Internet Explorer is not supported on this site. For an optimal experience, please use a modern browser, such as Chrome, Edge, Firefox, or Safari.
March 22, 2022

An ESG view on Russia and impacts of invasion of Ukraine

Coziana Ciurea
Moody's ESG Solutions

The impacts of Russia’s invasion of Ukraine and the scale of mounting international economic sanctions are set to reconfigure the existing ESG risk landscape for global business and financial markets. This comment discusses Russia’s sovereign ESG performance from Moody’s ESG Solutions’ perspective and the impacts of the current military crisis.

Prior to the recent Russian invasion of Ukraine, sanctions imposed after the annexation of Crimea in 2014 had already constrained some ESG investments in Russia, while sovereign ESG analyses helped investors identify ESG risks and concerns that existed in Russia well before the current crisis. In response to the invasion, new and more far-reaching sanctions have been implemented against the Russian government. Many businesses have suspended operations in Russia; major Russian banks have been excluded from the SWIFT messaging system; several countries have sought to stop the purchase of Russian oil and reduce their dependence on Russian energy exports and many investors have sought to exit Russia. Since the invasion began, it has been reported that an estimated $5.2 billion of Russian assets have already been sold or are set to be offloaded and funds with Russian exposure have been frozen. Meanwhile, index providers have removed or reclassified Russian equities from their indices. In addition to divestments from, and sanctions against, Russian companies, Russian government bonds are facing similar issues. For example, JP Morgan announced that it will remove Russia from all their fixed income indices, including EM government bonds and ESG indices, from 31 March 2022.

An ESG View on Russia

Traditionally, many investors screen sovereign bonds from an ESG perspective similar to corporate bonds and equities and include the analysis in their investment decisions. However, the ESG analysis undertaken to evaluate the environmental, social and governance performance of a country is different than that of a company. It predominantly depends on the availability of internationally comparable databases, and often includes an analysis of the political landscape within the analysed countries as well as their position towards internationally recognised principles and norms, and the level of action undertaken to implement these principles. Moody’s ESG Solutions’ assessment of Russia shows a relatively high level of commitment to international conventions, but a weak performance in implementation commitments.

Human Rights, Labour Standards and International Law

Russia has ratified core UN Human Rights Treaties and ILO Conventions covering fundamental labour standards. As a result, the country commits under international law to respect and promote universally-recognised human rights and core labour standards, as well as assume duties that ensure its sovereign affairs will not pose a threat to international peace and global security.

However, Russia’s divergence from the international norms-based system is often identified in occurrences of human rights and labour standards restrictions for the Russian population.

The latest UN Universal Periodical Review of Russia’s human rights record in 2018 noted allegations of increasing systemic violations of fundamental civil freedoms and political rights. In particular, it highlighted the growth of restrictive laws with no effective system in place for handling the population’s complaints of addressing violations by public authorities, law enforcement and judicial authorities. Allegations of serious human rights violations involved enforced disappearances, abductions, arbitrary detention, ill-treatment and attacks against journalists and alleged violations of freedom of expression and information and harassment of the media by “Crimean self-defence” forces in Ukraine’s Crimea region, following Russia’s annexation in 2014.

Freedom House and the International Trade Union Confederation (ITUC) have also noted non-discrimination on various grounds safeguards against arbitrary arrest of the population perceived as threatening the interests of the political leadership, and systemic barriers to the recognition of collective bargaining and the right to lawful strikes.

In March 2022, UN Human Rights Council experts have described the recent adoption of a punitive law that restricts independent reporting in/by Russian media about the military conflict in Ukraine as a move by the Russian government to deprive the population from the right to access diverse news and views about the military situation in Ukraine.

Russia has also been involved in violations of international law and international humanitarian law through the country’s involvement in protracted military conflicts with neighbouring eastern European and Transcaucasian countries over the past twenty years.

Controversial Weapons

During the 1970s and through the 1990s, Russia ratified major UN Treaties governing the international non-proliferation of nuclear weapons and the prohibition of chemical and biological weapons, such as the Treaty on the Non-Proliferation of Nuclear Weapons (1970), the Biological Weapons Convention (1975) or the Chemical Weapons Convention (1997).

However, Russia is not a party to the Ottawa Convention on anti-personnel landmines (in force since 1997), the Convention on cluster munitions (in force since 2010) or the Arms Trade Treaty (in force since 2014). During the period 2016-2020, Russia ranked second after the United States in the top five list of arms exporters. And in spite of the ratified treaties, estimates indicate that Russia has the largest stockpile of nuclear weapons in the world amounting to 4,477 nuclear warheads assigned for use in long-range strategic launchers, and short-range tactical nuclear weapons. The country also possesses a considerable arsenal of cluster munitions, some of which have reportedly been used in the ongoing military conflict with Ukraine.

