ShareAction joins people, governments and civil society groups across the world in condemning the Russian government’s invasion of Ukraine. Like others, we are horrified by the impact that the unprovoked attack is having on the people of Ukraine. We are not qualified to comment on much of what is happening. However, we share the following reflections on keystone actors in the financial system and their role in this grave situation.
Institutional investors, the stewards of trillions of dollars, are reacting to sanctions, as well as wider reputational risks, by making decisions to reduce exposure to Russian sovereign bonds and state-owned companies. Some major pension funds, including USS, Church of England and NEST have taken the decision to sell all Russian holdings.
In many cases these decisions will be straightforward: at the very least they will be justified on “financial risk” grounds alone. However, investors, particularly those claiming to be “responsible investors”, need to go beyond managing financial risk to take responsibility for the impact their investments have in the world. Responsible investors must ensure that their activities do not cause or contribute to violations of international humanitarian and human rights law, especially against civilians affected by conflict.
As a first step in this direction, responsible investors must implement policies to exclude sovereign bonds from countries involved in widespread human rights violations. Our research in 2020 found that only 16 per cent of the world’s largest 75 asset managers had made firm commitments of this nature. This must change. Beyond this, responsible investors will also need to closely scrutinise and consider exiting investments in, or ending financing of, state affiliated entities and any other entities or individuals that are arming, financing, or otherwise contributing to violations of humanitarian and human rights laws.
Responsible investors also have a responsibility to our planet, and fossil fuels play a central role in both climate change and Russia’s war. Some have argued that we need greater investment from Western governments and energy majors in fossil fuel expansion in order to minimise price rises and reduce reliance on Russian oil and gas. This argument is mistaken.
The solution to volatile gas prices is to reduce, not increase, our dependence on gas. As Chris Stark of the UK’s Climate Change Committee has said, new investment in fossil fuels “will take too long to ramp up, it will have almost no impact on the price paid by consumers for oil and gas.”
Instead, responsible investors should ensure that the Ukraine crisis is, as Fatih Birol of the IEA has said, an “historic turning point” in how European countries source their energy. Investors must support companies in the roll-out of renewable sources to replace fossil fuels and improve the energy efficiency of buildings reducing the demand for gas.
Investors do not operate in a vacuum. Decisions taken, or not taken, have an impact on the world around us. The truly responsible investor will be as concerned about the social and environmental impacts of their investments as they will be with making a financial return.