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Russian President Vladimir Putin meets with volunteers at the Kremlin in Moscow on March 4, 2021.

Russian President Vladimir Putin meets with volunteers at the Kremlin in Moscow on March 4, 2021. (ALEXEY DRUZHININ/AFP)

Doing any kind of business with Russia, its companies or its oligarchs is now tainted by the invasion of Ukraine — and the deterrent of not wanting to be associated with a pariah nation may prove as effective in bringing Vladimir Putin to heel as the sanctions piling up. While there are always routes around poorly drafted and rushed new restrictions, the fear of being held to account in the court of popular opinion may be the disinfecting sunlight that really does get into all the corners.

Companies and institutions will need to accept financial pain as the price of taking concrete action to punish Russia. But that may prove cheaper than seeing their brands and reputations blackened by association with Putin’s invasion, and possibly being punished with penalties by regulators down the line.

Nicolai Tangen, who oversees Norway’s sovereign wealth assets, said on Friday that the $1.3 trillion fund wouldn’t offload its Russian holdings. “If we sold out of Russia now, it would be a wrapped gift to the oligarchs who buy our shares,” he told Bloomberg News. By Sunday, the world’s largest sovereign wealth fund had changed its mind, or had it changed by its government. “We want to give a very clear and unequivocal response that the type of abuse we have seen in recent times cannot be accepted,” Norwegian Finance Minister Trygve Slagsvold Vedum said. The $2.8 billion bloc of Russian equities the fund owned at the end of last year has been frozen and will be divested — likely at a loss, given the collapse in Russia’s stock market.

It marks a political intervention by the fund, which is the kind of mission creep it has long avoided. That departure, along with the swiftness of the turnaround, shows how toxic being financially associated with Russian assets has rapidly become.

A newfound unwillingness to suffer reputational damage has also prompted BP to seek to offload its 20% stake in Rosneft, Russia’s largest oil producer. “Our involvement with Rosneft, a state-owned enterprise, simply cannot continue,” BP Chairman Helge Lund said. The company warned that could result in a writedown of as much as $25 billion; with buyers likely to be few and far between, analysts reckon BP may have to take that hit.

And Switzerland, long the destination of choice for money of dubious provenance, has banned its banks from opening new accounts for Russian companies or individuals that feature on the latest European Union sanctions list. The government has also asked finance companies to report their existing links with sanctioned entities, though ministers didn’t detail what the outcome of that information gathering would be.

There’s more than reputational risk at stake.

The U.S. Treasury laid down a marker in 2014 by fining BNP a record $9 billion for transactions conducted with countries on a sanctions list including Sudan, Iran and Cuba, in currencies other than dollars, and going back 10 years. The retrospective message was unmistakable: If a financial entity wants to conduct business in the U.S. or in dollars, then it must abide by the spirit as well as the letter of the law.

With the entire democratic world united in condemnation of Russian aggression, executives need to align their corporate responsibilities with the direction of travel set by their governments. The threat of long-term stigma outweighs any consideration of the short-term balance sheet hit from disinvesting Russian assets. Death by a thousand corporate cuts may prove a more effective way of isolating Russia financially than the sweeping official efforts to exclude the country from the global financial system.

Marcus Ashworth, a Bloomberg Opinion columnist covering European markets, spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London. Mark Gilbert, a Bloomberg Opinion columnist covering asset management, previously was the London bureau chief for Bloomberg News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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