russia ukraine shift the esg landscape

How will war in Ukraine shift the ESG landscape?

Carolina San Martin, CFA, Director, ESG Research
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Just as climate change and the pandemic have heightened awareness of companies’ environmental, social, and governance (ESG) practices, Russia’s invasion of Ukraine has turned the spotlight on ESG in new ways. From increased focus on cybersecurity and supply-chain accountability; to human rights and international law; to national defense and energy considerations, our ESG Research Team highlights how the crisis may shape their analysis. We will be engaging with companies and issuers to discuss how they plan to manage disruptions, and to what extent they expect to pass resulting price increases on to consumers.


Climate and energy policy

  • Global coordination on climate change may decelerate in the short term. However, regional policies that support the shift to low-carbon energy sources may accelerate as more governments see energy policy as a national security issue.
  • In the near term, if energy prices continue to rise, the effect of climate policy on consumers is likely to attract more attention, as will concerns about a “just transition.”
  • Nuclear-power-facility retirements could be delayed as governments seek near-term alternatives to oil and gas.
  • Companies may accelerate transition plans to lessen their reliance on oil and gas.
  • We will engage with management teams to understand how they plan to stay on track with emissions-reduction plans.
  • The impact on longer-term net-zero goals remains to be seen, but short- and medium-term carbon emissions-reduction targets could be disrupted, especially in Europe.


  • We anticipate greater focus on how companies protect information and systems across many sectors, including financials, industrials, transportation, technology, telecommunications, and health care.
  • Cyber risk management will be especially important for large multinationals.

Russian market securities

One notable area of focus amid this crisis is Russia’s sovereign ESG profile. The S issues in ESG often reflect an issuer’s “social license” to operate, and it is increasingly clear that Russia’s economy is losing its social license in global markets. We expect the deterioration of Russia’s sovereign ESG profile to continue to carry over to Russian corporate issuers as well.



  • Near term, we believe the defense industry could be reassessed in a neutral, or even a positive, ESG light, given its role in protecting international law and institutions. Investors who currently exclude defense from their universe might consider a more nuanced approach.
  • Longer term, European Union (EU) regulators could shift the tone of EU Social Taxonomy definitions. Potential evolution of the “do no significant harm” principle remain to be seen, but if investors and regulators both begin to rethink the defense industry’s ESG profile, a rerating is not out of the question.


  • Financing of controversial weapons (nuclear, biochemical, etc.) will come under more scrutiny.
  • Insurers will likely reevaluate cyber insurance exposures and contracts.


  • The crisis increases the potential for persistent inflation amid rising transport and input costs.
  • Food prices could increase if wheat or other agricultural supplies remain strained.


  • How companies address misinformation — particularly about the war — will become even more relevant.
  • Despite the widespread blocking of payments to Russia since the invasion began, we expect near-term revenue impact to be relatively minor. How companies respond to ongoing government requests for stoppages will be worth monitoring, however.
  • In semiconductors, dependency on Russian and Ukrainian mineral inputs, including neon, palladium, and platinum could become a cost pressure for producers amid a protracted conflict.

Industrials and transportation

  • In Europe, gas shortages could cause some industrials to shutter intermittently in order to prioritize residential heating next winter.
  • Transportation and shipping lines have already been affected. The need for longer transport routes to avoid the conflict region will elevate emissions and costs — particularly for airlines.
  • Some of the world’s largest shipping companies have suspended deliveries other than medical supplies and food to Russian ports.
  • While sustained higher oil and gas prices could accelerate adoption of electric vehicles (EVs), batteries, and renewables, ongoing supply-chain disruptions and/or rising costs for key inputs to these supply chains could decelerate adoption.


  • European companies could face higher utility and construction/materials costs for new builds.
  • How these costs affect cost of living and consumer preferences is unclear. Affordable residential options could be seen as favorable from an ESG perspective, particularly if rent regulations change.
  • Companies with a higher mix of renewables could be short-term outperformers; longer term, the picture is cloudier.


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