Russia’s attack of Ukraine is approaching its third month and since the initial invasion both companies and investors have been put under pressure to sell-out of or cease trading with Russian businesses as a stance of unity with Ukraine.
Many managers and businesses have followed this thinking but George Crowdy, co-manager on the Royal London Sustainable World Trust, explained why some exposure to Russia, even within an ethical fund, was permissible and not an infringement on that style of investing.
In both the Royal London Sustainable World Trust and his recently launched Royal London Global Sustainable Equity fund, Crowdy held exposure to AstraZeneca.
The pharmaceutical company was maintaining its operations in Russia, although it announced it was not planning any new investments or trials in the region. Although only a small portion of its profits are generated via Russia the war in Ukraine has sparked an emotional response to ostracise Russia totally.
Crowdy said he agreed with AstraZeneca’s decision though, explaining that “it was continuing to do its very best to get its products into the hands of its patients,” including Russian civilians, which he said “we support and think is the right thing”.
According to Crowdy, AstraZeneca was a good case study of how it can be counter to ethical investment ideas to champion all companies divesting from one region because it could be detrimental in other ways. Essentially, demanding a pharmaceutical company to stop sending medical supplies would have massive negative consequences for many people.
“This is why we think it's so important to go company by company and not have a broad-based approach by saying we will automatically sell anything exposed to Russia, because that's not necessarily the right long-term decision here,” he said.
“AstraZeneca is providing its cancer-beating drugs and treatments to Russian citizens, that's one example”.
James Witan, the investment director at Witan Investment Trust, said he “could not agree more” with Crowdy’s point.
When asked if it was appropriate for ethical funds to have exposure to Russia or other more problematic areas, Witan said: “I think it is absolutely essential to take a thinking person's approach to ESG. Because it is not a black and white issue.”
Indeed, the pair were further supported by Declan McAndrew, head of investment research at Foster Denovo.
McAndrew said managers did “have to be more nuanced” and, sticking with AstraZeneca, said “we are talking about life-saving drugs here. We are not trying to punish the Russian people”.
He said that all companies needed to be considered on a “case by case basis” to ensure the best outcome overall was being achieved with respect to the broader macroeconomic picture, which was a nuance active fund managers could take versus a passive fund “which could not give you that insight”.
But McAndrew added that it was very important for managers weighing up all those factors and making an investment call “to communicate it effectively to clients. Not just respond to queries”.
It is not just pharmaceuticals where this has been a problem, however. Witan said defence manufacturers is an area that many ESG funds are precluded from taking part.
“But, in my view, there's nothing more socially important than having a deterrent that allows your country to live in peace,” he said.
Witan clarified that the trust’s managers were prevented from investing in controversial weapons banned by peace treaties, but the house’s exclusion policy was not a “blanket one”, rather it allowed the trust to invest in these debated ethical areas.
He said divestment should be the “very last resort” because once a stock was sold “you have no influence” and “all you do is you force the ownership of poorly performing companies into the hands of people who don't care”.