A week after the onset of the crisis, many brands are feeling the pressure to suspend business activity that helps fuel Russia's war chest. Meanwhile, we can expect a sharp contraction in adspend in Russia and even higher prices. Here's a snapshot of what’s happening.
When people are dying and a threat to use nuclear weapons hangs heavy, the concerns of brands and advertisers are very much a side issue. Nonetheless, companies are now facing a very different political agenda from a couple of months ago and will need to formulate responses for both the short-term and what we can expect to be an utterly changed longer term.
For many multinational organisations, the immediate issue in front of them is straightforward: how to cut ties to industries and companies linked to the governing Russian regime. Sometimes that will be under government pressure, sometimes it will be, as Fiona Hill, Russia expert and former White House adviser, told Politico, about living up to their stated beliefs: “This is the epitome of ‘ESG’ that companies are saying is their priority right now – upholding standards of good Environmental, Social and Corporate Governance.”
(Extracting themselves may not be straightforward, however, as the Russian prime minister has announced a temporary ban on western companies exiting Russian investments.)
This is still seen as Putin’s war. But longer term, even businesses not closely linked to the Putin circle may find they run into reputational issues; the longer this situation lasts, the more operating in Russia risks becoming the 21st century equivalent of doing business with apartheid-era South Africa.
Those in the marketing space will be familiar with lofty statements around purpose, and encouragement to ‘take a stand’. The crisis and its aftermath may become a major test of whether companies are truly prepared to sacrifice profits for principles.
What follows is a round-up of what we’ve seen so far, one week into the crisis.
1. Brands limit ties with Russian companies…
Across all sectors, companies are taking actions large and small, from the $25bn hit to BP’s coffers as it offloads its near-20% stake in Rosneft, the Russian energy business (Shell and Telenor have also announced their intention to end their commitments in the Russia energy sector, while Centrica is exiting its gas supply agreements), to Australian retailers taking Russian vodkas off their shelves.
Automakers like Volkswagen and Renault intend to shut or shift manufacturing operations, others are pausing shipments to Russia. Shipping giants MSC and Maersk will temporarily halt all container shipping to and from Russia, aside from food, medicine, and emergency aid. Hollywood is pitching in as film studios Sony, Disney and Warner Bros Studios have cancelled movie releases in Russia.
Sanctions have inevitably involved financial brands. Mastercard and Visa, for example, have blocked multiple Russian financial institutions from their network. Crypto exchanges, however, have refused requests to freeze the accounts of people in Russia and Belarus. Coinbase and Binance have said they will comply with sanctions but will not institute a blanket ban on transactions involving Russian addresses. “To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists,” said a Binance spokesperson.
2. …and identify ways to help Ukraine
For many businesses, donating money will be the easiest way to help. Mastercard and Visa, for example, have each promised $2m in humanitarian relief to Ukraine.
Others may be able to follow up on the ‘acts not ads’ theme that took hold at the start of the pandemic. Airbnb, for example, has announced that Airbnb.org will offer free, short-term housing to up to 100,000 refugees fleeing Ukraine.
Transport and logstics are other areas where help has been forthcoming: Fedex is apparently helping to transport supplies and goods, and Glovo, a Spain-based delivery service, has created ‘support bubbles’ for Ukraine’s armed forces; many foreign companies are reported to have given over vehicles to Ukraine’s war effort.
Russian companies are also helping out: according to Investment Monitor, Alpha Group has donated money to the Ukraine army while its Kyiv Star telecoms subsidiary is blocking disinformation texts from Russian and Belarussian phones to Ukraine.
Elsewhere, the head of a Ukrainian NGO says PepsiCo and Procter & Gamble have been giving advice to the president’s office. And Ukraine’s 1,000-strong European Business Association reports that every member company is trying to give some form of support, whether financial, medical, technological, logistical, or simply by paying taxes in advance. It has a list of possible support options here.
3. ‘Sportwashing’ unravels
Gazprom has been at the forefront of Russian ‘sportswashing’ activities in recent years and many of its sponsorships outside Russia have now been ended. Bundesliga team Schalke 04 was first off the mark, with UEFA following a few days later, announcing an end to its partnership with Gazprom, with immediate effect, across the UEFA Champions League, UEFA national team competitions and UEFA EURO 2024. Both FIFA and UEFA have also suspended all Russian football teams, both national and club sides, from their competitions until further notice.
Elsewhere, Manchester United has withdrawn Aeroflot’s sponsorship rights. And on the other side of the Atlantic, the National Hockey League (NHL) announced Monday that it is suspending its business relations in Russia, effective immediately.
4. Ad investment will contract sharply
When, in 2014, Russia invaded the Crimea and Donbas regions of Ukraine, both markets suffered heavy losses when measured in USD – Russia because of sanctions and Ukraine because its currency (the hryvnia) lost 70% of its value against the dollar as GDP fell 6.8% in 2014 and a further 10.4% in 2015.
The economic collapse at that time was because Ukraine had just lost its largest trading partner – Russia – as part of the conflict. The situation is different today, since Ukraine has been embraced by the West. That said, retail sales in Ukraine were down 9% during the last conflict and a fifth the following year during the ensuing recession; we can expect worse this time especially in the short term.
WARC Data shows that, in local currency, Russia’s ad market still grew in 2014, though 1% was well below its double-digit long term average. As Russia becomes increasingly isolated throughout this conflict the domestic ad market faces sharp contraction, in part due to reduced consumer spending but also through reduced access to critical advertising platforms like Google and Facebook (the Russian ad market is expected to be around 60% digital this year).
5. Digital players are embroiled in the information war
Russia’s state-controlled RT ‘news’ channel is the focus of a flurry of activity by media platforms. It has been blocked in Europe by Facebook, Instagram, TikTok, and Roku; Netflix has indicated it will not not comply with new Russian rules to carry 20 state-backed channels. Google has announced that RT will no longer be able to earn ad revenue on its platforms, notably YouTube. