ownership, be it via voting at AGMs for shareholder resolutions targeting child rights or direct oversight of their portfolio. Companies can identify child considerations expertise in investing companies, develop a standalone policy or commitment statement or guidance on children’s rights as a stewardship engagement theme and improve their disclosure on children. “We are currently developing a targeted toolkit for investors to carry out stewardship in line with Child-Lens Investing. It’ll be released next year, so watch out for it,” Kulkarni says.
Rozing agrees that there is a need to continue to raise awareness to the issue of children’s welfare. “It’s very good that we now have this momentum behind CLIF, including the recognition by TIME,” Rozing says, noting that even companies who have children as users or consumers have normally not considered children in their materiality analysis. “What we really need is for more investors to ask these questions of companies,” he adds noting that the progress will be driven by increased engagement momentum.
Staying the Course
Going forward, the focus is on consistency and focusing on spreading the message rather than innovating. “I think we’ll continue doing what we’re doing. I’ve learned over the last 15 years that I’ve been in this sector that if you keep repeating yourself and keep asking the same questions, at some point, people will listen,” Rozing argues.
Investment opportunities and challenges will be the result of market dynamics. With potentially more mergers and acquisitions, the Triodos IM Future Generations strategy could lose a few companies, creating opportunities for good returns and limited equity turnover. “We’ll keep focusing our stewardship efforts on what we’ve been doing for the last two and a half years and that will pay off at some point,” Rozing adds.
According to Kulkarni, UNICEF’s work will take a three-pronged approach in 20205, focusing on developing guidance, evidence and additional tools and data metrics with partners such as Iris+. UNICEF will also continue to push investors and the investment community to adopt Child-Lens Investing to align about US$1 billion in support of children and influence the market and establish children’s investing framework as an accessible and best in class financial tool.
“My wish for the industry and the investment community as a whole is that together we recognise children as critical stakeholders, because they really are the promise of our present and the architects of our future,” Kulkarni concludes.
IMPORTANT DISCLAIMERS:
Neither UNICEF, nor its partner in Luxembourg, Comité luxembourgeois pour l’UNICEF, is acting as an investment adviser and neither of them has had or will have any role in the design, structuring, development, management or operation of the Triodos Future Generations Fund. UNICEF, and the Comité luxembourgeois pour l’UNICEF, have not been and will not be involved in the management of the Triodos Future Generations Fund, including its investments decisions. Neither UNICEF nor the Comité luxembourgeois pour l’UNICEF has endorsed Triodos IM, Triodos SICAV I, the Triodos Future Generations Fund or any investment by the Fund. UNICEF and the Comité luxembourgeois pour l’UNICEF make no recommendation as to investment in the the Triodos Future Generations Fund.
The sole role of UNICEF, and the Comité luxembourgeois pour l’UNICEF, is to receive the donation from Triodos IM and apply such donation to UNICEF’s programmes for children. UNICEF and the Comité luxembourgeois pour l’UNICEF will have no liability to the Triodos Future Generations Fund or investors in the Fund in relation to investments in the Fund, the performance of the Fund or otherwise in connection with the Fund. UNICEF is immune under international law from every form of legal process.
