War in Europe and corporate responsibility

May 08 2024 · 8 min read

ESG · Social Responsibility · Corporate Social Responsibility · Human Rights

Born in 1954 in Germany, I always wished to live at least until the year 2045, so I could say, “100 years of peace in Europe – lucky me, it has been accomplished!” This dream was shattered on Feb. 24, 2022. The oldest story in the world, the narcissistic will to power, which runs most rampant in those who are the most powerful, is still alive and kicking. Alas, homo sapiens has yet to arrive in the halls of state power.

The arrogance of state power and the horrors of war are at full display once again - this time in Europe. Vladimir Putin’s brutal war against the people of Ukraine has ushered in a new era on the continent. Its outcome is unpredictable, but even if the war can be contained and its worst outcomes avoided, it is already clear that it will have a lasting and deep impact around the world. Intensified regime rivalry, economic stagflation, humanitarian crises situations and further environmental degradation are all in the cards.

For businesses, the war in Ukraine adds a colossal additional layer of uncertainty to an already uncertain outlook due to accelerating technological disruptions, environmental degradation, the Covid pandemic and shifting macroeconomic conditions. For the corporate sustainability agenda, the following points are illustrative:

First, the war is driving home the point that state power trumps markets, especially in times of turbulence. The comprehensive sanctions against Putin’s Russia have already induced massive divestments or suspensions of business activities by foreign companies operating in Russia. Compliance with sanctions raises legal, social and human rights issues. While sanctions, including so-called “smart sanctions,” are intended to harm the political elite, they mostly fall on the shoulders of innocent citizens and local employees. Those issuing sanctions mostly ignore this collateral damage, but for businesses, retreating or suspending their activities is a serious moral issue. Sadly, many companies seem to just rush to the exit, cutting their losses. But a few, such as the Volkswagen Group, have put in place explicit activities to care for their employees. This is not only morally the right thing to do but also an investment in peace.

Second, humanitarian assistance and support for civilians who are suffering from war must be a priority. The business community can now play its role as good corporate citizen by providing financial, logistical, volunteering and other support. Established international organizations, such as the UN Global Compact, have issued concrete guidance that helps to ensure that such support is effective and reaches the people in need. Many corporations have already stepped forward, and as the crisis deepens, such contributions will be urgently needed.

Third, the war accelerates the rise of the bossy state in many economies. Already prior to the war, we saw a steady rise of economic nationalism and industrial policy making. The balance between the private and the public spheres will shift further in favor of state power. Navigating sanctions, coping with diverging national and regional regulations and being seen as a national rather than an international player will put an extra premium on legal and compliance functions and will challenge the agility of corporate cultures, even if such activities do not support productivity and innovation. Businesses have no choice but to go local and to play along.

Fourth, the cries for more arms for Ukraine and the massive increase in military expenditures – leading to a paradigm shift in Germany, for example – give new credibility to defense industries which until recently were considered “not sustainable” and were excluded from sustainable investing on ethical grounds. ESG (environmental, social and governance) investing, already accounting for more than one third of professionally managed assets worldwide, will have to come to grips with this growing industry. New definitions will be required to distinguish between defensive and offensive weapons, and efforts will have to be made to define the ethical boundaries of killing machines, including autonomous weapons and their uses.

Fifth, major events have major consequences. The law of unintended consequences set in motion by the military invasion of Ukraine is still gaining momentum. But already the invasion has led to a revival of liberal values which had long been declared on life support and close to extinction by many observers. For businesses, this means that social norms, in particular human rights, will move up on the agenda. Beefing up due-diligence processes, improving supply chain performance and putting in place remedy procedures, such as outlined in the UN Guiding Principles on Business and Human Rights and the Principles of the UN Global Compact, is fast becoming an essential prerequisite for a license to operate. The risk that social norms will be instrumental for political power purposes is rising as policy makers will be tempted to outsource state duties to the private sector. To avoid such a dilemma, business executives may soon be required to familiarize themselves with the writings of Amartya Sen, in particular his book The Idea of Justice.

Sixth, the war will have a huge impact on the fight against climate change. The immediate impact is massive environmental destruction and additional pollution in the wake of military fighting, as well as the revival of coal production in the name of energy security. The heightened focus on security and military defense will also sadly take away much needed resources and divert political attention from humanity’s greatest challenge. The buildup of military industries around the world and the new arms race is a further serious impediment towards achieving the Paris goals. It is estimated that the US military alone, if it were counted as a nation state, would be the 47^th largest emitter of greenhouse gases. This estimate is based on fuel consumption alone, not counting the burning of ammunition and other toxic material associated with military activities. Surprisingly, environmental activists have so far paid little attention to this challenge. But there is also a potential upside. The war has revealed vulnerabilities associated with fossil fuels and the dependency on a few major exporters. The buildup of renewable energies, energy storage technologies and the decentralized and localized energy systems may now get a new boost in the name of energy security. Many businesses have already set in motion major decarbonization strategies. They have good reason to drive the energy transformation with even greater urgency.

Seventh, the war is disrupting essential supply chains beyond the energy sector. The ripple effect of these disruptions is already showing up in industrial activities, especially in the European automotive sector. Ukraine is the world’s fifth largest exporter of wheat. A spike in prices for agricultural commodities will not only further fuel inflation, but also lead to a global food crisis and to social upheavals in countries far away from the war zone. Businesses have already started to reassess supply chain vulnerabilities in the light of rising economic nationalism and the Covid pandemic. The war will further push them to search for safer supply chains, reassess political risks and relocate activities closer to home, and in some instances, give fresh impetus to circular material flows.

What else can businesses do in the face of deep uncertainty about the future? For one thing, we all have a choice to either nurture peace or to thrive on division. We can choose whether or not to believe that what connects us is stronger than what divides us. We can blindly follow the siren call of power myths, or we can be builders of humanity and stewards of the natural environment. We have made enormous leaps in science and technology but our minds have not evolved, and those in charge of state power have particularly failed. The idea that big powers have to go to war for the sake of supremacy is still very much alive, while we fail to comprehend that manmade challenges are threatening our common future, irrespective of spheres of influence or military doctrines.

Businesses understand that they cannot succeed in failing societies. Peace is the highest public good of all and a precondition for flourishing markets. The United Nations was created on the ashes of the worst war the world has ever seen. While the UN’s failings and lack to modernize can rightly be criticized, its foundational spirit still rings strong around the world and creates hope everywhere. Its business platform, the UN Global Compact, now has over 15,000 participating corporations from over 160 countries. The UN Global Compact’s Ten Principles, covering the areas of human and labor rights, environmental protection and good governance, are derived from international conventions that in principle enjoy universal legitimacy. It now makes sense for businesses to more fully engage in the UN Global Compact and its various activities, especially through its many country networks. By giving new life to the Ten Principles of the Global Compact, businesses are helping to revive and strengthen the good spirits of humanity and to build bridges and mutual respect while demonstrating that collaboration and tackling common challenges is the only way to go. Commerce and shared economic interests may not always deter military conflict, but they certainly help to contain abuses of state power politics and, if grounded in shared values of humanity, they certainly are a force for good.

This article is also published on Forbes. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.