Russia's MSCI ESG rating downgraded again to reflect 'further financial isolation'

MSCI ESG Research has downgraded Russia's ESG (environmental, social and governance) government rating to "CCC": the lowest score for MSCI ESG ratings, which identify a country's exposure to, and management of, ESG risk factors.

In a Mar 9 statement, the index provider's ESG research arm said the move follows its Feb 28 downgrade on Russia from "BBB" to "B" - and reflects Russia's "further financial isolation" over the past week.

It highlighted further heightening of risks in the areas of economic environment and financial governance, based on the widening domestic impact of international sanctions and financial isolation on Russia's economy.

These include the decision by a number of countries and the European Commission to prevent the Russian central bank from using its international reserves, which were valued at US$630 billion as at January 2022, as well as sanctions placed on Russian individuals and companies by the US, European Union (EU) and other countries.

The EU's recent decision to bar 7 Russian banks from the Swift payments system, along with the withdrawal of major international companies such as Visa, BP and HSBC, were also among the factors listed by MSCI ESG Research.

"Further, we consider that some of the historic quantitative data used in our methodology are no longer accurate indicators for the level of risk faced by Russia on these key ESG issues, which has created a higher degree of uncertainty, and therefore risk, for these metrics," it said.

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Russia's scores for risk exposure to economic environment and financial governance have notably been adjusted down to 0, in line with its score for political governance risks.

The research house added that it sees higher uncertainty around key metrics because annual input data used in its model has yet to capture Russia's invasion of Ukraine, whose MSCI ESG government rating remains unchanged at "BB" with a "negative" outlook.

MSCI ESG Research said it will continue to monitor the impact of the invasion on Ukraine for risks to the country's sustainability and competitiveness.

In the case of Ukraine, the research house has added several assessment categories to determine the country's risk exposure to political governance, human capital and economic environment - all of which have been determined as "very severe".

Ukraine's environmental pillar score remains unchanged, although MSCI ESG Research said these assessments will remain under active monitoring.

"We have added a number of 'Sovereign Watch' assessments in light of the severity, intensity and unprecedented nature of Russia's invasion of Ukraine, the imposition of martial law, the large number of refugees, and the significant economic and human impact of the conflict on Ukraine. However, these have not resulted in a change in (Ukraine's) rating," said the research house.

READ MORE: 

• Asset managers freeze funds with significant exposure to Russia as sanctions bite

• ESG funds had US$8.3b in Russia assets right before war

• MSCI pulls Russian equities out of its key emerging-market index

• Russia keeps stock trading closed in nation's longest shutdown