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War on Ukraine tests our commitment to ESG

Corporate and M&A

In a comment article in today’s Australian newspaper, corporate and M&A partner Jonathan Wenig explores the business response to Russia’s invasion of Ukraine which is raising fundamental questions around evolving notions of corporate social responsibility (CSR).

According to some commentators, Jonathan writes, the willingness of US-based multinationals to incur significant short-term pain in the interests of promoting the long-term systemic health of global markets is something of a CSR watershed. Other observers have argued the opposite – that the invasion of Ukraine spells the end of ESG and, in particular, the “E” (environment).

He cites research by Yale Professor Jeffrey Sonnenfeld, a long-time promoter of CSR and ESG, whose team is monitoring corporate responses to Russia’s actions. The study found that, as of 22 March, more than 500 primarily US-based companies had withdrawn, suspended or scaled back their Russia operations. A markedly shorter list of companies is, as Sonnenfeld calls it, “digging in”.

In a bulletin to clients on this issue last week, leading New York law firm Wachtell Lipton suggested that these events represent an evolution of perspective on ESG.

So why are more of our large companies sitting on the sidelines after the invasion of Ukraine? Compared with the US market response, as calculated by Professor Sonnenfeld, the Australian reaction has been less pronounced and more fragmented. What, if anything, does this apparently more muted response say about the status of ESG in the Australian market? Does it reflect a lag or a difference in approach to corporate social responsibility, or is it just a feature of the particular sectoral and geographic strengths and weaknesses of Australia’s large corporate multinationals?

“ESG appears firmly entrenched in our corporate market infrastructure. ASX-listed corporates are paying close attention to ESG in their risk committees, as part of their investor relations functions and, more generally, in their board discussions and strategy days. But ‘entrenched’ means something different to ‘integrated’. And the governance maturity and sophistication of our corporates varies widely at different ends of the market.”

Jonathan’s article was prepared with the assistance of law graduate Vanessa Filipendin.

To read the article, click here.

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