Author: BigTXN – bigtxn.com
Russia’s invasion of Ukraine is rapidly exposing hidden risks in much of the investing world. Environmental, Social and Governance, or ESG as it is more commonly known has collided head-on with the Russia-Ukraine issue and is widely being regarded as the most important issue to face ESG.
The ESG investing label describes a style of investing by investors or investment managers; with a multitude of interpretation and implementation differences underlying the label.
There are two primary ESG investing camps, make a better world, or be a better investor. Within these camps, myriad implementation methods take the form of outright exclusion, best-in-class inclusion, potential for improvement, engagement and impact investing among others.
“The first casualty when war comes is truth” — Hiram Warren Johnson
In 1918, US Senator Hiram Warren Johnson is purported to have said, “the first casualty when war comes is truth” — in the world of modern investing, it is the integrity of ESG investing that has been shaken. There are some tough questions being asked of ESG in light of the current crisis; including the ability of ESG investing to fulfil the topical investment desires of investors. Most urgently, can ESG investing be at odds with investors’ investment philosophies given the current geopolitical backdrop?
Russia’s invasion of Ukraine has exposed a risk to all ESG implementation methods. Investments in state-owned corporations that are involved in human rights abuses, by way of directly or indirectly supporting an autocratic regime’s war, ought to be excluded under norms-based violations.
However, sovereign risk coverage and analysis for ESG investing purposes is nowhere near comprehensive or evolved to pre-empt the types of political risks being exposed in the Russia-Ukraine crisis; nor is the ESG investing world remotely prepared to deal with risk from other autocracies, chiefly China and Saudi Arabia, until a red-line is crossed.
