This is Part II of a three-part series from an extensive interview with the former finance minister of Ukraine. The third one includes how to help Ukraine. She also gave career advice.
Part II: The Hidden Power Of ESG
As explained in Part I of this series, the Russian invasion of Ukraine reflects the weakness in the core of the “liberal peace” doctrine believed for decades — that global commerce would disincentivize conflicts — in part because of dark money, argued Natalie Jaresko, the former finance minister of Ukraine, in an extensive interview on my Electric Ladies Podcast. Furthermore, she argues that taking Russian money is inconsistent with the commitments to ESG, or environment, social and governance principles, that dozens of companies and countries have declared.
ESG commitments from companies and countries, and investments in ESG funds, have swelled over the past few years. ESG funds are now reportedly at $649 billion, up from $285 billion in 2019. The Securities and Exchange Commission (SEC) recently released a set of proposed climate risk disclosure rules for public comment that publicly-traded companies will be required to comply with in their audited financial statements as early as 2023. These rules are based on standards currently used extensively, such as from the Task Force On Climate-Related Financial Disclosures (TCFD).
“Nurturing, upholding and protecting freedom and democracy is part of their ESG responsibility”
“The global business community must understand that nurturing, upholding and protecting freedom and democracy is part of their ESG responsibility. It’s not only in their best interest, but also in, in those of their increasingly noisy and numerous stakeholders… Since the Russian invasion of Ukraine started, not all chief executives have had the courage to take actions which would be consistent with their ESG policies,” Jaresko wrote recently in the Financial Times.
The proliferation of ESG commitments accelerated over the past 12 months, driven by the convergence of the pandemic, a resurgent social equity movement, increased urgency to address climate change, and market demands. Many of these and related net zero commitments were declared at the UN Climate conference known as COP26 last November in Glasgow, Scotland.
Russia “is not a rule of law state,” Jaresko explained to me. “There is no freedom of speech. There is no consistency in contract enforcement…So if I’m an investor in a company, and human rights are not being respected (especially with the atrocities being committed in Ukraine), the environment is not being respected, the rule of law is not being respected, how does doing business in that environment get reflected in my scoring on ESG?…That is not going to reflect on the values of our investors, our employees, our future employees.” Studies show that 59% of job seekers want their employer to align with their values.
Europe and the U.S. are extricating Russian money and influence, from the extensive sanctions isolating Russia, to the E.U’s proposed ban on Russian oil by the end of this year, to divesting Russian ownership in sports teams, and seizing Russian assets. Yale University reports on over 1,000 companies that are either pulling out, scaling back or pausing, or continuing to do business in Russia. Jaresko says this is not enough.
Can ESG clean up globalization?
At its core, ESG is about transparency and accountability. It’s about disclosing the company’s impact — on the environment (from emissions to water to climate change risk) and on all their stakeholders. That includes how they treat their employees, racial and gender equity, supply chains, and their communities, as well as their shareholders.
Which begs the question: Can ESG’s transparency requirements be a hidden power against dark money? Can ESG be instrumental in closing loopholes that shadowy investors used to influence the Western economy?
Jaresko filed the Russia Disclosure requirement petition with the SEC, in collaboration with the nonprofit Razom and the Ukrainian American Bar Association, to demand transparency of companies doing business with or in Russia. She says it will help investors and provide a way for companies to verify compliance with the “governance” part of their ESG commitments. She labels it a “Zero Russian Business bill of health.” She also supports the Financial Crimes Enforcement Network’s – or FINCEN’s – proposed beneficial ownership rules to provide transparency into funding sources.
Help Ukraine triumph and then rebuild it as a 21st century “greener, cleaner, more community-oriented” country – aligned with ESG principles
“We’re all citizens. This is democracy. We need to let our leadership know that we support military support for Ukraine, financial aid to Ukraine,” Jaresko insisted, then build Ukraine back better.
“What we have an opportunity to do is not to rebuild what was destroyed, but instead to renew and revitalize a country and make it 21st century,” Jaresko emphasized. “Use green technologies. We can have green steel. We can have communities where we are building healthy, nurturing communities where it’s planned in a way that they are living communities with water and energy sources, multipurpose, they’re bikable, they’re breathable…We rebuild roads that have electric vehicle charging stations throughout and bicycle lanes.”
“We can rethink this using the best 21st century technologies to be greener, to be cleaner, to be more community oriented,” she said.
Therefore, leveraging ESG’s transparency requirements could help close some of the loopholes in globalization that have enabled dark money to wreak havoc. This may be ESG’s hidden power — that helps protect democracy, as well as the planet and its inhabitants.
Part I of this series is here. Jaresko also gave vetted ways to help Ukraine, delineated in Part III of this series.
Listen to the full interview with Natalie Jaresko on Electric Ladies Podcast here. (Full disclosure: The author’s maternal grandparents were born in Ukraine and emigrated to the United States as children in the early 1900’s.)