While ESG raters weren’t alone in misjudging Russia’s belligerence, their exposure is particularly awkward given their analysts are paid to focus on factors such as democracy, human rights and other social and governance factors. Regulators are now calling for urgent work to clarify the myriad standards and practices being used to produce such ratings.
Vladimir Putin’s invasion of Ukraine is shining a spotlight on the largely unregulated business of ESG ratings, after investments billed as socially conscious bought into a regime that’s now being accused of war crimes.
On the eve of the invasion, about US$9.5 billion in funds meeting European environmental, social or governance standards were in Russia, often on the basis of ratings from companies such as Sustainalytics and MSCI Inc.
