News & Updates

Mobilising against the Putin regime

Thu March 24th 2022

Mobilising against the Putin regime
Barry Coates, CEO and Founder of Mindful Money

Companies and citizens are mobilising as a powerful economic force against Putin’s aggression. Actions taken by individual New Zealanders, companies and investment funds are an integral part of the Western alliance to isolate and undermine the Putin regime.

There are now wide-ranging sanctions on Russia’s government, oligarchs, companies, investments and trade. These have extended far beyond formal government sanctions. Companies have proactively imposed their own restrictions, responding to their consumers, investors and other stakeholders. Many of the world’s largest companies are divesting from Russia and putting up barriers to trade with Russia. The power of public outrage has been focused on the Russian state and Putin’s power base.

This pressure has contributed to a financial crisis in Russia. The exchange rate for the rouble has plummeted, the Central Bank has raised the key interest rate to a historic high, the value of Russian companies has collapsed and a growing proportion of Russia’s exports, including oil, are being boycotted. In addition, governments, the media and the public have targeted the assets and reputations of oligarchs and others that form Putin’s power base.

In New Zealand, our government has recently passed legislation introducing sanctions on individuals, assets and companies with ties to the Kremlin. But by then, thousands of New Zealanders and their investment funds had already taken action. In particular, investors have insisted that their funds be taken out of investments in companies complicit in Putin’s regime.

Mindful Money’s analysis showed that hundreds of KiwiSaver and retail investment funds held investments in Russian government bonds and companies aligned with the Kremlin as recently as five months ago. New Zealand investments totalled over $100 million. That was a time when Putin had already amassed troops on Ukraine’s border.

There has subsequently been a flood of investment out of Russia. It is mainly indirect investments in index funds that remain. Divestment has come at a price. The funds that divested after the invasion has started were the biggest losers. The value of most major Russian companies has fallen by 80-90%. Many of the current holdings are blocked and may be worthless.

There are lessons to be drawn from this crisis. It is clear that those investment managers directly managing their portfolios have far more flexibility to withdraw at an early stage. Index funds may have low fees but they’re not responsive to controversies and crises.

The crisis has also exposed the fund managers that claim to be ethical or responsible or use ESG (Environmental Social and Governance) management, but were found to be invested in companies and bonds that helped finance the Russian invasion. They suffered both reputational and financial costs. This lack of coherence between their claims and their investments fuels international criticism and public concerns over greenwashing.

Finally, the power of moral outrage can be used to mount pressure on governments. There are already cases of this happening for companies, such as the pressure mounted by investors to force change in Exxon’s climate policies, but it is far less common for action to be targeted towards governments.

Hopefully this pressure will force Russia to the negotiating table. Perhaps there is a historical parallel. In the 16th Century, Tsar Ivan the Terrible launched successive wars to impose Russian rule on the states we know as Kazakhstan, the Baltic states (Lithuania, Latvia and Estonia), Belarus and Ukraine. The resistance by a coalition of the Swedes, Poles, Lithuanians and Ukrainians bears a resemblance to NATO’s response. Perhaps the combined pressure on Russia’s economy and financial system will ensure that Vladimir the Terrible also fails.

Barry Coates is CEO of Mindful Money