More than 1,300 multinational companies have curtailed or abandoned business ties with Russia in the wake of Vladimir Putin’s invasion of Ukraine, according to data assembled by the Yale School of Management. Its authoritative list of businesses, updated weekly, plays a key role in the praising and shaming of companies that have, or have not, taken political action in Russia. 

For example, recent analysis of Yale’s data from Investment Monitor showed that, among the members of the G20, companies from Turkey, China and India have taken the least action in Russia, proportionally speaking. Nations are one thing, but what about a breakdown of the figures by sector?

Industrial companies are the largest ‘remainers’ in Russia

Investment Monitor‘s analysis shows that companies in ‘industrials’, meaning manufacturing and heavy industry (as categorised by Yale), make up the largest group among the some 200 businesses that have made no efforts to withdraw from the Russian market.

"Where we are right now is we have seen about 1,300 companies that have now been classified, and there has been a great fortification of some surprising industries, such as oil, which is not usually on the right side of history on social issues," says Professor Jeffrey A Sonnenfeld, who oversees Yale's aforementioned list. "Even the professional services, that normally would rather jump off a cliff than create any controversy, have taken action. The same is true for the Big Tech firms, from the device makers to software and social media platforms. Even the late movers from fashion, apparel and packaged goods have moved over.

"Nonetheless, we are still seeing grudgingly resistant moves from a lot of heavy industry players, and there are some companies, such as International Paper, just to give a US company example, or Koch Industries and chemical company Huntsman, that are defiantly and almost proudly staying in Russia, still holding on to the pathetically unconvincing lines that somehow 'this is better for the world and this is ensuring safety of their workers', and other incredibly misleading explanations for what is truly driven by greed and arrogance. I hope that is blunt enough."

Investment Monitor contacted International Paper for comment, but received no response. Koch Industries did respond, refering Investment Monitor to their latest press release from April. The release expresses how Koch Industries attempted to close its main facility in Russia, but that the effort was thwarted due to the Russian authorities' threat that Koch's employees would be prosecuted if the plant was shuttered.

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Huntsman told Investment Monitor the following: "We have already scaled back operations in Russia and have ceased new investment and business development there. We are also monitoring the various sanctions and export control restrictions being implemented, and we are in full compliance with all that are applicable to us and with all U.S. and E.U. laws."

"Regarding our reduced operations in Russia, approximately two hundred employees and their families there depend on us for their livelihoods, and we believe it is in their best interest at this time to sustain a level of activity as we continue to monitor the situation. None of Huntsman’s products have military application or support Russia’s war in Ukraine. Our employees on the ground in Russia have reported to us that many other industrial companies, even those claiming to have exited the country, still have ongoing operations," their spokesperson added.

Why are industrials lagging?

There are several reasons why the industrials sector has performed so poorly when it comes to withdrawing from Russia. The most innocuous explanation is that actually the sector does better than at first glance. 

Companies in industrials made up the largest proportion of foreign businesses in Russia before the invasion, overall, followed by the ‘consumer discretionary’ sector. Therefore, in some respects it is no surprise that these two sectors also make up the largest part of the ‘zero action’ club. In fact, when looking at the number proportionately, healthcare and pharmaceutical companies have been the slowest sector to leave Russia, as per Investment Monitor’s Exiting Russia Index (sectors), as per the below.

It should be noted that healthcare and pharmaceuticals are in a fairly unique position, since some of those companies can quite legitimately claim to be saving lives by staying in Russia. Other sectors do not have this excuse. So why are companies in industrials, and other asset-heavy sectors like energy and utilities, among the slowest to take political action in Russia (as per the above visual)? 

Professor Sonnenfeld believes that practical, self-serving factors may explain this finding. “Heavy industry is afraid that their assets will be expropriated, and that's the reason that they don't want to share with us.” 

“Bear in mind that, unlike many industrials, the assets of a professional service firm or a technology company are pretty light, since they only lease space that is of no consequence to them. The same can be said about fast-food chains and restaurants which are, for the most part, locally owned franchises.”

Heavy asset companies avoiding political action may believe they are taking economic advantage of the situation. However, the wrath of markets and consumers remains strong, especially in the West. Inaction is unlikely to pay off.