On February 24, 2022, Russia invaded Ukraine, a sovereign and democratic nation, beginning a full-blown war of aggression. This unprovoked attack has already led to the unnecessary killing of hundreds, if not thousands, of civilians, a massive wave of refugees into Europe, and harsh sanctions against Russia.
CAL stands in solidarity with the citizens of Ukraine, both those who have fled to safer places and those who remain in their country. There are no words to describe the horror we feel at watching yet another war play out, as the Russian army bombs maternity wards, kills civilians, and attempts to destroy a nation. But we should be clear that this is not the first time that Vladimir Putin and the Russian Armed Forces have allegedly committed war crimes. They practiced and perfected these tactics in Syria, at the invitation of Bashar al Assad, and before that in Chechnya in the 1990s. The indiscriminate bombings we see in Mariupol, Kharkiv, and Kiev are the most recent chapter in a litany of violence that first took place in Aleppo and Grozny.
Russia appears to be using the same playbook in Ukraine as it did in Syria. Reports suggest that in Syria, Russia repeatedly bombed hospitals – a clear war crime. They did so often after the hospitals had voluntarily added their locations to a list held by the UN that was supposed to make sure they would not be targeted. In Mariupol, Russia hit a maternity hospital last week, one of 31 attacks on health care facilities or equipment that the World Health Organization documented in the war’s first two and a half weeks.
We hope that those responsible for such war crimes – from Putin to his generals in the army – are held accountable. Although neither Russia nor Ukraine is a party to the International Criminal Court (ICC), Ukraine has accepted the Court’s jurisdiction under article 12(3) of the Rome Statute for events going back to February 20, 2014, when Russia invaded Crimea. In fact, the Prosecutor has already opened an investigation into the situation in Ukraine. (For technical reasons related to the fact that Ukraine is not a party to the Rome Statute, the ICC has jurisdiction over war crimes, but not over the crime of aggression.)
Today, as a result of this war of aggression, Russia is a pariah state. Sanctions have destroyed the ruble, companies have shut down and left Russia, and the economy is in shambles. But whether these sanctions will push the Russian people towards or away from Putin and his cronies, especially given Russia’s tight control of media, remains an open question.
In this post, we examine the swift implementation and shift in the global order that took place since Russia’s invasion, just three weeks ago, on February 24, 2022. We look at how companies have responded and compare the widespread exit from the Russian economy with how companies respond to other human rights violations and humanitarian disasters.
Corporate Responses to Russia’s Invasion
Russia’s invasion of Ukraine has shifted the global order dramatically. The swift sanctions implemented by the US, the European Union, and their allies against Russia were unthinkable just a few weeks ago. Additionally, over 350 companies – including Shell, Zara, McDonalds, Visa, and Mastercard – have stopped services, closed stores, and/or halted buying goods from or selling products in Russia. This is one the most sudden and widespread boycotts of a single country that has ever taken place. In the span of just a few weeks, Russia – and Russian citizens – went from members of a globalized world, integrated into the global economy (a process which took thirty years), to members of an isolated country ostracized by much of the world.
Companies are, understandably, loath to leave profitable markets, even when their actions in those markets contribute to or exacerbate civil conflict. In Colombia, for example, Chiquita allegedly financed a right-wing paramilitary group in an effort to continue to do business. More recently, in Myanmar, it took almost a full year after the military coup for energy companies Total and Chevron to publicly state they would be withdrawing from joint ventures with entities controlled by Myanmar’s military dictatorship. Similarly, it took years of campaigning and shaming (and prohibitions on importing such goods into the US) for companies to even begin to make statements about not sourcing cotton from the Xinjiang region in China, where there are credible allegations that the Chinese government is committing genocide.
But in the weeks after Russia invaded Ukraine, an avalanche of companies publicly stopped business in Russia. From Harley-Davidson to Starbucks to Honda, companies are publicly asserting that they want nothing to do with Russia. Even FIFA, an organization with a reputation for corruption (including members allegedly accepting bribes to award the 2018 World Cup to Russia) has banned Russia and Russian athletes from competing – including in qualification for the upcoming World Cup.
Even fossil fuel companies – not traditionally known for their strong human rights records – have been quick to exit Russia. Since Russia started its full-blown invasion of Ukraine, Shell, BP, and ExxonMobil have all committed to cutting ties with Russia. Just three days after the invasion, on February 27, 2022, BP announced it would divest its 19.75 percent stake in Rosneft, a company run by Putin’s crony, Igor Sechin, and in which the Russian government has a 40 percent stake. The two BP-nominated directors also left the Rosneft Board (although former German Chancellor Gerhard Schröder has not made any moves to leave the board).
