Stocktake: Russian invasion raises big questions for ESG investors

The investment world talks a lot about environmental, social and governance investing (ESG), but Russia's invasion of Ukraine means it's now time to "walk the walk".

So said former Ukrainian finance minister Natalie Jaresko in a Financial Times piece last week, and she's not alone in her indignation.

"Why did ratings agencies, big banks, investors and index providers get Russia so wrong?", asks BlueBay Asset Management economist Timothy Ash, one of the few to foresee Russia's invasion. "I mean, how can you have Russia in an ESG index?"

High-profile Russian expert and former US official Dr Fiona Hill agrees, saying that, just as the German business community facilitated Hitler’s rise, everyone doing business in Russia “has contributed to Putin’s war chest”.

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That message is now being heard. Norway's $1.3 trillion sovereign wealth fund, the biggest in the world, is divesting its Russian assets. Index firm Stoxx is axing 61 Russian companies from its indices, while MSCI is removing Russia from emerging-market indices. Shell has followed BP in exiting Russia. French oil giant Total will no longer provide capital for new Russian projects.

How quickly things have changed. "We avoid the politics. That serves us well in many countries around the world," said Kerryman and BP boss Bernard Looney last October, later adding that his appearance on a panel with Vladimir Putin was a "privilege".

Claiming companies can “avoid the politics” won’t wash any more.

Similarly, there is a debate to be had as to what constitutes ESG. The Russian crisis, says Timothy Ash, “has shown that in ESG, ‘S’ and ‘G’ have been poor relations”.