Divestment from Russia shows companies are finally putting their political power to use

Can major corporations accept responsibility for their impact on global events?

March 01, 2022
BP is to offload its stake in Russian oil giant Rosneft. Photo: Cavan Images / Alamy Stock Photo
BP is to offload its stake in Russian oil giant Rosneft. Photo: Cavan Images / Alamy Stock Photo

The energy sector is once again in the spotlight, as pressure mounts for action to be taken in response to the Russian invasion of Ukraine. When it comes to international conflicts, the major companies usually prefer to keep their heads down and deny that they have any political role. But times have changed. Companies’ responsibilities are beginning to be recognised. The next step is an acknowledgement of their potential power to influence governments and global politics.

The argument that companies have no political role cannot possibly be used when it comes to Russia. Western investment in the Russian oil and gas sector has sustained Vladimir Putin’s regime for the last 20 years. The once elderly and decrepit Russian oil industry has been transformed. New resources have been found, and complex projects such as Shell’s multi-billion investment in the Sakhalin region of the Russian Far East have opened up the prospects of a major new gas export trade to China. BP has also invested, firstly through a joint venture with the Russian company TNK and subsequently as a minority owner of Russia’s leading oil company Rosneft—an investment which ended yesterday with BP’s announcement of its exit from the country.

These and numerous other business investments have been very successful, both for Russia and for the companies involved. So long as Russia was behaving in a reasonably civilised manner and there was at least a pretence of enforcing the rule of law, the arrangement was generally accepted. Investment and technology transfer provided the practical means of integrating the country into the global economy as a respected trading partner. The risks were justified and manageable. But as Russia has become more aggressive, the strategy of engagement has ceased to be tenable. For many of the companies involved, the challenge now is how to limit the losses which will result from divestment. With even Germany supporting EU moves to exclude Russian banks from the SWIFT payments system, the status quo has become unsustainable. Under intense pressure Shell has followed suit. 

The lesson from all this is that the actions of corporations cannot be separated from politics. Major companies, from the energy sector and beyond, have already accepted their responsibility for delivering the transition to a lower-carbon economy. Hundreds of UK companies have now set net-zero targets.

The moves they are making may be too slow to satisfy some campaigners, but the shift in attitudes is still dramatic. A new generation of corporate leaders is endorsing the view that business is part of society and must act accordingly. The narrow focus on profit maximisation and shareholder value at all costs—which used to be the standard behaviour of most companies—has gone.

The shift is not easy, and the challenge is not limited to the oil and gas sector and climate change or to the Ukraine crisis. The manufacturers of electric cars rely on rare minerals and other products, many of which are produced under terrible conditions in conflict-ridden countries such as the Democratic Republic of Congo. Sports businesses, including Formula One, have been criticised—not least by the drivers—for accepting sponsorship from Saudi Arabia. Tech companies are under scrutiny from Amnesty International and other campaigning groups for using manufacturing facilities which could be linked to the use of forced labour in China.

In the past, in almost every case the first instinctive response from major companies has been defensive. The denial of knowledge or involvement, however, followed by the claim that companies are not responsible for the governments of the countries in which they operate, has been an unconvincing response. So has the suggestion that companies have no legitimate role in anything beyond the narrowest commercial boundaries. Both excuses have contributed to the loss of public confidence in the corporate sector. A change in attitude is overdue.

Companies do have power and should learn to use it with care and transparency. The power derives from the investments they make and the jobs and wealth they can create. The decisions on what to invest in, and where, make a huge difference to any community. By setting standards—publicly stated and open to verification—companies can influence governments because their investments are needed. If the standards cannot be met, making serious investments in that country carries unjustifiable risks.   

What is happening in relation to Russia provides evidence that at least some of the companies involved appreciate that they will now face scrutiny for the political impact of their actions. Of course, individual corporate decisions may not alarm Putin. If President Macron and Chancellor Scholz could not persuade him to seek a diplomatic solution, why should a decision by the board of BP make any difference? Against that should be set the fact that Russia is more than a one-man state. Putin’s power depends on the continued support of multiple groups, including the business and financial community. If they see the country being abandoned by serious western companies, and their own interests threatened, the balance of power on which Putin depends could begin to disintegrate. Business and politics are inseparable.