The recent invasion of Ukraine by Russia was met with global outrage, and in the days leading up to the first day of the invasion, several talks had been held on how to dissuade the Russian government from invading the Ukrainians, all these to no avail.
To salvage the situation without necessarily participating actively in the war. There have been several Meetings by European countries to set sanctions economically on the Russian government.
These sanctions have upended the state of the Russian economy and, by extension, have so many effects on the Russian financial economy and all other Russian-owned companies and even the oligarchs.
The global markets have already faced a sharp downturn and sudden change of events based on these sanctions. This article analyses how these sanctions are affecting ESG reporting, assessments, and ratings.
The effects of the Russian sanctions on ESG reporting and ratings
There are valid concerns about the state of ESG and how it will be altered in light of these Russian sanctions. For various businesses and organizations, it is envisaged that this function would make ESG reporting much more difficult as companies who have more ties with Russia would be wary about explicitly stating their involvement with a country that rightly contradicts all that the ESG stands for, and this can also be, as they believe, a detriment and can deter other potential investors.
ESG, which helps to rank companies based on environmental, social, and governance performance, can experience a drastic change due to the turnout of events. Already the MSCI has brought down the level of Russia from B to BBB; this immediate change in ratings would give a negative outlook for companies that have significant ties to the country a statement released by the MSCI, reveals that there is ongoing monitoring of the situation and believe that the risk to Russia’s ESG government rating is still a blazing flame.
It is also possible that as events unfold, there could be yet another downgrade in the ESG rating, which would further cause a lot of asset managers to steer clear of Russian stocks. Based on this, it would greatly affect the performance negatively and, in a way, make the ESG reporting metrics skewed, as every company does not want damaging effects on their finances and their ratings. With all of this, something can be pointed out: the conflict between Russia and Ukraine would make the market difficult for investments.
As most countries show solidarity and support for Ukraine overtly and covertly, it is bad to be Russian. A huge loss might be incurred for businesses that partner with Russian companies as they have been put on the undesirable side. While it is still unfurling and more discussions about how to impose more severe sanctions on Russia, we anticipate more accurate negative metrics that would come when it comes to the ESG reporting as the experts continue to discuss.