One of the main ways the world has begun punishing Russia for its invasion of Ukraine has been on the financial front. This has been done via a correlated effort from the European Union, the United States, and other nations via economic sanctions, closing airspace to Russian aircraft, removing Russia’s ability to tap its $630 billion in foreign reserves, and shutting out Russian banks from the SWIFT global financial network.
These efforts have basically removed Russia from the world in an economic sense and made the nation ‘uninvestable.’
For ESG investors, this has been a surprise shock. Based on history and other factors, most investors would be surprised to see that Russian assets feature prominently in several ESG funds. But that’s exactly what was going on. Analysis by Bloomberg of roughly 4,800 ESG funds representing more than $2.3 trillion in total assets, about 300 were directly exposed to Russia via bonds and equity holdings just before Russia invaded. That’s roughly $8.3 billion worth of assets.
Worse still is that ratings for these assets were pretty solid on the ESG scale. Bloomberg found that 13 of the ESG funds held assets that met the “very highest level of sustainability” by Europe’s Sustainable Finance Disclosure Regulation. Nearly 140 funds held assets that were in the “promote ESG characteristics” category.
Additional data from CIBC Capital Markets shows that the big four Russian energy companies— Lukoil, Novatek, Gazprom, and Rosneft —accounted for about 0.2% of global ESG holdings. While that may seem small, it’s more than double the size of investments in Canada’s energy market. Russia features more prominently than Canada on ESG scores.