Corporate Ethics and the Russia Conflict: Ethic’s Perspective on Divestment
Monday, March 21, 2022
March 2022
A more in depth exploration of key sustainability topics
Corporate Ethics and the Russia Conflict: Ethic’s Perspective on Divestment

Following Russia’s sudden and unprovoked invasion of neighboring Ukraine, public and private entities worldwide have responded with substantial measures designed to ratchet up economic pressure on the Kremlin (as well as the individuals that stand to benefit from its activities). As governments announced far-reaching sanctions, and companies across all sectors began to suspend or cease operations in Russia, many large index providers also moved to drop Russian stocks from their respective indices. 

At the same time, a number of our clients have been asking us how they can use their Ethic portfolios to express their aversion to the Russian invasion. Many are keen to take a strong stance and ensure they are not exposed to companies that may— inadvertently or otherwise—be supporting the Russian Federation’s acts of military aggression. And while index providers’ expulsion of Russian equities from their benchmarks means that exposure is already quite negligible, we have spent some time identifying additional opportunities for our clients to make their voices heard. We’ll get into that shortly. 

First, though, we felt it might be helpful to explore how we approach divestment when confronting an issue as far-reaching and complex as state-sponsored and -sanctioned violations of human rights. 

How is Ethic thinking about divestment from Russia? 

There are two prevailing approaches to Russia-specific divestment: divestment from companies domiciled in Russia and divestment from companies with operations in Russia. The sustainability implications of divesting from companies domiciled in Russia are, at present, a moot point, as these securities are not currently trading at U.S. custodians. 

With that in mind, divestment from companies operating in Russia may seem like a more viable option. The argument in favor of this divestment is straightforward: foreign companies operating in Russia must pay corporate taxes to the Russian regime, and about a third of the Russian federal budget goes to military spending. However, Ethic isn’t confident that this represents the most impactful approach. Why not? For one, we don’t feel it’s justifiable to hold all companies with any operational footprint in the country equally responsible for the Russian government’s activities. Some are clearly more culpable than others. 

For example, we find it hard to make the case that our sustainability model should treat Nestlé, which operates facilities for manufacturing baby formula in Russia, the same way it treats Eni S.p.A., which until very recently was part of a joint venture with Gazprom, the Russian state-owned natural gas company. 

In addition, companies vary widely in terms of the effects that withholding their products and services from Russia could have, as well as the segments of the Russian population that their products and services most impact. We find it defensible to divest from companies whose activities in Russia disproportionately benefit wealthy Russian business oligarchs (e.g., luxury goods manufacturers), but much harder to argue for divestment from companies whose products and services primarily aid everyday Russians. Companies that fall into this latter category include pharmaceutical and medical device manufacturers, as well as internet infrastructure providers.

With that said, we’re heartened that hundreds of corporations have realized their influence on global affairs and decided to withdraw from Russia by varying degrees. While we’re certain that motivations diverge, and many companies are simply keen to avoid public relations blowback, it reinforces a growing belief that the business community has an important role to play in creating a more peaceful, prosperous future. 

Well, how can I use my Ethic portfolio to demonstrate support for the Ukrainian people? 

We’ve spent some time evaluating meaningful ways that clients with Ethic portfolios can engage with various issues related to the Russo-Ukrainian War. Below are some of the relevant screens that we are able to implement, along with a brief explanation of our rationale: 

Cluster Bombs

  • The Russian military has been accused of using cluster munitions, weapons that are widely condemned internationally due to their high risk of causing civilian casualties.
  • Cluster bomb manufacturers can be screened in portfolios that prioritize the following Ethic pillars: Human Rights, Health & Wellness, Racial Justice, Education, Poverty, Democracy, and Sustainable Agriculture. 


  • Donbas, the disputed region in eastern Ukraine, has one of the highest concentrations of unexploded landmines in the world.
  • Landmine manufacturers can be screened in portfolios that prioritize the following Ethic pillars: Human Rights, Health & Wellness, Racial Justice, Education, Poverty, Democracy, and Sustainable Agriculture. 

Other Controversial Weapons

  • The Russian Federation possesses nuclear weapons, and Russian President Vladimir Putin has placed his country’s nuclear forces on high alert during the current conflict.
  • Manufacturers of controversial weapons and their components can be screened in portfolios that prioritize the following Ethic pillars: Health & Wellness, Democracy, Poverty, Education, Human Rights, Sustainable Agriculture, Pollution, and Clean Water.

Financing of Fossil Fuel Operations

  • Many of the financial services companies involved in financing fossil fuel  operations in general are also implicated in financing Russian oil & gas specifically. 
  • Companies implicated in the financing of fossil fuel operations can be screened in portfolios that prioritize the following Ethic pillars: Climate Change, Racial Justice.

Systemic Risk Management

  • The Russo-Ukrainian War has been financially material for many financial institutions and other companies with business ties to the region.
  • Companies with issues related to systemic risk management can be screened in portfolios that prioritize the following Ethic pillars: Financial System Stability, Leadership & Management, and Worker Treatment.

New Ethic primary research: Business Ties to Russian Oil & Gas

The Russian oil & gas industry is deeply intertwined with many of the country’s sanctioned business oligarchs, as well as with the operations of the Russian military. While most of the direct participants in this industry are themselves sanctioned and/or not currently trading, these companies have historically participated in joint ventures and other business partnerships with non-Russian companies. The Business Ties to Russian Oil & Gas exclusion variable identifies non-Russian companies that, between March 4, 2020 and March 4, 2022, were part of such partnerships with the seven largest Russian oil & gas companies: Gazprom, Lukoil, Rosneft, Surgutneftegas, Transneft, Tatneft, and Novatek. 

Please note that this time window means that companies that have recently cut ties with their Russian partners (such as BP, ExxonMobil, and Shell) are still flagged in this list. Because this list represents only those companies for which we have identified a relevant partnership, we may add further companies to the list as we source additional evidence.

At Ethic, we believe the capital markets can be a powerful tool to effect change. If you’d like to learn more about how you can apply Ethic’s research or screens to clients’ portfolios, please get in touch: 

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Sources and footnotes

Travis Korte is the associate director of Sustainability Research & Data at Ethic. Previously, Travis organized civic-minded technologists at Hack for LA and advised a wide range of clients on data science, data policy, and quantitative methods. You can follow him on Twitter at @traviskorte.