Purpose on Payday
Over the past month, Russia’s horrific invasion of Ukraine has thrown up a number of complex issues around the ethics of business and how we keep fragile net zero ambitions alive.
Many Western companies operating in Russia were quick to exit, such as Apple and Ikea, but others, like McDonald’s, were slower to follow suit, finally bowing to immense public pressure about a week later. On the face of it, halting sales in the country seems an obvious and easy decision from a moral and reputational standpoint, spurred on by the fact that sanctions and other operational risks are making doing business there extremely difficult too. But it’s not that clear cut.
There are countless businesses directly or indirectly involved in the provision of essential services in Russia such as food and healthcare. Then there’s the far-reaching impact of job losses from the business exodus. Danone, for example, decided to stay put. It has suspended investments in the country but continues to sell its products, citing its ‘responsibility’ to customers there. Speaking to The Financial Times, Danone CEO Antoine de Saint-Affrique said: “It is very easy to get drawn into black-and-white thinking and demagogic positions but, in the end, our reputation is about our behaviour. We have a responsibility to the people we feed, the farmers who provide us with milk, and the tens of thousands of people who depend on us.”
The war has also exacerbated an already acute cost of living crisis with oil prices hitting record highs. This week’s Spring Statement focused on easing the pressure for people and businesses, but it will be a long running issue and risks derailing progress towards net zero targets.
The desire to rapidly wean off Russian oil and gas has brought coal back into the conversation, after leaders negotiated endlessly to cut its usage at COP26. Renewable sources can’t currently plug the gap, so unless there is a mammoth effort to invest in renewables, it is likely that hard fought carbon reduction agreements will fall by the wayside. Speaking at The Economist Sustainability Summit, UN Secretary General, Antonio Guterres said, “Countries could become so consumed by the immediate fossil fuel supply gap that they neglect or knee-cap policies to cut fossil fuel use.”
Not only have environmental priorities been called into question, but ‘ESG’ investing is now further complicated by a debate around weapons, with ESG funds now reconsidering whether or not they include defence companies as they are necessary to defend social freedoms. SEB Investment Management for example has removed restrictions on defence firms for six of its funds and there have been calls for the EU Taxonomy to include weapons manufacturers under the banner of ‘social sustainability’. Obviously, there are vital differences between defence firms, such as the types of weapons they produce and whose hands they fall into, but defence as a sector is no longer seen as mostly ‘bad’.
The issue of financial crime has also come to the fore. With the list of Russian oligarchs being sanctioned growing and the Economic Crime Bill coming into force, careful scrutiny of all investment links has ensued. Organisations that have benefited from the vast Russian wealth allowed to permeate the British economy will have big holes to fill and a lot of soul searching to do.
Indeed, the world, and ESG landscape, is a very different place to just a month ago.