Ukraine: Responsible business conduct in a war of aggression
On 24 February, Russia began its invasion of Ukraine. As tanks continue to roll in and cities are shelled, business and investors have issued a stream of unprecedented announcements pledging action to reduce risks they might contribute to Russia’s assault on Ukraine. Over 300 companies have halted operations in Russia, however, most of these have low exposure and in total represent only 1-3% of revenue from Russian markets. Nevertheless, this is not what happened with wars in Syria, Yemen or the coup in Myanmar, where business action is both limited and muted.
Rapid, radical and decisive action by European and North American governments is undoubtedly what has had the greatest influence. By being quick to denounce the Russian state’s aggression and apply painful economic sanctions on the country and its oligarch’s overseas wealth, they effectively forced the hands of companies operating in the region. The scale and scope of Western sanctions have created “conditions of legal and financial hostility”, as Alan Beattie described it in the FT. This has spun a web of legal and financial complexity for international business, ballooning transaction costs, and the reputational risk of being accused of violating sanctions – either in error or by design.
Additional pressure has also been applied by the rise of responsible (ESG) investment, palpable consumer pressure and the power of social movements, such as #MeToo, Black Lives Matter and Fridays for Future which, combined with the media and social media, have sensitised companies and investors to make ethics more central to their business decisions. While we should celebrate these longer-term shifts in companies’ calculus of human rights risks, nobody should doubt the decisive action was governments’ coordinated economic and legal response.
So what should business do, not just in response to current Russian aggression in Ukraine, but also to mitigate risk longer term (for no one could say the human rights risks of operating in Russia are new )? As companies respond to the sanctions, they must ensure they implement international human rights standards for business: the UN Guiding Principles for Business and Human Rights (UNGPs) which are clear on the need for heightened due diligence duties in conditions of conflict. By doing so, companies will also be practicing their future duties on human rights and environmental due diligence, which will become a legal necessity when the draft European Corporate Sustainability Due Diligence Directive is finalised.
The Business and Human Rights Resource Centre asked over 200 companies with exposure in Russia and Ukraine for their due diligence plans. While these are early days, so far the responses do not reflect the rigour demanded by the risks of contributing to factors driving the conflict, nor the international business standards.
Due diligence action plans for companies depend greatly on a company’s nature. In the context of this invasion, there are at least three types:
- Business or products linked to sectors which enrich Putin’s circle or sustain the military and security apparatus. This clearly includes oil, gas, strategic minerals and surveillance software. It could also include uniforms, high-energy biscuit rations for troops or business support functions. Many are directly affected by sanctions. Unscrupulous companies may remain, but may be exposed under international humanitarian law to being complicit in war crimes as the Lafarge ruling in France’s Supreme Court may illustrate. This is why we have seen the corporate exodus led by this category of companies, from BP and Chevron in the first days, to Rio Tinto some three weeks later.
- Western aspirational brands – from Carlsberg, to Zara, and Esther Laudee – have withdrawn their brands or shuttered their outlets, most of them ‘temporarily’. The aim is to create conspicuous international isolation in Russia which may help as an antidote to the Russian media’s downplay of what they deem ‘special military operations’. The action helps the company avoid the sanctions tangle, enhances reputation with consumers, investors and employees, and is visible cooperation with the governments of their primary markets.
- The purveyors of medicines and essential food and similar are in a different category. Their withdrawal could harm Russian civilians whose essential welfare should be upheld, whether or not they support the Government’s invasion, according to the Geneva Conventions. Pharmaceutical brands and food manufacturers, like Danone and Nestlé, have said they will freeze new investment but will continue to operate in Russia – but are facing increasing calls (including from President Zelensky) to cut all ties.
For companies leaving Russia (or Ukraine), their responsibility does not end with this decision. Under international standards they have a duty to minimise the harm their exit creates for workers and communities affected. We have seen some better practice: Zara has closed its stores, but is providing a support package for its 9,000 Russian staff and Carlsberg has done similarly. But many companies have yet to explain their action to minimise harm to civilians.
To help, the Business and Human Rights Resource Centre has issued Guidance for business, based on the UNGPs, and International Red Cross (ICRC) advice. To build transparency (essential for holding companies accountable for human rights harm), we have also surveyed over 200 companies with interests in Russia, and will make these responses public when we receive them.
There are many scenarios for how this invasion will play out. But, like the pandemic, one of the key lessons for businesses is enlightened self-interest, combined with a commitment to uphold international human rights standards, is most likely to deliver resilience and long-term benefits. This approach will be further strengthened in the next year by new regulatory standards for human rights due diligence in Europe and the rise of responsible (ESG) investment.
To provide guidance to responsible business assessing their situation, Business & Human Rights Resource Centre has compiled guidance and good practices for companies operating in conflict-affected contexts, using materials developed by the Geneva Centre for Security Sector Governance and the International Committee of the Red Cross. Read the guidance here.
Further analysis on responsible exits from Russia has been written by Dr. Irene Pietrapaoli (Research Leader in Business & Human Rights, British institute of International and Comparative Law) and Dr. Daniel Aguirre (Senior Lecturer in Law, Roehampton University). In a blog for the British Institute of International and Comparative Law, they discuss the positive and negative impacts uncoordinated divestment will have on the war. Read their analysis in full here.