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CA-EN Advisors

Ukraine-Russia Conflict Through a Responsible Investors’ Lens

March 4, 2022

At a glance:

  • As long-term and responsible investors we express our concern over the human impacts of the war in Ukraine and potential longer-term global consequences. We cover environmental, social, and governance (ESG) implications, including impacts on the energy transition, global supply chains and human rights.
  • Responsible investors have long advocated for market-wide adoption of policies that mitigate material ESG risks in conflict situations; recent reactions of mainstream actors give hope.
  • While rising energy prices bring risk of further inflation, decreasing reliance on Russian energy can be a catalyst for accelerating the timeline for clean energy in Europe.
  • We underscore the need for companies to map their supply chains and negative human rights impacts as per the UN Guiding Principles on Business and Human Rights. We flag heightened risks for media, information technology (IT) and telecom companies given the spread of propaganda and misinformation.

The current invasion of Ukraine by Russia will have profound impacts on countless lives, setting us back on the progress made on many sustainability fronts including human rights, forced migration, societal inequalities, and the urgency of prioritizing the climate crisis. While the increasing geopolitical and macroeconomic risks are repeatedly addressed by media covering the conflict, here we want to dig deeper into the ESG issues that may impact the bottom line for long term investors.

The acronym VUCA feels appropriate when referencing this particular situation; it describes the volatility, uncertainty, complexity and ambiguity of certain conditions. VUCA was introduced at the end of the cold war to describe the multilateral nature of the world resulting from that conflict and feels disconcertingly applicable to the Russian invasion of Ukraine today. While markets have been struggling since the new year, there is a high likelihood that they will stay volatile until the conflict stabilizes. Even though history tells us that the overall impact on global financial markets may be limited given the size of Russia’s economy, it’s important to unpack the underlying ESG risks that investors are most concerned about.

Responsible Investors have long been advocating for market wide adoption of certain policies that mitigate material ESG risks in these situations. We are starting to see glimmers of hope given recent reaction by mainstream actors to the Ukraine-Russia conflict. For example, MSCI and FTSE just announced that they are cutting several Russian constituents from their widely tracked indices. This will enable investors tied to certain passive investment strategies to protect their portfolios from exposure to Russia given the large number of sanctions that have recently been levied. The London Stock Exchange also suspended a number of Russian depository receipts from trading, cutting off access to a large segment of the investment management industry. In the credit rating arena, both Moody’s and Fitch downgraded Russia’s foreign debt rating to “junk” status at Baa3 and BBB, respectively, citing material credit implications. ESG conscious investors have also been waiting for mainstream uptake of certain product exclusions that increase systemic risks, like war. A majority of these investors, including BMO GAM, have had long-standing exclusions of cluster-munitions and weapons across portfolios to avoid indirectly contributing to humanitarian crises. There are a number examples of how political strife and ESG will be consequential for investors bottom lines if not managed effectively.

Impacts on the energy transition

Energy supply and increasing prices have gotten a lot of attention up to and since the beginning of the conflict and it’s worth exploring some of the high-level ramifications, both negative and positive. Even though Russian energy exports are exempt from recently levied sanctions, States and companies dependent on them are still trying to secure short-medium term deals from alternative sources to ensure uninterrupted supply into the spring. Given these contracts with alternative sources are time bound, higher energy prices will likely continue to persist post-resolution. Higher energy prices will also exacerbate inflationary pressures already in-play following the COVID-19 pandemic, given the knock-on affects to other consumer staples including rising food costs. These increases will disproportionately impact lower income households given the growing disparity in the wealth gap globally.

Among these challenges, there are signs of hope for the global energy transition. Going back a few months to the close of COP26 in Glasgow, while world leaders agreed on the necessity to transition to a net zero world, the interim timeline for phasing out fossil fuels lacked consensus. A positive development was Germany’s recent announcement to accelerate their commitment to be net zero by 2035 as a direct result of wanting to be less reliant on Russian energy. France has also indicated readiness to meet current needs through increased nuclear energy export. Fortunately, there has been little indication that decommissioned coal-fired generators will come back online, despite recently reduced natural gas reserves in Europe. The light at the end of the tunnel may be that this conflict is a catalyst for accelerating the use of clean energy and the required transition to a low carbon economy, starting with European nations.

