March 4, 2022
Many large companies have announced they are divesting from Russia due to Russia’s invasion of Ukraine. The moves impact many aspects of Russia’s economy, from energy to news, furniture to clothing. BP and Shell have announced they are selling their stakes in Russia’s state-controlled oil company Rosneft. Apple announced it will halt product sales in Russia and also will block Russia’s state-controlled media outlets from its app store. Spotify “indefinitely” closed its Russia offices. Ikea announced it is closing its 17 stores in Russia, halting production in Russia, and halting shipments to and from Russia. H&M announced it is halting all sales in Russia. Expedia announced it will halt travel bookings into and out of Russia. Adidas ended its partnership with the Russian Football Union.
As Russia’s bombardment of many Ukrainian cities continues, employers may be considering divesting from Russia as well. Here are some things to consider.
Governmental and private retirement plan administrators considering divesting from Russian company investments face additional considerations. While some American politicians have been calling for public pension plans to divest investments with ties to Russia, it may not be practical for employers who sponsor single-employer retirement plans. Even within the confines of multi-billion dollar public pension trusts, a rush to divest represents complex problems for plan fiduciaries. With the Russian stock market shut down, Russian-based investments are trading at steep discounts—and that’s assuming buyers, or even a venue to trade, can be found. From a fiduciary responsibility standpoint, employers sponsoring retirement plans have a legal obligation to act in the beneficiaries’ best financial interests. While divesting in Russian assets at this time may represent the moral thing to do, it may not represent a smart financial decision. It also bears noting that Russian stocks make up about 1% of total U.S. pension assets; therefore, any moves an individual employer makes to divest will be largely symbolic.
Employers considering divesting should also consider their customer and employee make-up. For example, some companies may have larger Russian or Ukrainian customer bases, and favoring one group over another may risk reduced sales. Additionally, employees may be Russian, Ukrainian, or both, by heritage or birth, and again favoring one group over another could create employee satisfaction or dissatisfaction, coming at a time of tight domestic labor supply.
Employers may also consider the external optics of their choice to divest or not. Divestments by BP, Shell, Apple, and others have been highly publicized, likely fitting within a wider corporate image strategy. Employers determining that at least some steps towards divestment can and should be made may also consider how the decision fits within the company’s image and what internal or external marketing and promotion can and should be carried out regarding a divestment decision.
For any questions on divesting of retirement plans, contact Bullard Law’s benefits specialist Christine Zinter. For questions regarding divesting and ESG goals generally, contact Heather Van Meter.
The content of this Alert is provided for general information purposes only. It should not be considered legal advice or used as a substitute for consulting an attorney for legal advice.