Putin’s War Shifts ESG to Core of Business Decisions

By Ami Daniel, CEO and Co-Founder of Windward & Guy Mason, Board Director, Windward (former SVP, BP Shipping)

In the early 2000s, Corporate Social Responsibility (CSR) was seen as a growing requirement – a buzzword for sustainable business practices. Today, it is viewed as archaic and outdated, having become discredited as simply a marketing tool that allowed businesses to make symbolic gestures. CSR programs argued that society would benefit from philanthropy and charitable efforts, which in turn would boost their own brands.

Environmental, Social, and Governance (ESG) programs evolved from CSR in about 2005, now becoming a central theme in business agendas – a theme that, unlike CSR, is driving fundamental business decisions and choices. Different from CSR, it considers how ethical a company’s practices really are, putting sustainability and moral principles above profit.

The Covid-19 pandemic boosted the importance of ESG, with businesses deeply considering their wider role in society. But it’s Putin’s war that has brought ESG to the very heart of business considerations in a profound way. Over 300 companies withdrew from Russia in the two weeks leading up to March 13, 2022 in a corporate mass exodus (and hundreds more have done so since).

All three elements of ESG are shaping the future of industries and influencing near-term business decisions. 

E – Oil and gas prices have surged and nations’ energy exposure to the Russian conflict has come to the fore. Never has energy independence felt so important. The realization that Europe is exposed and reliant on energy from Russia has been laid bare by the Russia-Ukraine conflict. This may be the most significant driver of change in the long term to energy-independent alternative energy sources. Even if, in the short term, climate unfriendly solutions, such as coal, may be required to meet energy demands as a result of backing out of Russian flows.

S – The role of corporations in supporting society’s greater good has been brought into sharp focus by Putin’s war. No longer is it acceptable to profit from discredited or immoral regimes or individuals. The pressures brought to bear by society on companies that are seen to be supporting Putin’s regime in any way is causing a fundamental rethink of business. Oil companies abandoning decades of carefully nurtured business and relationships overnight (such as BP, Shell, Exxon, Equinor), high-street consumer brands closing premises (Starbucks, Coca-Cola, Pepsi) car manufacturers halting sales (Aston Martin, BMW, Ford, General Motors, Honda, Jaguar, Land Rover) or suspending production (Hyundai, Skoda), or sports organizations suspending partnerships, or banning Russian competitors (IOC, boxing, rowing, rugby). 

G – New standards of transparency and understanding are expected of corporations to be certain that, in pursuing their business aims, they’re not directly or indirectly supporting immoral regimes – including Putin’s. And that any involvement they might have, however remote, would be consistent with their company values and with rapidly evolving expectations from society. This can only be achieved with a full and continuously up to date understanding of their suppliers, customers and owners – no small task in today’s fast-moving business environment.  

Legal and sanctions compliance is no longer proving to be the dominant test – ESG considerations arising from Putin’s war have set a higher, more demanding bar than what is required by legal or sanctions compliance alone. Today’s businesses should consider looking at a scale that doesn’t only consider if actions are legal – but perhaps grading them on a scale that starts with what’s legal, what’s ethical and finally, what’s wise. 

Sanctions compliance is a rules-based system generating a “yes” or “no” answer. Today, businesses’ ESG considerations are requiring more sophisticated analysis with judgements based on a deeper and more detailed understanding of their counterparts, and what’s consistent with company values and rapidly changing societal expectations.

Bringing real edge to ESG considerations has perhaps been an unexpected consequence of the current conflict. No longer are these considerations peripheral to business – they are at the very heart of business decision-making in 2022.