After the war began, Shell quickly bought up Russian oil at a steep discount. It quickly came under fire and has since stated that it will no longer buy Russian oil and will leave the Russian market, announcing on February 28 that it would divest from joint ventures with Gazprom – majority-owned by the Russian government – including the Nord Stream 2 pipeline project and Sakhalin-2. And on March 1, ExxonMobil announced it would be exiting the Sakhalin-1 joint venture in Russia.
Why Companies Care About Russia’s War of Aggression
The Russian invasion is an especially black-and-white situation, with an authoritarian regime pitched against Ukrainian citizens fighting for a free and democratic Ukraine. But in a comparably black-and-white situation – namely, the Chinese Government’s mass internment of and, according to the US Government, genocide of Uyghur and other Muslim and Turkic minorities in the Xinjiang Uyghur Autonomous Region (“XUAR”) in China – companies have been much slower to stop doing business in the region. This has been true despite years of credible allegations that specific companies’ goods were often being produced by people in conditions of forced labor. By cutting off ties with producers in the XUAR, these companies could have clearly stated their opposition to forced labor and genocide. And yet, it took them years to do so, and many still haven’t.
In contrast, producing goods or selling them in Russia is generally not directly contributing to human rights abuses (with the notable exception of joint ventures with government-owned oil and gas companies). Instead, leaving Russia is often more of a political statement by companies, a way for them to assert that they don’t want to profit in a country that is involved in an unprovoked and aggressive war. But what responsibility does a company have to its employees? By leaving a market, companies may simply abandon their employees – who may or may not support the war – leaving them unemployed. A company’s employees often suffer by losing their source of income when the company exits the market, in contrast to the situation in the XUAR where a company that stops sourcing from the region is shutting off one stream of income that benefits Government-sanctioned forced labor.
Then why have companies been so much faster to leave Russia than the XUAR? In part this may be because the Chinese market is simply so much bigger than the Russian market. At the beginning of 2022, Russia’s stock market had a value of $781 billion, while China and Hong Kong’s markets were valued at $19 trillion. Companies are hesitant to lose access to the Chinese market, often a large part of their sales. Indeed, when companies have committed not to source cotton from the XUAR, they have been hit by boycotts by Chinese consumers.
Moreover, while Russia is a major market for goods, it’s nowhere near as big of a producer (or buyer) of goods as China (with a few key exceptions, such as oil and gas). Unlike the XUAR, where companies are often entangled in long and complex supply chains that even they are not always able to trace, companies are less likely to face that challenge in Russia. It may hurt profits not to sell Burberry bags in Russia, but it won’t affect the company’s global production. Moreover, with the current animus towards Russia, companies may lose more market share by staying in Russia and being hit with negative press than by leaving.
Moreover, despite frequent claims that war is good for business, it isn’t. A war across Europe will have a devastating human cost, damage infrastructure, decrease the size and abilities of the working population, cause mass inflation and resource shortages, create incredible uncertainty (the market’s least favorite thing), increase national debts, and disrupt normal consumer activity – probably for several years. The corporate exodus from Russia is thus best understood not through a moral or democratic lens, but through a fairly straightforward risk analysis. The pain of exiting the Russian market, and – if Putin follows through on his threat to seize assets of companies that have left – the pain of losing valuable assets, pales in comparison to the economic pain of a third World War. Companies headquartered in NATO and allied countries have rallied behind the US and Europe’s incredible wave of sanctions against Russia because they are hoping the sanctions work.
Corporate tolerance for forced labor, genocide, and other human rights violations around the world – including in Colombia, Myanmar, and the XUAR – has a simple explanation: in those contexts, companies believe that the destabilizing effect of the human rights violations is worth the profit.
Conclusion
As companies have been publicly leaving Russia, the US, the EU, the UK and others have implemented extensive sanctions. It’s still too early to know what the impact of these sanctions and mass corporate exit from Russia will be. But historically, sanctions have not been effective – Cuba, Venezuela, or Russia since 2014 all serve as examples of that, if being “effective” means regime change or even a large shift in policy. In fact, even Russia experts seem to think that these sanctions won’t work. But while the impact remains unknown, it’s enlightening to see when and where companies draw red lines and what actions, even for profit-making entities, are simply too egregious.
As this war moves tragically forward, CAL urges companies to do more than merely avoid funding atrocities – as infrastructure crumbles, resources such as heat and water dwindle, and critical health care and emergency services in Ukraine become less effective, we hope to see businesses use their capacities for innovation and access to capital to help the people of Ukraine (both during and after the war). We welcome commitments to do no harm, but we expect even more.
Allie Brudney is a Staff Attorney at Corporate Accountability Lab. Reynolds Taylor is a Legal Fellow at Corporate Accountability Lab.
