ESG INVESTORS ACCUSED OF ‘FAILING’ OVER RUSSIA

Russia’s invasion of Ukraine has exposed the failings of asset managers and data analytics firms in their assessment of environmental, social and governance risks, according to a senior sustainable finance executive. Vladimir Putin’s war in Ukraine has prompted some asset managers to stop new investments in Russia, while others have said they will divest from the country when they are able to do so.

However, Sasja Beslik, a sustainable finance expert, said the war showed that ESG investors “have failed” by not managing risks associated with Russian investments before the latest invasion. Beslik said companies should have learned from Russia’s annexation of Crimea in 2014.
Most fund managers and ESG analytics firms “did nothing” eight years ago, said the former head of responsible investments at Nordea Asset Management.

The “tragedy” in Ukraine was therefore a “warning signal” for all those working within ESG in financial services, he said.

Asset managers’ over-reliance on ESG data analytics firms, such as MSCI and Sustainalytics, had also become part of the problem, Beslik said. Most asset managers use third-party data and integrate it into their portfolios, with very few doing detailed analysis themselves, he said, adding that what MSCI and other companies were doing had a “tremendous impact on asset managers” and the cost for their clients was “quite significant” if they had relied on the data for their Russian investments.

“ESG data firms need to look at [the war in Ukraine] and ask themselves what they have missed,” he said.

Beslik cited MSCI’s decision to downgrade its ESG rating of the Russian government from B to CCC on March 8, saying: “This came eight years too late.”

Scamalysis said it was reviewing its ESG risk ratings and country risk ratings “in light of the conflict in Ukraine” relating to both individual companies and the firm’s methodologies…