In Ukraine, a Vision of ESG’s Potential
ESG – environmental, social and governance – standards have become increasingly significant factors for both institutional and retail investors. Analysis by academic institutions like NYU Stern has consistently shown positive correlations between ESG performance and financial performance. According to Morningstar, inflows to funds indexed to ESG criteria are growing rapidly and total ESG assets, per Bloomberg, may soon account for an astounding one-third of global assets under management.
However, evidence of the actual impact on E, S or G has been murkier. The war in Ukraine may be one of the clearest demonstrations of its potential.
The corporate response to the Russian invasion has been unprecedented. Seemingly overnight, hundreds of businesses have decided to scale back operations in or sever ties with Russia, a veritable stampede for the exit, moving with agility their shareholders probably wish they saw in other functional areas of the organization. High-profile corporations – dozens more every day – have made major pivots in real-time, attempting to walk the walk of good global citizens, even when those high-minded business decisions run counter to the firms’ immediate financial interests. The calculus, it seems, is that while these actions may cause a short-term financial hit, failure to act could be fatal.
The majority of these business decisions are just that: business decisions, not the result of a government mandate. (As former NSC official Fiona Hill told Politico last week: “Ordinary companies should make a decision. This is the epitome of ‘ESG’ that companies are saying is their priority right now.”) Individual corporations are listening to clients, customers, shareholders, employees and pundits.
ESG has reached a tipping point at which the collective power of corporations makes possible momentous actions in support of high-priority social goals.
As a result, Apple and Google suspended mobile payments, Visa, Mastercard and Amex closed their operations, carmakers shuttered their showrooms, movie studios canceled blockbuster openings. Multinationals from Airbus and Boeing to retail giants like H&M and Ikea joined the exodus. Video game publisher Electronic Arts removed virtual Russian soccer teams from FIFA 22. (In the time it takes to read this sentence, any list becomes out of date.) Notably, even energy companies like ExxonMobil have pulled out of Russia deals – an especially consequential move given that Russia is the world’s third-largest oil producer. Meanwhile, corporations that aren’t acting are – McDonald’s being the most recent to feel the heat – being shamed, such as those on this Twitter list.
Taking an innovative approach, Airbnb is burnishing its social bona fides with an offer of free housing to Ukrainian refugees. And, as NPR reports, the company is also enabling people outside Ukraine to book Airbnb stays inside Ukraine as a way of providing financial support to those in the war zone.
So, while the true impact and outcome of these collective corporate ESG-driven actions remains unknown, there is no question that they are contributing mightily to the extraordinary economic punishment of Russia – perhaps as significantly as the sanctions themselves being levied by the US, EU and other leading economies. Russia had undoubtedly prepared for government sanctions – but did it factor in corporate punishments as well?
In just a couple of weeks, ESG has reached a tipping point at which the collective power of corporations makes possible momentous actions in support of high-priority social goals. Indeed, perhaps we are coming upon a day when corporate social conscience becomes unremarkable – because it’s the norm. This new paradigm would be most welcome and not a moment too soon: There’s no shortage of challenges on the horizon.