Russia: to leave or to stay? A look at the risks for brands

But never before in history has humanity required brands to act as decisively as they do today – in the face of war.

ESG v money

Russia’s cruel and unjustified attack on Ukraine has shocked the world. People are trying to help Ukrainians however they can, and they expect the same from business. The businesses leaving Russia now are not just demonstrating solidarity with Ukraine; they’re creating a real impact on the economy of the aggressor and limiting the resources allocated to warfare. They also show the Russian public that the practices of their leaders are shameful.

For companies, this is a huge challenge. It’s one thing to reduce paper consumption in the workplace, sort waste or even plant trees, but it’s another to shut down business in a country of nearly 145 million people. Yet, within the first week of Putin’s cowardly attack, dozens – if not hundreds – of brands suspended their supplies to Russia or ended operations there.

Brands leaving Russia

Some brands left Russia because of sanctions; others left on principle. The first brands to say a firm ‘no’ to the war included giants Apple, McDonald’s, Shell and Ikea.

It’s the right thing to do from a moral point of view. But it’s also a matter of strategy and brand image. As branding experts, we believe it’s a move that will bring growth in the long run. The research confirms this.

Deloitte states: “Purpose-driven companies witness higher market share gains and grow on average three times faster than their competitors, all the while achieving higher employee and customer satisfaction.”

And a Havas Group report provides: “77% of consumers buy from brands who share the same values as they do.”

Companies that have left Russia in response to the war will gain consumer recognition and prove that their business decisions are consistent with their claims. They will also show that their brands are true owners of their beliefs and values.

Our industry calls it conscious branding. As my colleague Admind chief executive Krzysztof Langer says: “Conscious brands care about building a community that shares the same values and wants to change the world in the same way. They speak clearly about what they believe in, even with the risk of turning some people away.”

Brands that stand against the war are more human, understanding the problems of society and responding to their expectations. Langer continues: “All of those brands will strengthen their credibility. The global community saw clear purpose and values, and tough decisions made leading to real actions.”

What brands staying in Russia will lose

With so many brands ending operations in Russia, there’s growing talk about those that chose not to. Companies continuing operations in Russia may face brand image crises, consumer boycotts in other countries (these are already happening) and decreased ratings of ESG-related indicators and, consequently, decreased outflow of capital from investors.

Nestlé’s image crisis

Companies that preach corporate responsibility take great risks. Consider the attention focused on Nestlé. In the early weeks of the war, the company did not suspend its activities in Russia, and was met with public outrage. People criticized the corporation for not taking action, despite the fact that it writes not only about sustainable development, but also human rights. On Nestlé’s website, you can read, for example: “Human rights are inextricably linked to our shared future. By respecting and advancing them in our value chain, we are building a foundation that contributes to a resilient future for our planet and its people.”

Should a brand declaring such beliefs continue to act and pay taxes in a country that started a war in which thousands died? We’d argue not. Perhaps that’s why, on March 23, Nestle finally decided to remove some products from the Russian market.

Many consumer boycotts have already begun

At the time of writing (29.03.2022) brands such as Leroy Merlin, Auchan and Decathlon – all owned by the French family holding company Association Familiale Mulliez – had not yet closed operations in Russia. All of them have CSR and sustainability sections on their websites.

Remaining on the Russian market may result in an outflow of investors, a fall in share values and global boycotts, with both online and physical demonstrations. There are hundreds of photos like the one below on Twitter:

Stop funding WAR in Ukraine!

Stop businees Adeo in Russia!#LeroyMerlin #boykott #CancelRussia #StandWithUkraine #StopRussianAggression pic.twitter.com/WgqNN7FJSr

— колір кульбаби (@oduvan_chika) March 28, 2022

These images will never disappear from the internet. One decision can undo years of branding efforts.

“People build emotional relationships with companies they purchase from, work in or invest in. Negative occurrences or crises based on actions against values on which this relationship is built often feel like a personal betrayal, or close to it. Those brands may lose the trust of their consumers, which will be very costly and time-consuming to rebuild. We will actually learn how much of an effort it may be in the next years,” says Langer.

The world needs businesses to make tough decisions. Companies are aware of the importance of having and meeting ESG targets. Now they need to prove that there are actions behind the slogans. Many businesses have done this perfectly. Others have chosen a different path, which could lead to disastrous consequences for their brands.