Nearly three months after Russia’s invasion of Ukraine, the human tragedy—and the very pressing geopolitical concerns—of this war continue to dominate the news cycle. Heartbreaking images of the dead in Bucha, Mariupol, Irpin, Kharkiv and other Ukrainian cities, as well as images of fleeing Ukrainian refugees, are now seared into our collective memory. So are the videos of heroic Ukrainian resistance, and extremely courageous antiwar protests by Russian civilians.

The mass solidarity with Ukraine across the U.S. and other Western countries has been impressive. So has the speed with which global financial and diplomatic institutions have moved to isolate and punish Russian President Vladimir Putin and those in his inner circle. Many investors are also eager to play a role in helping end Russia’s war against Ukraine.

We live in a time when sustainable investing has gone mainstream, so the avenues to mobilize investment dollars around a social concern have certainly multiplied. And there are some obvious ways that investors can help exert pressure on the Russian government. One method is to divest from, or stop purchasing shares of, Russian companies, which mostly is already mandated by sanctions. But in fairness, Russian exposures within the mainstream indexes tend to be fairly low to begin with. For example, in investment portfolios managed on the Envestnet Inc. platform, the average allocation to Russian securities—before the Feb. 24 beginning of Russia’s campaign against Ukraine—was less than 1%.

Another easy solution for investors to demonstrate solidarity with Ukraine is to engage with multinational companies that do business in Russia. Here again, many of these companies, even those loathe to take action in 2014 following the Russian annexation of Crimea, have acted decisively this time around to close or downsize their Russian operations.

However, there are legitimate arguments that the majority of the Russian people are not responsible for this humanitarian and geopolitical crisis—and the impact of diplomatic and financial measures are complex, and aren’t easy to measure for impact in the short term. To make an immediate impact, the West, and individual investors, can focus on Russian revenue from the production of fossil fuels.

The Russian economy, and funding for the war against Ukraine, heavily depend on oil and gas revenue. But, there are weighty considerations to keep in mind. Environmental, social, and governance (ESG) concerns do not necessarily guarantee corporate sustainability and profitability. For example, companies that produce electric cars, or create less invasive mining or drilling techniques, are not necessarily well-managed and governed. Furthermore, many renewable fuel sources and technologies are currently much more expensive than their traditional counterparts, and transitioning to them very quickly can be burdensome (and risky) for smaller or poorer people and economies.

Putin is aware that he holds significant leverage over European countries, including Germany, due to their dependence on Russian oil and gas. This is ironic, given that Europe has consistently been far ahead of the U.S. on clean energy regulations. However, as the war has continued, Europe and the U.S. have both sought to wean themselves off Russian fuel. The U.S. eventually included oil in its sanctions on Russia, and the European Union is attempting to enact energy sanctions against Russia, which would be painful for many of its members.

Viable ESG Investments
Financial advisors have an opportunity to work with investors to identify well-governed, ESG-classified exchange-traded funds (ETFs) that invest in companies dedicated to developing the technology and tools necessary for transitioning to a future low-carbon world—something which would reduce American and Western dependence on Putin’s Russia and other regimes with poor human rights records.

Examples of ESG investment vehicles that are strategically focused on enabling conditions for net zero can include those that track and invest in companies:
• Vital to the supply chain of renewable energy, and the transition to lower to no carbon.

• Offering products and services related to geothermal, hydro, solar, wind, and other forms of renewable energy.

• Developing and building water infrastructure which fosters more sustainable water use.

Picking High-Conviction ESG Investment Managers
Financial advisors can draw on their expertise to identify well-governed and impactful ETFs that are strategically enabling the transition toward a more sustainable economy through investment. By leveraging a robust, multi-pronged due diligence approach, advisors can find high-conviction managers that systematically and meaningfully integrate ESG strategies throughout their investment processes.

At Envestnet, we believe this due diligence framework should include four main criteria:
• ESG Governance & Policies at the Firm: Does the manager of a prospective ETF investment have a dedicated ESG oversight function? Does the firm have a viable track record on sustainable investing, and how has its approach evolved over time? Along with these questions, advisors and investors should review managers’ overarching philosophy on sustainable investing, and how they measure success and progress over time.

• ESG Integration within the Investment Process: Advisors should check to see in which parts of the investment process managers have incorporated ESG insights, such as asset allocation, portfolio selection, risk management, and security selection. (Ideally, a manager should have incorporated ESG criteria into most or all of these.) It is also a good practice to look into how the weighting of ESG factors affects investment decisions. And, to be safe, look into what ESG data and research is leveraged during investment decision-making, and how often the investment process ESG factors are reviewed. If exclusionary screens are utilized, ask about the rationale for selecting them, and what thresholds companies must meet to be flagged.

• Impact Reporting: Ideally, an investment manager should report on the environmental and social outcomes of their portfolio(s) on a regular basis. If they do, then advisors should check to see that the impact metrics in the reports are relevant to the strategy.

• ESG Engagement: It helps if ESG-focused asset managers engage with the companies they invest in, since doing so enables them to make better investment decisions. Ask if firms have a specific framework for engaging on ESG issues, and see if ESG engagement activities are overseen and monitored internally, or outsourced to a third party. Check if a manager advocates for more meaningful disclosure, and transparency, related to company ESG information.

Keep Investors Focused
As the Russian war against Ukraine, and the heroic Ukrainian resistance, near their three-month anniversary, speculation about how far Putin may go to achieve his aims, and additional geopolitical fallout from this crisis, can lead to frightening thoughts. During periods of geopolitical volatility, financial advisors can demonstrate significant value for investors by acting as financial coaches who can prevent them from allowing their emotions to drive rash investment decisions.

Advisors can talk investors down when they are afraid, and remind them that the U.S. equity markets and overall economy have proven to be resilient in the face of geopolitical shocks. Following the Russian invasion and annexation of Crimea in 2014, the Iraqi invasion of Kuwait in 1990, the Iranian Revolution and subsequent Iran-Iraq War, and even the 9/11 attacks, the S&P 500 declined by only about 10 percent on average, according to Goldman Sachs.

No one knows when the fighting in Ukraine will end. But advisors can offer expert guidance and insights to help investors not only navigate the resultant market volatility, but put their money to use to help facilitate a more sustainable U.S. economy and energy supply—which would put an end to Russian economic leverage over the West.

Dana D’Auria is co-chief investment officer of Envestnet Inc. (NYSE: ENV).