Why Ukraine is condemning global banks over ‘war crimes’

Hello from New York. The summer heat has intensified on both sides of the Atlantic. We have been following temperatures in the UK that are set to reaching hazardous levels. Worse, wildfires have hit Portugal, extending a punishing dry spell throughout continental Europe.

The heat in the US is of a different sort. Climate policy in the US is stuck in summer doldrums. Democratic senator Joe Manchin once again has torpedoed efforts to devote federal spending to combat global warming. This blow follows on the heels of the Supreme Court’s decision to limit the Environmental Protection Agency’s ability to regulate emissions.

Today, Kenza Bryan follows up on her cracking scoop about the Ukrainian government demanding global banks stop financing companies that trade Russian oil and sell shares in Gazprom and Rosneft. I look at the growing greenwashing risks companies face when dabbling in carbon offsets and lobbying politicians. And don’t miss the FT’s special report on sustainable finance, out today. (Patrick Temple-West)

‘We are going to sue everybody’: Ukraine goes after global banks with Russia ties

Should Wall Street banks face war crimes tribunals for arms-length dealings with the Russian energy industry?

That was the case made by Oleg Ustenko, economic adviser to Ukraine’s President Volodymyr Zelenskyy, in my interview with him on Friday about the role of oil and gas holdings in financing the war in Ukraine.

Ustenko had sent off angry emails to some of the world’s most powerful bankers a few hours before we spoke. In letters seen by the Financial Times, he accused chief executives Jamie Dimon of JPMorgan and Noel Quinn of HSBC, among others, of “underwriting Putin’s ability to wage war” through their banks’ investments in and indirect funding of Russian oil and gas.

The government adviser then launched into an explosive rebuke of JPMorgan, HSBC, Crédit Agricole and Citigroup for their shareholdings in Gazprom and Rosneft, the Kremlin-linked oil and gas giants, and for their extension of credit lines to companies that ship Russian oil.

“In my view they are committing war crimes because they are helping the Putin regime in this specific way and they are supporting the regime,” Ustenko told the FT.

He followed this accusation with a barrage of threats to retaliate against all financial institutions exposed to the Russian fossil fuel trade.

If any financial institution is found to have profited from the conflict, Ukraine’s government will not hesitate to bar it from sovereign debt financing and from postwar reconstruction investment opportunities, he said.

In such a case, Ukraine’s Ministry of Justice would sue the oil and gas financiers at the International Criminal Court in The Hague, he added, and would draw on documentary evidence being amassed by Ukraine’s intelligence services.

EU countries have paid Russia nearly €70bn for fossil fuel exports since the start of the war, according to the Centre for Research on Energy and Clean Air.

“We are going to sue everybody, we will fine everybody, exactly as it happened to punish those who were making connections with the Nazi government,” he said, in an apparent reference to the Nuremberg trials of 1945 and 1946. That process forged a new legal precedent by finding that top German military and economic officials, not just states, had violated the laws of war.

Nearly five months into the bloodiest European war since that conflict, have expectations of banking sector responsibility fundamentally changed?

Snippets of news from the war-torn country, including from Ustenko’s own life in the capital Kyiv, are a reminder of the material gulf between the lives of ESG analysts in London, Paris and New York and those of Ukrainian citizens.

The day before Ustenko and I spoke, at least 23 civilians including at least three children were killed in a Russian missile strike on the western city of Vinnytsia, hundreds of miles from the front line.

Sirens forced Ustenko to take refuge in Kyiv bomb shelters three times that day, he tells me, including twice with his wife and once to conduct a meeting with the governor of the central bank, Kyrylo Shevchenko, underground.

The “blood money” narrative is certainly an emotive one. “Doesn’t Russian oil smell [of] Ukrainian blood for you?” Ukraine’s foreign minister Dmytro Kuleba asked Shell in a tweet at the start of the war, setting the tone for a pitched battle in the following months between his government and the oil majors and traders such as Vitol, Trafigura, Glencore and Gunvor over the legitimacy of their business dealings.

I am told that Shell discretely bought some Russian oil yesterday. One question to @Shell: doesn’t Russian oil smell Ukrainian blood for you? I call on all conscious people around the globe to demand multinational companies to cut all business ties with Russia.

— Dmytro Kuleba (@DmytroKuleba) March 5, 2022

But any number of obstacles stand in the way of Ustenko’s hardline vision of financial sector accountability for exposure to Russia.

