The human and global security costs of the Ukraine situation are hard to think about. Without a doubt, people and families living in the country are affected in ways words can’t adequately reflect. That words are inadequate may be good – because it shows the meaning of actions. Actions undertaken by companies in the next days can have meaningful lasting impacts.
Some companies (such as BP and Equinor) have already announced steps they are taking to reduce or eliminate business interests in Russia. The White House issued new sanctions on the largest Russian financial institutions and a number of “Russian elites.” The OECD announced it terminated discussions with Russia and is reviewing the country’s involvement in various aspects of the organization. Dave Lynn wrote last week that U.S. companies are starting to consider how to manage and disclose bans, sanctions and prohibitions that could impact them. Each new action taken by governmental and quasi-governmental organizations will have domino effects.
ESG as a corporate initiative faces an unprecedented and acute challenge. The magnitude and speed of Russia’s actions did not allow companies to conduct advance analysis and preparation, yet companies need to respond sooner rather than later. A few things I expect to see with regard to ESG activity for the foreseeable future include:
- Ending business relationships with Russian entities and divesting holdings of Russian businesses. Keep in mind that for a divestiture to be successful, that means a buyer is on the other end. Perhaps it is worth asking who would be a buyer of Russian interests in this moment? This Reuters article on BP points out that the company hasn’t made clear just “how it plans to extricate itself” from its Rosneft stake.
- Stepping up due diligence on business partners, who they deal with and where their business interests are.
- Sanctions issued by individual countries and the EU, along with industry and company responsible sourcing commitments, will likely disrupt certain supply chains as Dave mentioned. One precious metals industry pundit pointed to gold from Russian refineries in this context. Banks Credit Suisse and Societe Generale SA announced they are halting Russian commodity financing. Companies will need to identify and screen alternate suppliers.
- Increased direct humanitarian aid and more emphasis on planning to assist in future similar crises. For example, I’ve seen posts on LinkedIn from companies offering Ukrainians temporary jobs and living arrangements – even offering to pay transportation costs.
- Managing near term carbon reduction planning, especially for those involved in providing energy in Europe. Russian forces have reportedly destroyed a gas pipeline in Kharkiv and an oil terminal near Kyiv.
- Every country’s view of energy independence, or at least reducing reliance on imported fossil fuel, is now likely being reprioritized. That may or may not align with current sovereign and corporate plans for alternative energy development.
While the cameras will mostly be in Ukraine for the coming weeks, spotlights are on the business world’s reactions. Merely donating to laudable causes may not be enough. Companies should take practical actions to show their commitment to ESG during this critical time.