Over the past few weeks, events in Ukraine and the increased focus on Russia has shone a light on the concept of ESG and the increased transparency in underlying investments that Asset Managers have been pursuing on behalf of their investors. Historically the focus of ESG would have mainly been on the ethicality of those companies that asset managers funds were invested in. As a result of recent events, the level of analysis required and the perspectives now needed have taken on increased significance.

The deep rooted analysis of a companies behaviour, ethics, values and commercial activity which has always formed part of detailed ESG analysis, has taken on further importance with question marks raised about any relationships with Russia, Russian oligarchs or other Russian companies. As the world has looked to ostracise those companies that have reacted slowly, or not at all in their response to the Russian invasion of Ukraine, the microscope has shifted to a much wider perspective of businesses beyond their core markets and activity, but into their relationships, dependencies and revenue/profit generating activity with Russia (and its associated partners – e.g. Belarus). The level of data mining now required is extensive; no stone can be left unturned and no relationship not investigated; branding investments as ethical can only be demonstrated across the value chain and sometimes into areas where the required transparency doesn’t exist.

Many Asset Managers, through their compliance firms have moved quickly to assess their exposure to Russia. Utilising insight and data points only now available through the transparency that ESG investing has provided, Asset Managers have been able to assess and respond to that exposure and make rapid decisions in accordance with their risk appetite, while looking to protect their investors performance. The latter in particular makes ethical investing a very difficult objective to achieve and prompts the question, where do asset managers draw the line in balancing their commitments to achieving a return for their investors, with managing a truly ethical investment footprint that can stand up to any scrutiny? Many organisations have had to make those difficult decisions at pace and we have already seen the impact of delayed responses from some of the major brands around the world, in seeking to address that balance (e.g. Macdonalds, Starbucks, Coca Cola).

With a seemingly increasingly volatile world and already concerns being raised about the other markets and territories where the geo-political situation is as unstable as it is in parts of Eastern Europe, the focus on ESG is about to ramp up even further. The analysis required to demonstrate the ethicality of investments will ratchet up to new levels, which has only been made more complex by the globalisation of investments over the past 25 years. Now, more than ever, ESG will become an increasingly integral part of all investment strategies as the market and regulators will be shining a brighter light on compliance, adherence and reporting.

At Simplify Consulting we work closely with Asset and Wealth Managers to help ensure their products, processes and procedures are compliant. Get in touch today to find out how we can help implement robust ESG processes throughout your business.

Carl Woodward