To start with, as some of the banks pointed out in response to the letters, divesting from Russian assets has proven to be difficult and in some cases nigh-on impossible. The FT’s story about Trafigura’s sale of a multibillion-dollar stake in a Russian oil project — to a company set up nine days before the start of the war — illustrates the pitfalls of divesting when there are few buyers on the market.

A voluntary clean-up up of all traces of Russian black gold from trillions of dollars of passive investments could be harder still — though not impossible. The index providers MSCI and FTSE Russell have both cut out Russian equities from their benchmarks, while BlackRock suspended all buying of Russian securities in its active and index funds in March.

At first glance, going after banks at the International Criminal Court appears to be the least realistic of Ustenko’s ideas. The ICC cannot investigate or prosecute governments or corporations, although it can go after individuals at the top of these organisations.

But William Bourdon, a French human rights lawyer, argues that national and international laws have evolved in recent years to significantly increase the accountability of big businesses, and that Ustenko’s “war crime” accusation should be taken seriously. 

He said: “The idea shared by more and more legal experts, NGOs, law professors and judges, is that businesses like banks no longer need to share the exact same aims as the aggressor to be considered accomplice to a war crime — they simply need to be aware of the perpetrator’s intentions.”

The concept of awareness is central to article 25 of the ICC’s Rome Statute, introduced in 2002, as well as France’s 2017 “Duty of Vigilance” law, which holds businesses responsible for understanding the human rights and environmental impact of their actions.

Earlier this year, investigating judges from the French war crimes unit were considering whether BNP Paribas was complicit in crimes against humanity committed in Sudan in the early 2000s.

In a statement about the letters, JPMorgan said it played an active role in implementing western sanctions. Citigroup and Crédit Agricole reiterated previous statements about suspending and paring back activities in Russia, while HSBC declined to comment.

Zelenskyy’s adviser concluded the interview by appealing to the ideals of enlightened shareholder capitalism that sustainable investing principles have long drawn on.

He said shareholders should directly pressure chief executives to divest, and added: “Each individual shareholder who is on the side of the civilised world — that shareholder is also on our side.” (Kenza Bryan)

Carbon offsets and lobbying top greenwashing trends

In 2011, Oxfam published a report alleging that a UK-based forestry company, backed by HSBC and others, had violently evicted people from their land to plant trees and sell carbon credits. The report was picked up by the FT and other media, and is an example of the greenwashing landmines that companies are increasingly exposed to, according to a new report from RepRisk, a data provider.

Greenwashing has become a financial risk to companies — one that RepRisk identified in its report, with particular hazards around advertising campaigns and lobbying.

While the oil and gas industry used to be the riskiest sector for greenwashing, that has changed. Apparel brand Allbirds and investment manager Federated Hermes are among the companies that have reported greenwashing concerns as a risk in their regulatory filings.

“If you look back over time, five years back, now there are a lot more sectors affected,” RepRisk executive vice-president, Alexandra Mihailescu Cichon, told Moral Money. 

Carbon offsets remain a concern, she said. RepRisk highlighted a lawsuit filed this month against KLM alleging the Dutch airline’s adverts touting its sustainability efforts were misleading. That follows an important ruling earlier this year from the Dutch Advertising Code Committee. The body said that KLM had not proven the effectiveness of its CO2Zero scheme, through which it encouraged passengers to pay to offset their carbon emissions through reforestation projects.

Companies’ lobbying activities are also a greenwashing risk, RepRisk said. When companies promote their net zero ambitions but pay lobbyists to fight expensive green regulations, that is a liability. And investors have shown they care — shareholder proposals for more transparency on lobbying have routinely won support from big asset managers.

It is not just pesky watchdog groups such as Oxfam that are going after greenwashing. Regulators worldwide are on the hunt. The Securities and Exchange Commission has a task force in its enforcement division that is looking for greenwashing and has already brought cases.

Companies need to be thinking about their green statements as a compliance issue not a marketing ploy. The risk of a humiliating greenwashing settlement at the SEC greatly outweighs any potential boost to sales that a company might win by exaggerating its sustainability. (Patrick Temple-West)

Smart reads

• “Silent killers” are blazing across the world with increasingly devastating effects. We are talking about heatwaves, which have already been felt across the northern hemisphere this summer. The following report from the Thomson Reuters Foundation explores how rising temperatures are pushing cities to investigate new ways to beat the heat. On a similar note, check out the FT’s John Burn-Murdoch’s piece on why the British should fear heatwaves.