Read: The war in Ukraine merits a reassessment of ESG for British business
The seismic shock of Russia’s war on Ukraine is changing so much in the economic and political landscape, including an impact on what it means to be a good business and act responsibly.
As the crisis hit, it has been heart-warming – and unsurprising - to see so many firms finding ways to show support for the Ukrainian people through donations or visual displays of solidarity. It is sadly increasingly clear that the scale of devastation wrought on civilian areas by Russian troops means that Ukrainians who fled the fighting will need enduring support. As countries like the UK decide what they should offer Ukrainian refugees, our Purpose Coalition chair Justine Greening, a former secretary of state for international development, has encouraged businesses to show leadership by offering training and employment opportunities to those displaced (Jobs for Ukraine Pledge).
But Russia’s flagrant violation of the rules-based international system by invading, and the growing evidence of grotesque war crimes perpetrated on civilians, will surely provoke wider reconsideration of how businesses should approach ESG issues in this new context.
The challenge facing CEOs and boards engaged in Russian markets is an immediate example of this. As the conflict loomed, many feared that increasing sanctions would seem inadequate. In fact, the rigour of official prohibitions has exceeded expectations. Many companies have had to move swiftly to comply with new restrictions. But crucially, tighter rules have have been accompanied by an even greater moral urgency for businesses to do the right thing in the face of this horror. Global firms such as Purpose Coalition members bp and Centrica have moved swiftly to give up Russian investments and partnerships voluntarily – often at considerable short term cost. By contrast, Western firms who have chosen to remain supplying Russian customers in areas not officially covered by sanctions are facing reputational damage that could turn out to have a deeper impact on their long-term success than the considerable immediate financial shock of withdrawing.
Much has been written about the rise in the importance of ESG in recent years, how the expectation on businesses to do good as well as comply with the law and make a provide has moved from being a peripheral to a central concern for companies at all levels and in all sectors. Ukraine has underlined that this commitment is not simply the case of carefully adjusting your strategy over the course of months or even years. A major crisis challenges those leading purpose-led companies to make major and highly difficult strategic decisions in fluid and fast-moving environments – with the test being what is right, not simply what is lawful or most immediately profitable. More than ever before, leaders must weigh up often complex political and ethical considerations at speed like a head of government. In all but a few exceptions, they are doing so without the depth of political advisers, foreign policy experts and seasoned political allies on whom presidents and prime ministers can call.
As well as highlighting the increased complexity of the ethical environment in which firms operate, Russia’s actions are likely to change the nature of what good means within that environment. The patriotic penalty for companies who continue to engage in Russia while they perpetrate atrocities is referenced above. I believe there is also likely to be a new patriot premium for companies who recognise and embrace the reality that the world is increasingly divided between those nations who respect the rules-based order and the right of self-determination, and those who would trample that system to establish a new world order based on the idea that might is right. We know others are carefully watching the world’s reaction to Putin’s violation of his neighbours’ sovereignty. Smart CEOs will now be weighing up the prospect and planning for the dark scenario in which other countries are emboldened to take a similar expansionist course. The boldest leaders may not simply hedge against future aggression but be part of a Western effort to deter it by insisting on fresh commitments to the rule of law and respect for the international order as a condition of doing business in certain markets.
Which leads me to the set of companies I hope will clearly be recognised from a new patriotic premium in what it means to be a good business: namely, the defence industry in the UK. For generations, defence firms have been pilloried by so-called ethical investors. Industry events have been the focus of protests. Pension funds have been urged to avoid investing in the ‘arms trade’. There have been repeated attempts to question strategic and greatly needed investments in industrial areas with low education attainment like BAE’s funding of schools and further education in Barrow-in-Furness, which I represented in the House of Commons until the last election.
Yet it is no exaggeration to say that President Putin might already have achieved his twisted objectives, and millions more civilians exposed to horrifying crimes against humanity, were it not for Britain’s commitments to supply the Ukrainian army with lethal aid to keep their invaders at bay, like the NLAW anti-tank weaponry and the Starstruck air defence system manufactured by Thales. The UK’s arms export rules must continue to be tightly regulated and closely scrutinised to ensure we can justify to which governments we supply.
But we should recognise that we cannot keep evil at bay with warm hearts and strong words alone, no matter how forcefully spoken. In this increasingly dangerous and uncertain global environment, a vibrant, well regulated and growing defence industry is necessary to protect our values from monsters like Putin. We should be proud of the jobs defence companies provide in local economies where other drivers of growth are in scarce supply, and seek to understand and deepen that contribution to areas in need of levelling up across the UK.
Often, those companies deserve real credit for the way they have mainstreamed ESG concerns into their business model. I am particularly proud that Leonardo recently joined the Purpose Coalition.
I hope many more will now do more to promote their considerable economic impact with confidence that the world would be an even darker and more dangerous place without the contribution that their workforces make. As they do so, it is the responsibility of those of us focused on environment, social and governance issues to listen with an open mind.
Lord Walney, Chair of the Purpose Business Coalition
