Russia-Ukraine Crisis Exposes ESG Failure
A Brief Summary
The invasion of Ukraine by Russia has unveiled the failings of data analytics firms and asset managers when it comes to assessing environmental, social and governance risks, says a senior sustainable finance executive. Some asset managers have stopped new investments in Russia, while others are divesting from the country.
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According to Sasja Beslik, a sustainable finance expert, ESG investors have failed to analyse and manage the risks associated with Russian investments before the latest invasion. He said businesses should have learned from the annexation of Crimea by Russia in 2014.
The former head of responsible investments at Nordea Asset Management said most asset managers and data analytics firms did nothing eight years ago. The crisis in Ukraine is a warning for all those working within ESG in financial services, he noted.
Beslik said over dependency shown by asset managers on ESG data analytics firms such as MSCI and Sustainalytics is also part of the problem. According to him, most asset managers use data from third parties and integrate it into their portfolios. It will have a tremendous impact on asset managers and their clients who relied on the data provided by MSCI and other companies for their Russian investment.
MSCI's decision to downgrade ESG ratings of the Russian government on its website from B to CCC, Beslik said: " This cam eight years too late."
A spokesperson for Sustainalytics said it carried out assessments following earlier series of sanctions after Russia annexed Crimea in 2014 and the inflating armed conflict in the eastern part of Ukraine in 2018.
Georgia Stewart, chief executive officer of Tumelo, said: " Defence and fossil fuel companies will exist whether or not the good guys invest in them. What’s important is that they are tightly controlled by responsible shareholders who engage thoughtfully with boards.”
The workplace pension scheme in the UK, Nest, said its decision to stop its Russian investments earlier in March was unusual in considering the moral case in addition to the financial one.
A spokesperson for the scheme said: " Nest isn’t an ethical investor. We’re a committed responsible investor that seeks to achieve the best long-term returns for members by operating a global portfolio and managing key ESG risks to the portfolio.”
Total divestment from Russian businesses will harm the Russians and their prospects, but it might not shake the military or political regime.