Ukraine may become a major ESG moment

The Ukraine crisis is, primarily, a human tragedy - already, more than 3 million refugees are estimated to have fled the country.

Geopolitically, the situation threatens to become the worst crisis in Europe since 1945. Perhaps most alarmingly there is growing concern about the use of tactical nuclear weapons by Russia which could kill millions. For corporates, the days since Russia's invasion have been a dizzying period that has seen what Yale Professor Jeffrey Sonnenfeld has called an unravelling of "capitalistic diplomacy" as commercial relationships have been severed on a scale thought unimaginable as recently as February. London School of Economics Professor Vladislav Zubok has also commented that the corporate retreat from Russia may be a bookend on the era whose beginnings he witnessed while passing Moscow's first McDonalds on his way to work each day soon after the collapse of the Soviet communism.

Governments around the world have taken coordinated action, using sanctions to target areas like Russia's banking system, state-controlled companies and powerful oligarchs. Beyond adhering to these government mandates, firms are guided in this fast-moving landscape by international codes of conduct, including the UN Guiding Principles on Business and Human Rights.

Yet, despite the widespread actions taken already, which has rattled President Vladimir Putin so much that he said last month that they are akin to a declaration of war, there are calls to do much more. This includes from former Ukrainian finance minister Natalie Jaresko who says that the Russian invasion should prompt a wider environmental, social, and governance (ESG) reckoning for the corporate community. She even suggested that Ukraine could be "the 21st-century equivalent of the late-20th century anti-apartheid movement, in which business, across many sectors and societies, banded together to counter the systemic and systematic racism of the white nationalist South African regime. The fastest way to end the war is to stop trading with Russia, divest Russian assets and refuse to finance Putin's regime".

Step back from the immediate situation in Ukraine, and it is clear that the crisis is only the latest incident to underscore the growing potential for businesses to become intertwined with foreign relations between states in political, human rights, technological and/or legal issues. There have been numerous other such challenges in recent years in what is sometimes uncharted territory, whereby individual firms and sometimes entire industries find themselves under the political and stakeholder spotlight in diverse polities across the world.

While this is not a wholly new phenomenon of the 21st century by any means, it nonetheless appears to be increasing in incidence and salience driven by globalisation in the volatile, uncertain, complex and ambiguous world we live in. The last decade and a half alone have already seen a succession of first order international crises, including the 2007/08 financial turmoil, and the coronavirus pandemic.

The march of globalisation during much of the post-Cold War era means that few international companies will escape these pressures completely. At the same time, owing to proliferation of media, and the influence of NGOs and related stakeholders, the actions of firms are increasingly under the microscope and for those perceived to misstep, the fallout may become increasingly damaging, both reputationally and also for the financial bottom line.