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Stakeholder Pressure Amid International Conflict: Corporations Restrict Services in Russia

Saint Basil's Cathedral on Red Square in Moscow

As Russia’s invasion of Ukraine intensifies, companies in the US, EU, and other regions are facing increasing stakeholder pressure to restrict services and product sales in Russia. In response, a growing number of corporations have taken measures to halt business there. Global corporate action on the Russia-Ukraine conflict underscores the growing role consumers are playing in international policy.

KBRA has long recognized that every issuer, regardless of industry or sector, may face pressures from its stakeholders’ environmental, social, and governance (ESG) preferences. The core of our ESG analysis of social issues focuses on stakeholder preferences and the associated reputational risk. Public opinion and consumer sentiment on ESG issues is evolving rapidly and can affect issuers’ revenue, costs, and growth strategies. The current environment highlights the challenges corporations face in balancing stakeholder preferences—including consumer backlash, the associated reputational risk, and possible expansions in economic sanctions—with the potential revenue losses resulting from exiting an economy with over 140 million people.

Notable Corporate Action Against Russia

Following intense consumer pressure in opposition to the invasion, tech giants have moved to limit services in Russia and block advertisements and streaming services of the country’s state-operated media. Apple announced on March 2 that it would stop all product sales in Russia—a rare move from a tech giant that does not often insert itself into international conflict. Beyond that, Apple has restricted Russia’s use of its App Store, Apple Pay system, and Apple Maps. Dell Technologies similarly froze product sales in Russia. Microsoft removed RT, the state-owned Russian media company, from its app store and is blocking Russian state-sponsored media from advertising on its platforms. Google took measures to block Russian media companies from its news feeds and restricted advertisements on websites, apps, and YouTube. Google Pay also stopped network services with several Russian banks. Given that Apple Pay and Google Pay are prominent means of cashless payment, these moves have had an especially harsh effect combined with the sanctions on Russian banks that is limiting access to cash in the country.

TikTok, Netflix, and Roku limited streaming access to RT and other state-owned media, while Snapchat paused ad sales in Russia and Belarus. Meta—which owns Facebook, Instagram, and WhatsApp—is restricting Russian state media in the EU and has banned Russian media companies from its global advertisement services. Oracle, a major computer software company, also paused all operations in Russia.

Technology companies are not the only ones pulling out of Russia. Shortly after the initial invasion, Delta Air Lines announced it would cease code-sharing with the Russian airline Aeroflot. Boeing and General Electric halted maintenance and support for Russian airlines, and Airbus suspended aircraft part deliveries in the country. These corporate actions are combined with sanctions for Russian-operated aircraft in the airspace of the EU, the US, and Canada. Companies in the automotive space—including Volvo, Volkswagen, Toyota, Mercedes-Benz, Harley Davidson, and General Motors—have also limited or ceased exports to Russia. Moreover, shipping companies UPS, FedEx, DHL, and Maersk have terminated services in the country, while H&M has cut off retail sales.

In addition, there has been backlash in the arts and entertainment industry, with Russia blocked from participating in the Eurovision Song Contest, Cannes Film Festival, and Glasgow Film Festival, among others. Disney, Sony, Warner Bros, and Paramount have limited movie distribution in the country. Further, Russian soccer teams have been suspended from international competitions, including under FIFA, meaning that the national team will be barred from the 2022 World Cup.

Notably, oil and gas companies have started to divest their assets and exit projects in Russia. These moves represent a significant blow to the country, as oil and gas revenues represent nearly 40% of its federal budget. Shell moved to exit three gas projects with the Russian state-controlled company Gazprom and cut its ties with the Nord Stream 2 pipeline. BP will end its partnership with Rosneft, a Russian-owned gas company, in which it owned a 19.75% stake. Equinor will sever its links with the country, and Exxon plans to nix an offshore Russian oil initiative that was the country’s largest foreign investment project. These moves will deprive the Russian oil and gas industry of major sources of investment and industry expertise.

Many companies that have not yet taken action have faced backlash. For example, McDonald’s was criticized for closing its restaurants in Ukraine but not halting operations in Russia. Ikea’s CEO faced condemnation when he took to social media and cited the need to “embrace togetherness and collaboration” in Russia, although the company subsequently paused retail operations in Russia and Belarus. WeWork’s CEO publicly stated that the company does not plan to close its offices in Russia but will continue to monitor the situation. Even with these exceptions, the corporate exit from Russia has been sizable and swift, and more are expected to follow. As a result of economic sanctions and global corporate action, the Russian ruble has plummeted in value, leaving the economy spiraling and Russian citizens unable to easily access cash.

Still, the economic situation in Russia remains fluid, and the full impact will depend on how long the conflict continues and how much it escalates. For more information on KBRA’s view of how Russia’s invasion may impact credit risk, see Russia’s Invasion of Ukraine: Initial Contours of Credit Risk.

Conclusion

The corporate action in the Russia-Ukraine conflict highlights the importance of KBRA’s focus on stakeholder preferences and ESG-related credit issues more broadly. It also underlines the effect that social responsibility standards are having on corporate operations and strategy. We believe it is critical for issuers to demonstrate awareness of their key stakeholders’ ESG preferences, as well as how these preferences may their impact operating, capital, and financial strategies. ESG issues can affect the demand for an issuer’s product and services, the strength of its global reputation and branding, its relationship with regulators and lawmakers, and its cost of and access to capital. Revealingly, the companies taking action against Russia are responding to their consumers’ views and sentiment toward the conflict to avoid financial consequences and losses in revenue .

KBRA will continue to monitor developments in Russia and Ukraine as well as the possible credit implications across our rated sectors.

Contacts

Emilie Nadler, Associate Director, ESG
+1 (646) 731-3386
emilie.nadler@kbra.com

Andrea Torres Villanueva, Associate Director, ESG
+1 (646) 731-1238
andrea.torresvillanueva@kbra.com

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