Opinion – Rodrigo Tavares: Can we now take stock of the financial boycotts against Russia?

Invest, divest; buy, sell – this is the basic act of any institutional investor, asset manager or retail investor. More than 90 trillion dollars of assets under management are traded according to rituals formatted in business schools. A divestment of a financial asset demands detailed analysis from analysts and portfolio managers. In this decision, numbers rule, mathematics commands, the algorithm disciplines.

But since the 19th century, there is also a niche of investors who apply exclusion filters based on ethical, moral or religious principles. Quakers did not invest in tobacco companies and Muslims did not invest capital in companies that produce alcoholic beverages. US and South African companies were the target of divestitures during the Vietnam war and apartheid, respectively.

But when investors choose the path of morality, they unfortunately find few points of guidance. And the parapraxes, the contradictions and the controversies begin.

At the time before Russia invaded Ukraine, foreign investors held about $300 billion in Russian assets. Pressure from the market, from the media, from sanctions, from customers caused a tidal wave of disinvestments.

But the contradictions are difficult to disguise. Many of the investors who have divested from Russia hold investments in countries that engage in hostile acts against other nations, systematically violate human rights or are targets of international sanctions. How many American, British, Canadian or Dutch investors divested of Chinese assets when their parliaments formally accused China of “genocide” against the Uyghur people in Xinjiang province? The ruler of morality has several measures.

And why did investors not divest from Russia when it unilaterally annexed Crimea in 2014, when it sponsored the Kiev Maidan Square massacre in the same year, when it poisoned political opponents or when its mercenaries committed atrocities in Mali or the Central African Republic?

The PRI, the leading organization dedicated to responsible investing, does not recommend that investors who are motivated by moral or ethical principles divest their assets. Instead, it dictates that they systematically and efficiently engage with portfolio companies to influence positive change. This can be done individually or collectively, through right engagement, voting or shareholder resolutions.

Why? Because those who divest for moral reasons have, by definition, to sell the asset to someone else. And that buyer is hardly motivated by moral or ethical principles, otherwise they wouldn’t be interested in buying it. The rush with which Western investors are selling their Russian assets and the reduction in the number of possible buyers have created a climate of xepa in the markets, where customers are Russian or from nations less sensitive to codes of conduct and the rule of law. . For moral reasons, Western investors sell assets to immoral investors for cheap. Ethics feeds the lack of it.

French bank Société Générale has sold its assets to one of the few Russian oligarchs to have weathered the sanctions, Vladimir Potanin. Renault sold its 68% in the carmaker Avtovaz to the Russian state for 1 ruble. It lost €2.2 billion. The list of Western companies that sell local assets to Russian companies for merely symbolic prices grows every day. These are transactions that favor Russian buyers because they buy good assets at the price of rainwater to sell them later at the price of artesian spring water.

The hurried way in which boycott announcements were made did not address the difficulties inherent in the act itself. Selling Russian assets is not technically easy and not just because of the scarcity of buyers. The Moscow stock exchange has been closed for more than a month and Russia’s central bank has restricted the sale of Russian shares by non-residents. In addition, many investors are exposed to Russian assets through stock indices, made up of several companies (from dozens of countries, including Russia), which are shaped according to pre-established criteria. An investor cannot simply eliminate Russian stocks from an index, that is up to whoever is responsible for the index itself.

In practical terms, did the financial investor boycott work? If the indicator of success is the end of the war, the slowing down of the killing or the ousting of Vladimir Putin, then the global divestment effort has failed, at least so far.

As a result, many Western investors wait impatiently at the frontier of opportunity to discreetly re-enter the Russian market. A day without bomb shrapnel, the first group of Ukrainian refugees to return home or the visit of a Western leader to the Kremlin will serve as openings for investors to be able to morally justify the immorality of returning to Russia, even if peace, at that time, may be of the same quality as the invading country’s democracy. And when they return to the country, they will buy back assets that were sold a few months ago.

The global ESG market also failed because it failed to provide guidance to investors. International agencies, collaborative platforms, industry associations, trade organizations or regulators were not quick to present recommendations on what to do. If a small fund wants to invest in sustainable agriculture in Nigeria, there are dozens of guides on this sector and this practice – or all others in the world of sustainability. But to guide the largest global ESG divestment movement in financial market history, silence prevailed.

If an investor is guided by ethical motivations and intends not to invest in assets from countries that violate human rights or participate in wars, these principles have to be knitted into the investor’s culture, into his investment thesis, into his success KPIs. , in the way it communicates to the market. It is something transversal and procedural to the organization. If these metrics are monitored regularly, hardly an investor will be caught off guard. No need to react.

The rush to sell Russian assets for moral reasons is already an indicator that the investor was not truly guided by moral principles.