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20 Feb 2023

Bennett Freeman, Associate Fellow at Chatham House and Steering Committee member of B4Ukraine

From an attack on the rules-based international order to a new geopolitical corporate responsibility?

Moscow International Business Center, Sparrow Hills, Moscow

Russia’s invasion of Ukraine defied core principles of the UN Charter by violating the territorial sovereignty of another state and using force to alter national borders. Russian forces have killed thousands of civilians and committed war crimes to the extent that the US Government made an official determination that Russia has “committed crimes against humanity”. Moreover, as B4Ukraine emphasized in its Declaration last July, “Russia’s attack on Ukraine is an attack on the rules-based international order” on which both the global economy and the international community depend.

A wave of western companies - not just those subject to sectoral sanctions by home country governments -committed to leave Russia shortly after the invasion. B4Ukraine called in its Declaration for the foreign companies that exited Russia to remain out until the conflict is resolved on terms acceptable to an independent, sovereign, democratic Ukraine - and called on companies still partly or fully operating in Russia to leave completely.

But according to the analysis of 3,079 companies by the Kyiv School of Economics, approx. “38% of foreign companies have already announced their withdrawal from the Russian market or suspended their activity, but another 39% are still remaining in the country, 16% are waiting and only 6% have made a complete exit” (as of February 12, 2023). Companies offer various explanations - some say “excuses” - for maintaining their operations. Consumer goods companies still operating without sanctions are especially prone to criticism and reputational risk. Moreover, companies remaining are paying taxes to the Russian government and risking direct complicity in the war effort as their employees remain subject to forced conscription as the partial mobilization ordered last September continues.

Russia’s attack on Ukraine is giving overdue impetus to conflict-focused human rights due diligence. The June 2022 Heightened Due Diligence for Business in Conflict-Affected Contexts: A Guide outlines approaches companies and investors can apply at a critical time. But Russia’s invasion should encourage a fusion of what they have already known and done for decades - political and geopolitical risk analysis - with the conflict-focused HRDD that they know and do far less.

Looming over the issue of how to justify and explain these decisions—to stay or to go—is not only the potential shape of a post-conflict (if not post-Putin) future Russia, but also the precedents set for a potential conflict in another region of the world which would be even more disruptive to the international community and the global economy: an attack by China on Taiwan. That is the nightmare scenario that will cause corporate C-suites and boardrooms to lose sleep. But more importantly, corporate executives and directors should get a grip on what they can contribute to repairing a fractured world of conflict and crisis.

At stake for multinational corporations and institutional investors is no less than the continuity and efficacy of the rules-based order that defines the international community and underpins the global community. Individual companies and entire industries share a stake in supporting and defending this order at a time when its stability - and even legitimacy - are under severe stress.

Multinational corporations have been among the greatest beneficiaries of that international rule-based order over the last three-quarters of a century since its creation from the ashes of WWII. Yet at times they appear to take its existence for granted, even as their trade and investment, innovation and entrepreneurship, markets and customers, all depend on its continuity and vitality. Moreover, the rules-based order provides the companies and investors with frameworks to ease the climate crisis and spur a just transition - with diminished poverty and inequality - to a lower carbon world.

The international rules-based order is perceived by many in the Global South as inherently western despite its universal aspirations and applications - and it has indeed been undermined by inconsistency and hypocrisy. But a corporate failure to defend international standards, norms and institutions will further undermine business, governments and civil society alike.

Support for the international rules-based order should point to a new geopolitical corporate responsibility as a pragmatic agenda that can encourage multinational corporations and institutional investors to:

  • Avoid situations where they cause, contribute or are directly linked to human rights abuses through the UNGPs and heightened human rights due diligence (HRDD).
  • Advocate for the “shared space” of the rule of law, accountable governance and civic freedoms.
  • Support peace, justice and strong institutions through SDG 16 and “transformational governance.”
  • Demonstrate a sustained commitment to enhance equity, transparency and accountability.
  • Diminish inequality by tackling poverty and ensuring sustainability by arresting the climate crisis.

The elements of this agenda are not entirely or even mostly new, having emerged over the last decade. But while embraced to varying extents by leading companies, none are implemented with the priority and urgency necessary to address the global problems and opportunities that underlie them. Moving these could bring incremental progress if adopted element by element - but transformational progress if moved forward with that priority and urgency.

This tragic anniversary challenges the remaining foreign companies still operating in Russia to leave. At the same time, will a new geopolitical corporate responsibility take shape - and take action - in time to help fortify the battered remnants of the international rules-based order?

Bennett Freeman is an Associate Fellow at Chatham House and a member of the Steering Committee of B4Ukraine. He is a former Senior VP at Calvert Investments and US Deputy Assistant Secretary of State for Democracy, Human Rights and Labor.

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