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The New Business of War

Russia’s year-old invasion of Ukraine began perhaps the largest divestment and sanctions movement the world has seen. By one measure, with more than 1,000 global companies involved, that movement could be six times larger than the apartheid-related boycotts of South Africa in the early 1980s. According to a range of experts, never has such a significant economy—number eleven in the world by GDP in 2021, according to the World Bank—faced so many sanctions, implemented with such speed.

Expectations for the efficacy of sanctions began high, perhaps in part because of this “shock and awe” factor. But a January IMF study reported that real Russian GDP contracted just 2.2% in 2022, with an expectation for marginal growth in 2023 and more than 2% growth in 2024. While these numbers are far lower than what was projected before the war, they aren’t exactly disastrous. This is likely because emergency Russian economic measures have held up better than expected, because the western strategy to isolate Russia appears to have reached its limits, largely thanks to India and China, and because as a result, crucial commodity exports have not collapsed.

Still, many experts say, the sanctions are working—just more slowly than some expected. A strong diplomatic message has been sent; economic pain has hampered Russia’s war effort; other critical impacts have just begun. Not only has foreign investment evaporated, but as many as 30% of key tech workers have now departed the country. Ongoing difficulty in obtaining semiconductors undercuts Russia’s military development and the modernization of its economy. Russia’s automobile industry is resorting to desperate measures like building cars without airbags or anti-lock brakes; advertising and real estate have experienced massive contractions; bad loans abound, and exports have plunged.

Against these mixed results, a one-year evaluation of the corporate response to the Russian invasion is also taking place. While divestment and sanctions may be diplomatic tools, it is mainly corporations who are left to implement them. Some commentators have even called sanctions an outsourcing of foreign policy to the private sector. But for divestment in particular, we would argue that the question is one of corporate responsibility, rather than government coercion.

Unfortunately, recent analyses have shown room for improvement in divestment commitments from the private sector. While the 1,000-plus companies committed to leave Russia have made headlines, a further 1,700 international firms continue doing business there, according to the Kyiv School of Economics—fully 56% of firms that had ties before the Ukraine invasion. Another analysis, of EU- and G7-registered firms that had Russian subsidiaries at the outset of 2022, shows that just 8.5% have completed a divestment from at least one of those subsidiaries. The same analysis suggests that while larger, higher-profile firms have led the charge, European companies have significantly lagged their US-headquartered counterparts.

Firms that remain in Russia face a fraught landscape. According to one source, such firms generate more than $171 billion in local revenue, or more than 10% of Russia’s GDP. In 2021 tax dollars, that was worth over $18 billion to the Russian government, enough to fund its war for 2 months. But since the invasion began, newly-passed Russian laws have made it legally much more difficult for companies to exit the country. Worse, perhaps, are additional laws requiring companies in Russia participate in its military draft. One prominent German news source estimates that German companies have been responsible for the conscription of thousands of its employees.

Like legally mandated sanctions, voluntary divestment can take time. But careful planning is not an excuse for inaction. As always, we believe businesses must mobilize their resources and power against injustice. Companies with commitments to divest from Russia must follow through; companies who have not made commitments must reconsider their lack of action. Ultimately, one metric for measuring the success of the world’s largest divestment and sanctions movement matters more than any other: how many Ukrainian and Russian lives can be saved by bringing an end to the war. More than ever before, this is a key performance indicator for which business shares moral responsibility.