Could a heightened focus on ESG (environmental, social and governance) factors have prevented investors from experiencing steep losses in Russia-related investments the past few months?
It’s a good question, with some surprising answers.
Following Russia’s unprovoked Feb. 24 assault on Ukraine, sweeping sanctions placed on Russia’s currency and Russian companies have rippled through all asset classes, affecting portfolios across the globe—including those with an allocation to foreign exchange (FX) markets. In some cases, these impacts have been fairly detrimental, with investors’ hard-earned alpha seemingly evaporating overnight.
But what if ESG factors had been taken more into consideration in the weeks leading up to the invasion? What if the governance risks of an exposure to Russian securities had been fully integrated into a currency strategy? Or if increased attention had been paid to the implications that an attack could have on environmental factors, such as an allocation to oil and gas? Would investors have earned higher returns?
We’ll take a look at all of this in short order—particularly as it relates to foreign exchange markets. But first, let’s back up a step and review the basics of what makes a strategy an ESG strategy. Call it ESG 101.
ESG strategies: A review
ESG strategies aim to incorporate environmental, social and governance factors within the investment-making decision process. These factors are defined in the…
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