ESG also gives Russia a cold shoulder

Outdated Russian tanks are covered in snow Getty Images

MSCI, an environmental, social and governance (ESG) company, downgraded Russia’s ESG government from B to the lowest possible CCC this week.

Many ESG fund managers rely on MSCI ratings for portfolio building and ETF indexes, so many Russian companies can circulate from funds that rely on maintaining a minimum ESG rating bar to include. ..

The downgrade acts as yet another blow to Russia’s investment, many of which have been flattened since Ukraine’s invasion of Ukraine. This is also not the first investment. MSCIESG Research originally downgraded Russia at the end of February.

“Since the downgrade to B on February 28, the risks of Russia’s” economic environment “and” financial governance “are further increased based on the growing impact of international sanctions and financial isolation on Russia’s economy. Was observed, “said the MSCI notice.

Many companies have stopped new investment in Russia. JPMorgan Chase, BlackRock and State Street have all announced their withdrawal from Russia as much as possible, and JP Morgan has also removed Russia’s debt from its tracking indicators.

We can appreciate the increasingly intolerable financial situation for both the country and its investment. Debt rating agencies S & P, Fitch and Moody’s have downgraded Russia’s credit rating to junk status or near as of March 3, five days before MSCI’s latest downgrade. ..

ESG was at least part of the conversation. These debt rating agencies incorporate environmental, social, and governance considerations when they are considered “important” or important to a company’s financial performance.

For example, Fitch quoted the inclusion of national-level World Bank governance indicators on political risks and rights in credit valuations. Moody’s considers the country’s inability to repay its debt as an ESG standard, and points out Russia’s inadequate governance and corruption.

ESG is not so enthusiastic about Russia in the first place

According to Bloomberg’s analysis, about 300 of the 4,800 ESG funds are held by Russian companies, and Bloomberg seeks green or responsible companies to meet the fierce demand from investors in Russia. He pointed out that there are several ESG funds that have invested in. Further goals like renewable energy.

Other ESG investors have avoided Russia, according to Bloomberg.

Morningstar Jon Hale found that ESG funds hold fewer Russian companies than traditional funds.

“Sustainable emerging market equity funds average only 1.8% of Russia’s equity exposure, nearly two-thirds less than the overall category average,” Hale points out. standard.

The question for the future is whether future ESG standards will consider investing in a dictatorship longer and more rigorously.

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