Anyone who watches the news will have seen the terrible, heart wrenching news that Russia has decided to declare a war… err we mean a special military operation on one of its neighbours Ukraine and the devastating fallout continues to have serious ramifications for the global economy and in particular the Russian economy itself!
So what is going on?
Since Russia began its “special military operation” on Europe’s second largest country the governments of the West including those in the EU, NATO and many others including Japan & Australia for example have also essentially declared “economic war” on Russia itself. Bear in mind, Russia was/is the 11th largest economy in the world and never before has a G20 country (the 20 largest economies in the world) been largely unplugged from the global economy in this way. Bearing in mind that Iran is 50th and North Korea 113th, the consequences are huge.
The Kremlin themselves have been quoted as reporting that “the Russian economy is facing a shock” and that it is “absolutely unprecedented” and whilst they have tried to counter some sanctions by taking action such as raising domestic interest rates it is unlikely to normalise their economy anytime soon.
Problems with any action!
Russia is a major exporter of oil, gas, coal and basically every other type of mineral that is in demand for the manufacture of pretty much anything. Think about it, you simply can’t refuse to import Russian gas in the short term as it is needed to heat homes of everyone in the UK, for example. Would you be willing to not heat your home or accept only having electricity 3 days per week? No, of course not. Therefore, it is extremely likely that long term decisions and changes should and could be made.
ESG and Sustainable investing
As we have been reporting for some time, we have seen a large rise in client’s interest in what we call ESG investments. Ethical & Sustainable Governance is basically wanting to do well by doing good! A large part of this is the environmental impact that investments have, ie: reducing carbon and positive investment in renewable energy sources. Take the UK for example, we essentially have an unlimited source of wind and sun, let alone the potential rise of nuclear with the Sizewell reactors currently under construction.
Another fact is that although interest rates have risen sharply lately, to combat the spike in inflation and may need to rise further in the coming months, borrowing at interest rates of less than 1% remains very attractive. Think about it, a very large and reputable borrower (let’s say the UK government for example) could borrow huge amounts very cheaply and re-invest it in the building of secure sources of domestic, and clean energy sources.
Not only would the UK be less reliant on “unstable and possibly unreliable” sources of energy – such as Russia, Saudi Arabia for example, but could “go green” at the same time. There is no doubt this is likely a direction of travel that will only be sped up due to current geo-political events!
How are we positioned?
All clients have access to a range of market leading “ESG approved” portfolios and we will continue to discuss individual preferences with everyone. Whilst a purely “ethical” stance can be adopted, even with our “none-ethical” portfolios, they have huge overlap with the ESG approved world. Our fund managers and strategies will always be searching for “future proofing” clients’ wealth and are dynamic enough to change, adapt and alter regularly as themes and market conditions change.
One thing for sure, the Russian aggression whilst devastating in the short term and especially for Ukraine, should end up being a catalyst for a very isolated and economically devastated Russia as well as a hugely carbon reduced world. Obviously, these things don’t happen overnight but expect the impact of Russian aggression to last for years to come. Perhaps the time for serious carbon reduction is now upon us but for a different reason than global warming – let us just hope it lasts and once the Russian war is over that the west doesn’t just go back to the way things were!