Banks Investing In Russia Cannot Cloak Themselves In The ESG Mantle

Bank executives should not have it both ways. Either they are compliant with Environmental, Social and Governance (ESG) standards or they are not. Numerous internationally active banks with credit and market exposures to Russia have not announced yet if they are closing their offices. And banking personnel continue to invest in Russian stocks, bonds, and other financial assets.

Goldman Sachs and JP Morgan have been pouncing on distressed Russian corporate debt. According to Bloomberg’s Laura Benitez, Sridhar Natarajan and Katia Porzecanski “Goldman Sachs Group Inc. and JPMorgan Chase & Co. have been purchasing beaten-down company bonds tied to Russia in recent days, as hedge funds that specialize in buying cheap credit look to load up on the assets, according to people with knowledge of the private transactions.”

On its ESG site, Goldman Sachs has a human rights statement that begins with “Goldman Sachs recognizes and takes seriously its responsibility to help protect, preserve and promote human rights around the world. Examples of such rights are articulated in the United Nations Universal Declaration of Human Rights. While national governments bear the primary responsibility for ensuring human rights, we believe that the private sector can and should play a role in championing these fundamental rights.” How can scooping up Russian bonds while Russian soldiers kill and dislocate millions of Ukrainians possibly be a respect for human rights? Goldman Sachs also has an Anti-Bribery and Anti-Corruption Statement where it states that “the firm does not tolerate bribery or corruption involving our people, vendors, agents, or other business partners.” In Transparency International’s annual Corruption Index, Russia ranks 136 out of 180 countries, together with Angola, Liberia, and Mali. While doing business with a 136-scored country which just invaded Ukraine, Goldman Sachs cannot claim that it is fulfilling either its human rights or its anti-corruption ESG objectives.

It would be hard to believe that Goldman Sachs, or any bank for that matter, has not been aware of Russia’s globally renown kleptocracy. Earlier this week, Transparency International stated in its statement on the Russian invasion of Ukraine that “Corruption fuels conflict and insecurity globally, and we are now seeing its effects acutely in the case of Russia and Ukraine. Leading democracies have facilitated this conflict by allowing kleptocrats to further their interests and power across the West. Just last week, Transparency International reported on a German state foundation secretly controlled by Russian gas company Gazprom and acting in support of the Nord Stream 2 pipeline.”

Earlier this week, a former Goldman Sachs director called on Goldman to relocate staff from Russia. As challenging as this can be, it is the right thing to do. And the right thing also would be for Goldman Sachs to be buying Russian bonds of any kind unless it wants to issue a statement that it will no longer comply with global ESG standards.

A simple search on JP Morgan’s website quickly brings up numerous articles about JP Morgan’s adherence to ESG standards. In its 2020 ESG Report, JP Morgtan states “we assess and identify new or emerging ESG issues that could impact or be impacted by our firm on an ongoing basis.” It also states that it addresses “human-related issues. In fact, just last year the International Financial Review named JP Morgan the ESG Financing House of the Year. Perhaps, IFR needs to rethink how it makes its ESG designations.