The Financial Times recently published an article titled – ‘Investors are shocked’: how Russia’s attack on Ukraine roiled markets

Here are some extracts:

• The eruption of the biggest military conflict in Europe since the second world war caught many investors by surprise.
• Moscow’s stock market was hit by one of the biggest collapses in financial history this week after Vladimir Putin launched an invasion of Ukraine. The dollar-based RTS index shed 38 per cent on Thursday, while Russian bonds tumbled and the rouble plunged to a record low against the dollar.
• The ferocity of those declines underscored how even many savvy, well-connected Russian investors — who dominate activity on domestic markets — were shocked by Moscow’s incursion of its neighbouring country.
• ….Russia is not nearly as big a component of emerging markets as it once was, given the shift towards Asia over the past decade. But for some investment funds it remains a popular bet, thanks to the growth of an affluent middle class, solid state finances and cheap valuations. More recently, Russian assets have also been a popular way of hedging against inflationary pressures, thanks to the uplift from rising commodity prices.
• “Investors are shocked, they didn’t see this coming,” (Charlie Robertson, chief economist at Renaissance Capital) said. “This has been as bad as it could possibly be.”

(And of course the story didn’t end there…if it ever will completely…).

In response, Natalie Jaresko, Executive Director at Puerto Rico’s Financial Oversight & Management Board, posted the following on LinkedIn:

• Shocked? You simply chose to ignore the warning signs over a decade. You simply chose to ignore the warnings of the Biden Administration for the past year. You chose this risk.
• Now you cannot close your eyes on the shelling. Bombing. Murdering of innocent peace loving civilians. Targeting of kindergartens, orphanages and residential buildings.
• You can make another choice now. Companies attempting in any way to apply ESG principles need to understand you must divest of Russian positions. You must not import from Russia. You must stop exporting to Russia.
• You must not support the war crimes and human rights violations of Russia in Ukraine. You can no longer claim to be unaware of the announced intent of Putin to commit genocide of the Ukrainian people

The specific shot at investors may be a bit strong; stock markets only maintain their over-inflated valuations by consistently ignoring or over-discounting various risks, leading to regular expressions of alarm when the inevitable “correction” occurs. But the general point intersects with one that I’ve made here before, that the effectiveness, the very survival, of financial reporting depends on a rational governing environment, within which the information it contains might possibly contribute to navigating the future. The primary reason that the elements of ESG, especially the “E,” need immediate collective attention isn’t to preserve market returns, but rather to preserve the structures within which those have meaning. One of the countless tragedies of Putin’s hideous actions was that they completely crowded out any coverage of the latest report by the Intergovernmental Panel on Climate Change, which in the Guardian’s summary reported that “climate breakdown is accelerating rapidly, many of the impacts will be more severe than predicted and there is only a narrow chance left of avoiding its worst ravages.” If the world were even slightly serious, this would be the overwhelming collaborative priority of its leaders, but it’s clear by now that it never will be, that shorter-term priorities (often driven by no more than the psychopathy of single individuals) will always take precedence. Jaresko’s broad point is certainly correct, that any company or investor or related organization claiming an interest in “ESG” has, as a minimum cost of being regarded as more than a masquerading hypocrite, to allocate its resources in a way that attempts to grapple with and influence (if only minimally) the longer-term.

Which of course is easier said than done, because the poison runs deep, not least through large swathes of the US (let it never be forgotten that the moral and intellectually bankrupt Trump initially assessed Putin’s actions as being “genius” and “smart”). Still (and this returns also to the notion of the “accountant of the public interest” that I mused about a while ago) we can surely agree that the vast and rapid corporate shunning of Russia exceeds what might have been anticipated (I would personally never have foreseen for example that the big accounting firms would so quickly decide to exit the country). But as I suggested last time, given the extreme atrocity and immediacy of what’s happening there, and the accompanying substantial unanimity of political opinion and willpower, it may be an exception that proves the general rule, that “ESG” will usually be a secondary priority. It would be a dark irony, but the financial losses arising from the anti-Russia actions, from higher oil prices and so forth, may even make it more difficult for those longer-term needs (climate change again being the major exhibit) to gain priority…

The opinions expressed are solely those of the author