War in Ukraine may be déjà-vu for ESG investors

‘Too many funds say they consider ESG or exclude a fraction of an index and expect to be congratulated’


Julia Dreblow, founder, SRI Services and Fund EcoMarket

I suspect some ESG Clarity readers may feel a sense of déjà-vu when observing world events, if not from first-hand experience then from research.

Indeed, some may look back to where the sustainable and ESG market started and wonder what we should have done differently. After all, one of the aims of the UK’s first ethical fund (Stewardship) was to support companies that were ‘provided the basic necessities of life’ – and the first US fund (PAX) was launched to enable individual investors to avoid financing companies linked to the Vietnam War.

So as war rages in the Ukraine, energy prices soar, and the effects of food supply issues and rising inflation worsen we are reminded that although history may not repeat itself – it often rhymes.

Clearly there are differences between now and the 1970s and 80s. Although war is a major factor today, few oppose arming the Ukraine. And although much has been done to reduce global poverty in recent decades providing the ‘basic necessitates of life’ – food, housing, water and energy to heat our homes and cook – is becoming increasingly challenging for many.

There have been occasions recently when we’ve hoped the worst was behind us. Indeed, the combination of Brexit and Covid felt like a perfect storm – particularly when coupled with climate risk and the fires in Europe. Yet Russia’s invasion of Ukraine has taken us to a whole new level.

What can investors do?

We need start by recognising we cannot solve everything, while understanding we have a major part to play.

Following commentary that rather pointed a finger at our area we asked sustainable (ESG/ethical etc.) fund managers whether or not they invested directly in Russia.  

Some 31 of the 36 sustainable fund managers that responded to our survey said their funds did not invest in Russia or Belarus. There will be other reasons also, but common reasons given included the prevalence of coal, oil and gas majors, armaments involvement, human rights concerns, governance risks and of course ‘oppressive regime’ related concerns.

Those that had – albeit minimal – exposure mostly said they did so because they had an emerging market strategies or index driven strategy. One cited a desire to deliver carefully targeted positive impacts, as although not easy to find – there are decent Russian companies in need of investment also.

In fact, if you select all of the reasons above on Fund EcoMarket – (specifically ‘avoids coal, oil and gas majors’, ‘human rights policy’, ‘oppressive regime exclusion policy’ and ‘avoids companies with poor governance’ and ‘armaments manufacturers avoided’) you will find there are 87 primary funds that meet all these criteria.  

These include funds from respected managers such as EdenTree, BMO, Janus Henderson, Quilter Cheviot, Stewart Investors, Liontrust, Aegon, Abrdn, Triodos, Rathbones (who we partner with) – as well as companies we know less well – including Montenaro, Gravis, NinetyOne, Legg Mason, Schroder, Candriam, Morgan Stanley and Carmignac.   

The choice of funds reduced to 62 when we brought in ‘intentionality’ into the mix – filtering for ‘aims to deliver positive real-world impacts’ – and ‘measures impacts’ also. 

In both cases, the choice is extensive. This indicates that in spite of what we hear from some it is quite possible to run funds in this way – if a manager is minded to do so.  

So, as we work through the challenges we now face I’d encourage all investment professionals (and clients) to think about what they do and why. 

Too many funds say they “consider ESG” or exclude a fraction of an index and expect to be congratulated. That time has also passed.

We may not be able to end the war – but we can and must throw everything at building greener infrastructure and guiding companies out of the blind alley that is unsustainability. 

We can also call on companies to treat people with respect and ensure their employees can meet their own needs. All of these are essential if we are to avoid history repeating itself.   

Whether by design or by accident much will change over the next year or two. No one will thank us for window dressings when what’s needed is a complete refurb. 


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