Global supply chains

The Russian invasion of Ukraine is further impacting complex supply chains that had already been stressed by COVID-19. The US and other large economies have implemented trade sanctions with Russia, created airspace and flight bans, implemented shipping bans and closed ports to Russian ships. Numerous companies have also voluntarily announced their exit from Russia. This means that certain raw materials will be harder to come by and certain commodities will need to be rerouted, which coupled with rising energy prices and thus rising transportation costs will further increase inflation that is already at an all-time high. It will also put a strain on the global availability of certain products. A few key highlights on potential impacts to end-investors and consumers:

  • A risk of food inflation, due to Ukraine being one of the largest exporters of corn as well as barley and rye, and Russia being the largest exporter of wheat. This will especially impact lower income families already struggling from COVID-19 food prices.
  • Cars and personal devices such as laptops and phones will continue to be in short supply. The chip shortage that has lasted throughout the pandemic might be prolonged because Ukraine has half of the global supply of neon gas, which is essential to manufacturing semiconductor chips. In addition, Ukraine and Russia provide palladium and platinum, used in catalytic converters, as well as aluminum, steel and chrome, which are critical to car manufacturing. Several automakers have already closed factories in Russia and Ukraine.

This crisis further underscores the need for companies to intimately understand their supply chains by mapping geographic risks and engage in supply chain due diligence beyond tier 1 and tier 2 suppliers. This is also the first step towards understanding potential human rights concerns within the supply chain and enables companies to plan for shifting supply chains away from high-risk areas.

Human rights

Violent conflict and war bring devastating costs to human life and security, with the worst impacts often felt by those who are already most vulnerable. Aid agencies have warned that the escalating conflict in Ukraine will lead to a humanitarian and one of the largest displacement crises in recent years, with the UN estimating that 4 million Ukrainian refugees and 12 million people inside of Ukraine will need relief. This conflict will have negative human rights ramifications for years to come, let alone stall local and global progress towards the sustainable development goals.

Responsible investors including BMO GAM have been advocating for more widespread and robust corporate implementation of the UN Guiding Principles on Business and Human Rights (UNGPs), which requires businesses to conduct human rights due diligence (HRDD) to assess where negative human rights occur in their operations, supply chain or through products and services. Unfortunately, the latest Corporate Human Rights Benchmark (CHRB) reports that 79 global companies across different sectors still fail to score any points on the benchmark’s human rights due diligence indicator.

For multinational enterprises that continue to operate in Russia or Ukraine either directly or through business relationships, the human rights violations related to this conflict pose significant risks that require enhanced HRDD to address and prevent human rights harms and in so doing, mitigate risks associated with such violations. Similar to what responsible investors including BMO GAM called for from businesses with activities in Myanmar during the violent conflict in 2021, such companies need:

  • Robust mapping of business activities and/or investments across the value chain to identify and assess human rights risks including from business relationships, activities and communications involving the Russian government or affiliated entities
  • Assess and address all identified actual and potential human rights impacts of business activities and relationships and take steps to mitigate and prevent them.
  • Provide support to staff in Ukraine and Russia to ensure their physical safety and do not retaliate against Russian employees for participating in protest.
  • Enable the remediation of adverse human rights impacts including those impacts on their in-country staff and local stakeholders.
  • Regularly publicly report on such due diligence efforts and procedures in place to cease, prevent and mitigate those negative human rights impacts.

Lastly, given the outsized role Russian propaganda plays in this war and how many people globally rely on social media for updates on the conflict, we flag heightened ESG and human rights pressures on companies in the media, IT and Telecommunications sectors. While companies like Twitter, Youtube, Google and Meta, which owns Facebook, have taken steps to crack down on the spread of misinformation and to block certain Russian official accounts, a report by the Center for Countering Digital Hate (CCDH) from February 2022 found that Facebook still failed to label 91% of posts containing Russian propaganda about Ukraine. Imran Ahmed, chief executive of the CCDH notes: “The justification for the Russian war against Ukraine was built on Facebook.”

Additionally, tech and telecommunications companies will need to be able to ensure data privacy and protection for users who are human rights defenders or Russian citizens engaging in anti-war protest, whilst safeguarding internet and telecommunications access.


The response of the global community to the war in Ukraine has been swift, and although more can be done, we are encouraged at the actions already taken by corporations, the financial sector and governments. We cannot predict the outcome of this crisis but hope it can set a precedent for how the financial community can have an ESG-informed response to investments in conflict-affected and high-risk regions.

At the same time, we cannot lose sight of the collective action needed to prevent a climate catastrophe. This can go hand in hand with strengthening human rights expectations of companies and governments, and advocating for resilient, well-governed institutions. At BMO GAM we will continue to engage with companies and policymakers on systemic risks including the energy transition, supply chain issues and human rights due diligence implementation.

About BMO Global Asset Management's Responsible Investing Team

BMO Global Asset Management’s Responsible Investing team manages and develops the firm’s Responsible Investing (RI) thought leadership, publishing regular insights and deep dives on a variety of emerging environmental, social and governance (ESG) topics. The team collaborates with Investments on industry focused developments, provides ongoing ESG integration support, employs a progressive approach to stewardship activities and oversees BMO Global Asset Management’s firm-wide initiatives and commitments to responsible investing.


This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.


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