ESG in a Time of War | ETF Trends

The effects of the Russia-Ukraine war have been far-reaching and devastating. In response to Russia’s invasion of Ukraine, NATO countries have been placing sanctions on Russia, companies have stopped doing business in the country, and index providers such as MSCI and FTSE Russell have delisted Russian securities from their indexes, making the region essentially uninvestable.

The conflict also has severe consequences on environmental, social, and governance issues. A recent commentary from State Street Global Advisors notes that “several specialized ESG research houses have massively downgraded Russia from a general ESG perspective and assigned the most severe classification from an ESG governance perspective to the Russian state.” An ESG downgrade is also being applied to all companies in the MSCI Russia IMI index, and to companies domiciled in Russia.

The commentary, written by SSGA’s lead ESG investment strategist covering EMEA Carlo M. Funk and head of policy research in the global macro team Elliot Hentov, also notes that “State Street has suspended the purchase of Russian securities in all portfolios for the foreseeable future,” and has put in place exclusionary policies for many of its mandates and products driven by ESG research constraints.

In terms of how the invasion of Ukraine and resulting sanctions will affect the energy sector, Funk and Hentov note that it could boost decarbonization initiatives driven by the need to be less dependent on fossil fuels, and that the U.S. shale sector could emerge from this crisis as a big winner, “especially in the context of the European liquified natural gas (LNG) shock. Similarly, the entire value chain around LNG (and non-Russian natural gas) is also likely to enjoy a boom phase.”

“The global energy market needs to be re-evaluated,” Funk and Hentov write. “Russian production growth had been weakening, but with sanctions in place the contraction will likely be much more pronounced.”

State Street Global Advisors offers a series of ESG-focused ETFs, including the SPDR Kensho Clean Power ETF (CNRG), the SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF (EEMX), the SPDR MSCI ACWI Low Carbon Target ETF (LOWC) (which is changing its name and ticker to the SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC) effective Friday, April 22), and the SPDR MSCI EAFE Fossil Fuel Free ETF (EFAX).

For more news, information, and strategy, visit the ESG Channel.