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Commentary General

Russia’s invasion of Ukraine – implications for WHEB’s investment strategy

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Russia Ukraine

The humanitarian crisis caused by Russia’s invasion of Ukraine is both horrifying and deeply concerning. Events like this throw into sharp relief our role, first and foremost, as citizens, not just investors.

In recent weeks a number of clients have asked us about WHEB’s exposure to the war and its economic fallout, so we wanted to clarify our position by publishing an update for all our investors.

No direct exposure to companies listed in Russia, Belarus or Ukraine

The WHEB strategy does not have any direct exposure to companies listed in Russia, Belarus or Ukraine, or to these currencies. We do, however, have companies that sell into those markets and some that may have operations there too. But none of the stocks in the portfolio have anything approaching a material level of revenue exposure.1

We own a few stocks that have low single digit revenues from Russia. Because the percentages are small it usually isn’t broken out in company reporting. Rather, it would be reported under a regional category or a catch-all ‘Rest of World’.  Based on Factset data at the holding level we would estimate that aggregate portfolio exposure is less than 1% of total revenues.

Supply-chain disruption more important than direct revenues

It is possible that the impact will be felt more from supply chain disruption than at the revenue level. We have identified several areas where the conflict is likely to have an impact on global supply chains. The first is in agriculture and food supply chains. Belarus and Russia account for just under 40% of global potash production.2  They also make up about 30% of global trade in wheat, 32% in barley and 17% in corn.3 Within the portfolio this is most likely to affect HelloFresh because of the knock-on effect on food prices. The second area is in the automotive supply chain as a result of Russia and Ukraine’s role in production of metals, such as aluminium and copper. It’s also affecting operations of automotive OEMs in Russia, including Toyota, Ford, Hyundai and VW.4 This is weighing on auto related stocks such as Aptiv. Russia is also an important supplier of rare earth metals and also of neon gas, a noble gas used in the semiconductor manufacturing process.5 This is likely to put further pressure on an already stretched semiconductor supply chain. The strategy has exposure here through companies like Infineon and Power Integrations.

Knock-on effects from oil and natural gas prices

The effect on oil and natural gas prices will have much broader implications, for companies and the economy as a whole. The price of Brent crude oil hit a 14 year high of $139 per barrel on March 7th. With the prospect of sanctions on Russian oil, the outlook is for further price increases. Rising energy and food prices contribute to further inflation for the consumer. Prior to the invasion of Ukraine, inflation was already increasing as a consequence of the post-Covid economic recovery. The outlook for growth now is less clear, and sentiment is likely to be more negative. This creates a dilemma for the US Federal Reserve: should it use monetary policy to combat inflation or to try to respond to the dampening effect of the conflict on global growth? Currently, the expectation is that interest rates will still go up despite the economic uncertainty, but potentially to a lesser extent than previously anticipated.

WHEB’s strategy is focused on developed markets

Some have asked if we would explicitly exclude investment directly in Russia or Belarus. Our developed market focus means that we have historically been highly unlikely to have an investment listed in either of these markets (or indeed to any other Eastern European countries). Our process generally doesn’t rely on exclusions, either at an industry or country level. However, we do set out the ethical outcomes that we think are a natural consequence of our focus on positive impact and our integration of ESG. Taken together, these provide a further buttress to our process. As a consequence, we can say companies with significant exposure to Russia or Belarus would not be qualified for investment in our strategy.

Armaments and positive social impact

Since the conflict started, some within the industry have questioned whether, in the current geopolitical context, armaments could be considered an ESG investment.

While we do not use explicit negative criteria for the strategy as described above, any company with significant involvement in controversial activities, including armaments (as well as tobacco, pornography, gambling etc.) will not be held because these are not industries that fit the strategy’s sustainable investment themes. We consider these products to have a significant negative impact and the investment team only invest in companies where they are clear on the overall positive impact of the business. Companies that have significant activities in these areas are ineligible for investment.

The invasion of Ukraine has shocked the world. It has already catalysed increased defence spending.6 However, we don’t think it should fundamentally change the way we approach the defence sector. Within social sustainability, human rights are the main component that would be relevant to questions of defence. Protecting and promoting human rights would be seen as a positive contribution to social sustainability.

However, drawing a straight line between weapons, defence and human rights protection is an over-simplification, in our view. Looking at past conflicts it would be very difficult to conclude that governments always execute defence in a way that is consistent with social sustainability, even where that might be the intention.

According to the UN Global Compact, social sustainability is about identifying and managing business impacts, both positive and negative, on people.7 Taking the view that weapons contribute to positive impacts that outweigh negative is a challenging conclusion to reach in our view. Not only does it require analysis of the customer base, it also requires normative judgements of who are the good and bad actors. While most have rightly condemned Russia’s actions, there is still significant debate about the level of military involvement Europe or the US should have in this conflict. The role of Western governments in other conflicts has been equally controversial. Looking at it purely from the perspective of risk of negative harm takes out normative judgments, and we think leads to a conclusion that armaments businesses shouldn’t be considered to generate positive impact because there is an inherently high risk of negative human harm.


1 By ‘material’ we mean greater than 5%.



4 Ukraine War Plunges Auto Makers Into New Supply-Chain Crisis – WSJ


6 For example Germany has announced a €100bn package and a commitment to spend 2% of GDP on defence.


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Associate Fund Manager

Victoria has spent over eleven years in the fund management industry, building up significant experience in sustainability and impact investing.

In her role as Investment Director at...

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