THE wave of voluntary sanctions protesting Russia’s invasion of Ukraine demonstrates a coming of age of ESG principles, says Pendal’s Murray Ackman.
Self-sanctioning has seen some of the world’s largest companies including McDonalds, Apple and Shell go beyond government sanctions and scale back or shutter their Russian operations.
The widespread protest is a new phenomenon for global business and has been spurred on by the highly visible social media coverage of the conflict.
It demonstrates that society expects business to step up and take its environmental, social and governance obligations seriously, says Ackman.
“Going forward, it’s going to be a lot harder for companies to pick and choose their ESG concerns,” says Ackman, a credit ESG analyst who works across funds including Pendal’s Australian Sustainable Fixed Interest Fund.
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“What’s interesting about Russia is that everyone is being called to account — by their investors, by their customers and by society — and asked to explain their exposure to anything Russian-related.
“This represents a normalisation of ESG.”
Ackman says there are parallels between how global business is treating Russia and how early ESG investors operated.
“Negative screens used to be the approach — screen out all the sin stocks. That’s how Russia is being treated now.”
But increasingly in investing, engagement is more impactful than screening.
“Negative screens have a role, but directly engaging and nudging companies towards behaviour can have a significant impact.”
The question for investors is whether corporations will take a similar stern approach to future issues and conflicts between nations.
“We’ve already seen this with some companies under pressure from their investors refusing to use Chinese cotton unless it can be proved free of forced labour.”
But extrapolating a consistent hardline approach is more difficult.
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“It’s very easy to say OK to sanctioning Russia but then why do you not care about Saudi Arabia and Yemen?” he says.
“Remember this is not even the first time Russia has invaded a sovereign nation.
“The thing investors need to understand is that there is not a one size fits all approach. Different investors and different clients have different views of the world.”
Ackman says one of the key things for investors to remember is that the world’s response to Russia indicates that taking an ESG approach to investment is the only way to avoid these kinds of risk.
“How do you predict an invasion? Can you forecast when a war will happen?” he says.
“An ESG approach to investing is basically the only alternative.”
Credit ESG analyst Murray Ackman joined Pendal’s Income and Fixed Interest team in 2020 to provide fundamental credit analysis and integrate Environmental, Social and Governance factors across credit funds.
Murray has worked as a consultant measuring ESG for family offices and private equity firms and was a Research Fellow at the Institute for Economics and Peace where he led research on the United Nations Sustainable Development Goals.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
Regnan Credit Impact Trust is a defensive investment strategy that puts capital to work for positive change.
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