How has the ESG investing landscape changed one year on from the Russian invasion of Ukraine?

February 24, 2023

On the one-year anniversary of Russia’s initial invasion of Ukraine, EM Senior Sovereign Strategist Tim Ash re-evaluates how the ESG investing landscape has shifted.

The Russia/Ukraine conflict has, I think, demonstrated the newfound power of ESG. This can be broken down into three factors: investors pre-emptive positioning, self-sanctioning, and the impact of powerful ESG considerations.

First, investors who did their ESG homework, and understood the rule of law/governance issues around the Putin regime, reduced their exposure to Russia long prior to the invasion. Albeit now laid bare by the conflict, I think a long march of malign actions against Ukraine and the West, and sanctions in response, previously signposted these concerns. We had been increasingly mindful of growing ESG risks around Russia for some years prior and reduced our exposure to both Russia and Ukraine in the months leading up to the war. Indeed, as far back as 2015, the illegal annexation of Crimea and then the Russian military intervention in Donbas in 2014, followed by the failure to secure meaningful conflict resolution with the Minsk 1 and 2 agreements, signalled that a more defining conflict between Russia and Ukraine was likely. More recently, further evidence suggested that war was imminent – the constant Russian troop build-up around Ukraine throughout the course of 2021, Putin’s penning of an essay in mid-2021, which now seems evident to be his justification for war, and clear warnings of the imminence of a Russian invasion by open-source Western security sources. Wary investors had taken Russia-related risk off the table long before.

Second, and on the focus on sanctions, perhaps the greatest hit to Russia after the invasion was self-sanctioning by Western companies operating there. Many companies, operating in unsanctioned sectors, left Russia because of ESG concerns. They simply did not want the additional ESG headache of trying to explain why they are supporting the Russian economy with their continued presence in the Russian market, while Russia is waging a brutal war in Ukraine. I think this is the first example where Western companies have not only worked to the letter of sanctions rules, but also the spirit in which these restrictions were drawn up and intended.

Third, ESG considerations were, I think, powerful in persuading some of the big market index providers to kick Russia out of various indices in response to the invasions. ESG conscious investors held them to account for not acting soon enough. One could also extend this to ratings agencies withdrawing Russia’s ratings primarily around issues connected to ESG.

Sign up for insights by email

Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.

This document is a marketing communication and it may be produced and issued by the following entities: in the European Economic Area (EEA), by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, Italy, Spain and Netherlands the BBFM S.A is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In the United Kingdom (UK) by RBC Global Asset Management (UK) Limited (RBC GAM UK), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission (SEC) and a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In Switzerland, by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The place of performance is at the registered office of the Representative. The courts at the registered office of the Swiss representative or at the registered office or place of residence of the investor shall have jurisdiction pertaining to claims in connection with the offering and/or advertising of shares in Switzerland. The Prospectus, the Key Investor Information Documents (KIIDs), the Packaged Retail and Insurance-based Investment Products - Key Information Documents (PRIPPs KID), where applicable, the Articles of Incorporation and any other document required, such as the Annual and Semi-Annual Reports, may be obtained free of charge from the Representative in Switzerland. In Japan, by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong. In Australia, RBC GAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. In the United States, by RBC Global Asset Management (U.S.) Inc. ("RBC GAM-US"), an SEC registered investment adviser. The entities noted above are collectively referred to as “RBC BlueBay” within this document. The registrations and memberships noted should not be interpreted as an endorsement or approval of RBC BlueBay by the respective licensing or registering authorities. Not all products, services or investments described herein are available in all jurisdictions and some are available on a limited basis only, due to local regulatory and legal requirements.

This document is intended only for “Professional Clients” and “Eligible Counterparties” (as defined by the Markets in Financial Instruments Directive (“MiFID”) or the FCA); or in Switzerland for “Qualified Investors”, as defined in Article 10 of the Swiss Collective Investment Schemes Act and its implementing ordinance, or in the US by “Accredited Investors” (as defined in the Securities Act of 1933) or “Qualified Purchasers” (as defined in the Investment Company Act of 1940) as applicable and should not be relied upon by any other category of customer.

Unless otherwise stated, all data has been sourced by RBC BlueBay. To the best of RBC BlueBay’s knowledge and belief this document is true and accurate at the date hereof. RBC BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. Opinions and estimates constitute our judgment and are subject to change without notice. RBC BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only.

No part of this document may be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose in any manner without the prior written permission of RBC BlueBay. Copyright 2023 © RBC BlueBay. RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management Inc., RBC Global Asset Management (UK) Limited and RBC Global Asset Management (Asia) Limited, which are separate, but affiliated corporate entities. ® / Registered trademark(s) of Royal Bank of Canada and BlueBay Asset Management (Services) Ltd. Used under licence. BlueBay Funds Management Company S.A., registered office 4, Boulevard Royal L-2449 Luxembourg, company registered in Luxembourg number B88445. RBC Global Asset Management (UK) Limited, registered office 77 Grosvenor Street, London W1K 3JR, registered in England and Wales number 03647343. All rights reserved.

Sign up for insights by email

Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.