The same morning Russia invaded Ukraine, the people running the Church of England’s $5 billion pension fund decided they’d seen enough, and quickly went to work to clear their portfolio of Russian investments.
Q4 2021 hedge fund letters, conferences and more
At that point, there were still buyers. By March 1, they’d unwound their entire 8 million-pound ($11 million) stake.
Few were so lucky. Most funds — including those screening for environmental, social and governance factors — failed to see the risks that a Russian invasion of Ukraine could pose to their portfolios. As the losses and economic fallout mount, asset managers are increasingly calling the war a clarifying moment for ESG in the industry.
Too many investors have been blind to the idea that ethical investing ultimately has the potential to protect wealth, said Adam Matthews, chief responsible investment officer for the Church of England Pensions Board. The perceived division between “hard-nosed finance” and “morality” is false, he said. “It’s possible — and important — to think about both aspects.”
When a country violates “international norms and invades another sovereign country, then it is clearly an ethical and moral issue that has financial impact,” Matthews said.
Since President Vladimir Putin plunged the European continent into its worst military conflict since World War II, a growing number of fund managers and corporate bosses are being forced to consider whether conscientious imperatives, or politics, should guide their investment decisions.
BP Plc, for example, has owned a stake in Rosneft PJSC for about a decade, unmoved by investors’ concerns about the Russian energy explorer’s environmental track record. This week, however, the U.K. government pressured BP to sell the holding because of the unacceptable social ramifications tied to Russia’s invasion of Ukraine.
In Norway, the head of the country’s $1.3 trillion sovereign wealth fund said he had no intention of selling Russian assets worth roughly $3 billion — until the government said the “brutal war of aggression against Ukraine from Russia” demanded the holding be frozen and divested.
The lesson for ESG investors is to “act before war breaks out and not to be afraid to denounce, and divest from companies and countries which are serial human rights violators,” said Kiran Aziz, head of responsible investment at KLP, Norway’s largest pension fund. “Knowing international law, whilst moving first and fast, can be highly effective as it creates a domino effect.”
Read the full article here by Alastair Marsh, Advisor Perspectives.
