After the Russian invasion of Ukraine, the business world will never be the same. Deputy Attorney General (DAG) Lisa Monaco recently stated that “the global geopolitical landscape is more challenging and complex than ever. The most striking example is of course Russia’s invasion of Ukraine. It is “nothing less than a fundamental challenge to the international norms, sovereignty and rule of law that underpin our society”. This is all the more true in the current economic climate.
Over the course of this five-part series, I’ve reflected on how business will never be the same again, and how a confluence of events changed business forever. I was joined in this exploration by Brandon Daniels, CEO of Require. We explored irrevocable changes in the supply chain, trade and economic sanctions, anti-corruption, cybersecurity and environmental, social and (ESG) governance. In our final Part 5, we examine why ESG will never be the same after the Russian invasion of Ukraine.
The pandemic has led to an explosion in ESG awareness and forward movement. This has been driven much more by the business community, from institutional investors to shareholders, employees and other stakeholders, to financial institutions and even insurers, than by regulatory changes. They all now assess business prospects, targets and partners through an ESG lens. Many companies have responded by upping their ESG game through sustainability officers, more robust ESG programs, and similar efforts. However, these efforts were in many ways siled into the three broad categories of “E”; ‘S’; and ‘G’. What the Russian invasion of Ukraine has highlighted is the need for a more holistic approach to corporate ESG.
ESG is now a key national security interest of democracy. The transparency required by ESG programs, through government required disclosure or private sector required disclosure, is also linked to the other areas of business change we have explored in this series. Clearly, disruption of the supply chain of key minerals from Russia, such as aluminum or fossil fuels, is a significant issue, but companies trying to continue using these resources faced a risk. much larger and to economic sanctions; this being a reputational risk. Daniels notes, “In terms of social issues, companies were forced to comply with sanctions, but then there were boycotts against companies that had relations with the Russian autocracy. There were boycotts against companies that had ties to Russian oligarchs. »
It is this impact on reputational damage that has changed ESG going forward. Regulators can certainly impose and assess fines for violations of laws and regulations. For many companies, however, this is simply seen as a cost of doing business, a lower-line cost such as a corporate legal department or a compliance function. However, reputational damage goes beyond line costs, meaning it directly affects sales, revenue, and success. Additionally, your market capitalization and business valuation are both revenue-based, so any impact to your revenue could have a very negative impact on your organization. If your organization is seen as supporting autocratic regimes that openly wage wars against women and children or if your company purchases goods that were made by Uyghur slaves; a very large part of the consuming public will not want to buy your products or even do business with you. The risk is simply too high.
This led Daniels to reflect on the fact that consumers want to buy and transact with companies that are focused on their goals. He said: “What could be more motivated than supporting democracy and supporting arrest, the fight against a brutal regime that literally kills innocent women and children. It’s not about risk management or risk appetite. It’s about deciding whether or not you as a brand can stand up for the ideals of freedom and the ideals we have for an inclusive, just, open and democratic world. When we talk about goals, we have to remember that what people demand is a business that aligns with their values, aligns with their ethics.
All of these factors will forever change ESG and the way companies approach ESG. Your organization not only needs to integrate ESG more fully into the overall business strategy, but your organization also needs to integrate the “E”, the “S” and the “G” through a consistent approach of all three down to board level administration. Daniels noted that many companies were caught “off guard” by the Russian invasion of Ukraine. Looking at the three pillars of ESG, the Russian invasion of Ukraine forced companies to take ESG more seriously. Daniels said, “It codified and solidified in people’s minds the need to manage ESG as part of brand reputation value. You need to look at ESG proactively because trying to react to these situations causes so much turmoil. »