Russia’s Environmental Performance

On environmental issues the situation is similar, with an overall commitment to international treaties but a relatively low performance when it comes to outcomes. Russia has ratified several key international environmental conventions, including the Paris Agreement and the Convention on Biological Diversity.

In its 2020 National Determined Contribution (NDC), Russia has committed to reduce GHG emissions by up to 30% by 2030, relative to a 1990 baseline, taking into account the maximum possible absorptive capacity of forests and other ecosystems and subject to a sustainable and balanced socio-economic development of the country. However, in spite of a 30% decrease compared to the 1990 baseline, Russia’s 2019 GHG emissions were the fourth highest in the world, while fossil fuel energy had made up 92.1% of total energy consumption five years earlier. To meet its economy-wide climate target, Russia will need to intensify efforts towards energy efficiency and increase investments in development of renewable energy.

Regarding  biodiversity, Russia is the largest country in the world by surface area, with diverse ecosystems and forest coverage that accounts for approximately 22% of the world’s forest resources. Russia’s Red List Index at 0.95 in 2021, indicates a relatively low rate of biodiversity loss in the country. However, this has trended downwards over the past two decades.

While Russia’s military invasion of Ukraine might not have immediate direct impacts on the country’s environmental performance, the new sanctions will potentially hinder future efforts to access global green finance for low-carbon energy development. Furthermore, heightened energy security and geopolitical risks could constrain Russia’s resolve to increase and support internal demand for renewable energy. This, in turn, will have negative ramifications for the decarbonization of the economy in the long-term.

Russia’s social performance

Russia shows a relatively weak performance in various social areas, such as employment security, income distribution, population well-being and standards of living.

While the total rate of unemployment in Russia was 5.73% in 2020, among people aged 15 to 24 it was 15.4%, a rate that has remained roughly stable over the past two decades. Though achieving high educational attainment, young people in Russia have been noted to rely on informal employment and lower paid work. Workers face regular violations of rights, with systemic barriers to the recognition of collective bargaining and the right to lawful strikes, according to the International Trade Union Confederation (ITUC). The collective bargaining coverage in Russia was 22.8% in 2013.

Income inequality in Russia as measured by the Gini coefficient (37.5 in 2018) is above the average of Very High HDI countries (32.8). Estimates of global wealth found that Russia had the highest concentration of wealth among the top 1% of wealth holders in the world during the period 2000 to 2020.

Russia’s healthcare system presents room for improvement and a need for increased investment. Among Very High HDI countries, life expectancy is the lowest, while mortality rates fare moderately. Government expenditure on public health did not exceed 3.69% of GDP in 2014, lagging behind most Very High HDI countries.

Given the current situation, the severe sanctions imposed on Russia following the military invasion of Ukraine are likely to weaken the country’s social profile over the longer term and the labour market will also potentially be impacted as foreign business activities retreat.

Russia’s governance performance

Russia shows weak performance in key institutional and governance areas. Our assessment of past performance trends indicate no improvement occurred over the past ten years in most areas measured by the World Governance Indicators – such as rule of law, control of corruption, and regulatory quality. Only minimal improvement has been observed in political stability and government effectiveness.

According to Transparency International, corruption is widespread in Russia and public institutions are almost completely under the control of the executive government, leading to a failure to hold political power accountable. Russia also ranks very low in the Corruption Perceptions Index (CPI) in 2021.

Freedom House classified Russia’s authoritarian political regime as “Not Free” from 2013 to 2022, while global freedom scores have steadily decreased, an indication of the rising restrictions that the Russian population faces in the exercise of fundamental liberties and political rights.

Press freedom continued to weaken throughout 2021 amidst rising punitive pressures on independent media since the anti-government protests in 2011 and 2012. UN Human Rights Council experts have called out the recent adoption of a punitive “fake war news” law in March 2022 as a move by the Russian government to deprive the population from the right to access diverse news and views about the military situation in Ukraine.

According to the Institute for Economic and Peace, Russia ranked as the 10th least peaceful country in the world (154 out of 163 countries included in the Global Peace Index in 2021, and the least peaceful in the Eurasian region. Regional tensions were already high after Russia had massed troops on its border with Ukraine in the early part of 2021, only to withdraw them several months later.

The escalating geopolitical risks will most likely only further weigh on Russia’s governance profile in the coming years, particularly in areas related to the deterioration of democratic institutions, the protection of civil liberties and freedom of speech and the preservation of global peace


Our analysis of Russia’s ESG performance as a country displays that concerns have existed before the current invasion of Ukraine. While Russia has shown a relatively high level of commitment to international conventions promoting human rights, core labour standards, the protection of the environment and biodiversity, it has failed to implement these commitments in its institutional and governance systems. Going forward, we expect the invasion and its consequences will see additional deteriorations of Russia’s environmental, social and governance performance.

Moody’s ESG Solutions provides insights and analyses on ESG themes and multi-stakeholder performance, climate-related risks and opportunities and global sustainable finance trends.