Market Views: How will the Russian-Ukraine crisis affect ESG investments?

Edward Tang, AsianInvestor
Mar 15, 2022

Some analysts believe the crisis has caused a rethink that could see a rise in investor interest in environmental, social, and governance (ESG) opportunities. We asked experts if this optimism is justified.

The Ukraine Crisis - like the Covid pandemic - is seen as a wake-up call for investors to take more positive action on sustainable investments in the environment, social, and governance (ESG) sector.

The renewable energy sector, for instance, is likely to get a boost from advocates of energy security spooked by the impact of the crisis on spiraling oil and gas prices.

Other areas such as food security, health security, and climate actions - for example, carbon storage and sequestration - have come under the spotlight as critical sectors for investment and development.

But there are other experts who have expressed concerns that ESG investments, especially the social and governance aspects, could be neglected during this period of intensified geopolitical uncertainty and pressure on fund managers to look for high returns.

They also look on with concern at emerging markets in anticipation of more stringent investment requirements on ESG values such as rule of law, good governance, and human rights, arising from Russia’s belligerence.

AsianInvestor reached out to experts for their opinions on how the Ukraine crisis has affected investor position on ESG investing in Asia and emerging markets.

The responses have been edited for clarity and brevity.

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Helene Li, Co-Founder & CEO, GoImpact

The Ukraine crisis reminds us that, like most investment matters, ESG is complicated and nuances. There are “push and pull: factors that impact the momentum of ESG.

Russia is a large oil and gas exporter. The short-term focus will be on energy security, and it is only natural people will default to legacy energy sources for that security.

However, this could be a short-term phenomenon. There is an urgent need for net energy importers to accelerate their renewables program to become less reliant on traditional oil and gas sources.

More than 90% of global GDP are net energy importers, and more than 90% of global emissions are now covered by Net Zero pledges. These factors combined will trigger an acceleration of investments into energy transition and renewables.

Another impacted area, particularly for emerging markets, will be food security. Both Russia and Ukraine are among the top 5 exporters of wheat globally, and literally the “breadbasket” of the world.

Many emerging markets countries in North Africa and Central Asia are heavily dependent on wheat supplies from both Ukraine and Russia - estimated to be as much as 30% of their wheat import needs. There will be huge implications on the supply chain and food scarcity if the crisis is prolonged. This will again bring a stronger focus on supply chain sustainability and Agri-Tech.

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