Conflict in Ukraine shines new light on the overlaps between sustainability and political risk. Companies with business in authoritarian countries may wish to take another look at the sustainability of those investments.
Russia may seem like an extreme example of these overlaps. But once seen as a source of vital raw materials, highly educated labour force, and sizeable consumer market, it has become a pariah nation, literally overnight. Western companies and international organisations are abandoning Russia in haste.
Part of the reason for this is that western governments have introduced new sanctions and removed Russia from the international financial system. The sanctions target Russia’s financial, energy, and transport sectors in particular, as well as the country’s oligarchs.
But the exodus is also reputational and linked to sustainability, in the sense that investments in Russia have material impact. Political scientists make comparisons with investments into apartheid South Africa or Nazi Germany.
Fiona Hill, a widely-respected Russia expert, is one such political scientist. Not every Russian company is tied to the Kremlin, she says in an interview with Politico, but many certainly are. And this issue is the epitome of ESG that companies are saying is their priority right now, upholding standards of good environmental, social and corporate governance, she says.
“Do you really want to have your money invested in Russia during Russia’s brutal invasion and subjugation and carving up of Ukraine?”
The reputational effects go beyond sustainability issues, however, and association with Russia has become toxic. Even sporting organisations, such as FIFA and the World Athletics Council, are dropping their links.
In terms of communications, companies have a basic choice between silence, neutrality, or outright condemnation of the invasion.
Most companies seem to have started by recognising that the Ukraine crisis is a tragedy and citing concerns for affected staff. Some are still deciding whether this is a crisis, a conflict, or an invasion.
But as the dust settles, questions might be asked. How did we contribute to this? Should political risk be a part of our sustainability agenda? How sustainable can our investments into an authoritarian country ever be?
Many analysts are watching China’s reaction closely. Will Beijing stand with Moscow, or – with time – will they distance themselves from the conflict? More directly, what will western governments and companies do if China now invades Taiwan? Is this a political risk? And what does it say about a company’s commitment to sustainability to be invested in such a country?
Some companies have decided to stay silent on Russia, maintaining their investments. Their reputation may yet take an enormous hit, suggests Christyan Malek, head of global energy strategy at JPMorgan, in a recent interview with the Financial Times.
“How do you advance a credible ESG agenda when you’re in a country that’s in a major conflict?” he said.