Erste AM: Debate around toy production: “We probably have to see a catastrophe first”

The Christmas shopping season accounts for about 25% of annual retail sales, and toys should make up a sizeable junk of that. After all, they are among the most popular Christmas presents. While this segment, too, has experienced an increase in demand for products from ecologically and socially fair manufacture, these standards have demarcated an often pricey niche. The rise of China to a status of global toy factory in particular has brought about significant deficiencies in terms of sustainability. But the five biggest producers, Hasbro, Mattel, Bandai Namco, Jakks Pacific, and Lego also show drastic shortcomings in some cases.

 

Mr. Benedikt, in comparison with sectors like the textile industry, relatively little attention is paid to the workplace conditions in the toy industry. Can you tell us why?

Benedikt: Certainly not because of better workplace conditions, as they still are often disastrous, especially in Asia, and especially among suppliers. Forced internships by students are common practice – and toxic substances are used no less. The workers are often even worse off than in other sectors. Whereas for example in the electrical industry the sector standards benefit from annual improvements, the most recent improvement in the toy industry was implemented in 2010. The fact that the shortcomings are not discussed much is largely due to two reasons. Firstly, many toy companies are not listed, which means that it is difficult to actively influence them via engagement as investors. And secondly, the industry is very concentrated, which means that there is little competition to force the various players’ hands. We probably have to see a catastrophe to trigger a public debate around these problems.

 

This means that there is no improvement to date?

Benedikt: Well, there is. Of course, some important progress has been made.  Many small manufacturers nowadays adhere to high ecological and social standards. This has also incited such big producers as Hasbro or Mattel to advocate better workplace and social standards. However, the results are still limited. For example, Hasbro has just been confronted with accusations of bad workplace conditions among Chinese suppliers.

 

And what about the issue of sustainability?

Benedikt:  The rising amount of electronic content in toys has caused environmental pollution to rise accordingly. Only Hasbro offers the option of taking back and recycling discarded toys. Contaminants have also been detected numerous times in toys. While not all the poison used in production ends up in the toy itself, the contamination of the production site remains high. On the upside, regulatory requirements in Japan, the EU, and the USA are increasingly forcing companies to avoid contaminants and step up product safety and quality, although the support by controls is still somewhat lacking.

 

What other ESG problems have you flagged up with respect to toys? 

Benedikt: When it comes to social acceptability, data protection in connection with networked toys plays a crucial role. Children are more in need of protection than adults are in this context. It is therefore extremely important to protect their data and prevent involuntary purchases. Although this is what the legislators demands as well, in practice this aspect is not handled accordingly. The main deficiency is responsible marketing. Only Disney and Hasbro are positive exceptions to the rule.

 

 

Also have a look on our magazine for sustainable investments: http://esgletter.en.erste-am.com/

 

 

 

Erste Asset Management GmbH (www.erste-am.com) coordinates, and is responsible for, the asset management activities (asset management based on investment funds and portfolio solutions) within Erste Group Bank AG. At its locations in Austria, Germany, Croatia, Romania, Slovakia, the Czech Republic, and Hungary, it manages assets of about EUR 55.8bn (as of 31 December 2015).

 

 

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