Investors are playing a crucial frontline role in Russia-Ukraine war

Dior is among the multitude of brands to close its Russian stores. EPA

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The war in Ukraine is not a world war but it affects the entire world.

That’s the impact of globalisation for you. It’s the first conflict to involve major suppliers of products that the rest of the world wants and needs. The first, too, with a protagonist that is a huge draw for foreign investment, for businesses galore, from professional services and financial firms to the biggest consumer and retail brands.

Russia is a major exporter of oil and gas and is dependent upon income from their sale. Ukraine supplies much of the world with wheat. Not surprisingly, the knock-on effect from their fighting is already being felt in rising global fuel prices and fears of overseas bread shortages.

No one is immune. Europe can manage without Ukrainian grain but will suffer without Russian oil and gas. The US, too, will be hit by climbing energy bills. The Middle East is especially vulnerable to the loss of Ukrainian crops.

Asia, Africa, South America, Australasia — all will be dragged down. This, just as the world was emerging from the ravages of Covid-19 and there was talk of a widespread return to normality. This too, however, when inflationary pressures were already tightening, partly due to the increase in consumer demand following the weakening of the pandemic.

In many boardrooms, as if this were not enough, there is another headache: to stay or go. Every business that trades with Russians and Russia is having to examine its conscience.

Again, this is new. There were wars in the past and there are localised conflicts continuing still. Of course, there were two world wars. But back then the level of international, interdependent business was nowhere near as great as it is today.

Russia is a magnet for overseas capital. Ever since the barriers to finance and trade came down, firms and businesses across virtually all sectors have flocked to serve the 11th biggest economy and in numerous cases, to set up premises there.

Now, though, they’re being required to think hard. To make matters worse, this is the first war involving nations of this type to occur in the social media age.

Catch-22 for big brands

There is nowhere to hide. Leave, and you kiss goodbye to your expenditure and profits, not to mention your employees and customers who are not responsible for Vladimir Putin’s decision to attack Russia’s neighbour. Remain, and you run the risk of boycott elsewhere and you become a target for protests.

There’s also doing what is right. While previously companies may have been tempted to turn a blind eye to one nation striking another, claiming not to get involved in high-level politics, this is also the era of ESG, of businesses wanting to be seen to be behaving correctly, of working for the wider benefit of society and not just their bottom line.

A leading authority in this field is Yale University professor Jeffrey Sonnenfeld, founder of the non-profit Chief Executive Leadership Institute. He and his colleagues are keeping a freely available list of which companies have pulled out of Russia since it started bombing Ukraine and those that have stayed.

The roll-call of those deserting is impressively long and varied

It's been described as a “naughty-or-nice” listing, with CEOs anxious to avoid appearing on the side of “Companies That Remain in Russia With Significant Exposure.”

Mr Sonnenfeld has received calls from corporate chiefs, asking “why we didn’t have them on the right list, and what they needed to do either to clarify or actually take a stronger stance.”

The roll-call of those deserting is impressively long and varied. Luxury goods labels have shuttered their stores, TikTok has paused operations, the likes of Rolls-Royce, Toyota and Volkswagen have stopped shipping vehicles to Russia. WWE, the wrestling entertaining company, has left.

Mega brands like WWE are choking the life out of Russia's economy. AFP

They’ve been joined by law and accountancy practices, financial services firms and management consultants.

Some have gone for the foreseeable future; others are more reluctant.

So, even among “Companies That Have Curtailed Russian Operations,” there are differences, noted Mr Sonnenfeld.

BASF SE, the German chemical company, says it will “suspend new Russian relationships,” while other companies, including Apple and Chanel, have closed stores completely or terminated supply contracts.

The surprise is some names that like to regard themselves as among the most socially aware, “woke” and appealing to young people. They were slow to respond.

Frankly disengaging

In a turning point for an era, McDonald's and Coca-Cola have shut down too but cite loyalty to their local workers as a continuing priority.

It has been impressed upon them, however, that forcing an economic collapse on the Russian people is better than the alternative, of the war escalating and the West being dragged in and confronting Russia along superpower lines.

McDonald's was not in the first tranche of companies to shutter stores in Russia. Reuters

So, this is the first such war where brands have become weaponised, seen as a way of defeating Russia and hastening the war’s end.

It’s the first where the massive size of foreign investment and the position that holds in the Russian government psyche, where it’s held up as embodying openness and economic success, has made that possible.

This might well prove to be a conflict that is decided upon the economic, globally networked battlefield rather than in the shattered towns and cities of Ukraine.