The latest developments in the ESG space.

MSCI
MSCI, the market indices provider that kicked Russia from its flagship emerging market benchmark a few days ago after the country invaded Ukraine, has cut the nation’s ESG government rating to the lowest possible level of CCC from B. That follows the downgrade from BBB to B in late February.

The organisation said the measure “reflects the further financial isolation of Russia” in the past week. The US, Canada, the European Union, the UK and other nations have taken action to exclude Russia from the SWIFT banking system, slapped sanctions on banks and oligarchs linked to Russian president Vladimir Putin and squeezed the country’s economy. The value of the rouble has collapsed; energy prices have soared. Firms quitting Russia include MasterCard, Visa, HSBC, PwC and KPMG.

MSCI said its downgrade of Russia’s ESG rating takes effect immediately. 

“Since the downgrade to B on February 28, we have observed further heightening of Russia’s ‘Economic Environment’ and ‘Financial Governance’ risks based on the widening domestic impact of international sanctions and financial isolation on Russia’s economy,” MSCI said.

The move also shows how the world of environmental, social and governance-themed investing, or ESG, is having to wake up to uncomfortable realities such as geopolitics, the need for countries to have weapons for self-defence and the mistreatment of groups in certain nations. Skyrocketing energy prices have also put pressure on Western governments to reconsider whether “net zero” policies on decarbonising business in a few decades' time are viable, particularly when items needed for car batteries, such as zinc, are produced by nations such as Russia. 

MSCI said it has changed Russia’s “Economic Environment” and “Financial Governance” scores downward to zero, in line with its “Political Governance” score, leading to an overall ESG Government Rating downgrade to CCC. The score for remaining categories covering “Natural Resources”, “Environmental Externalities and Vulnerabilities”, and “Human Capital” are unchanged.

(This news service has a new programme, its Wealth For Good Awards, designed to highlight the work wealth managers are doing to bring about change to the environment, society and governance. To find out more about the awards, click on this link. Winners, finalists and commended entries will be celebrated in May this year).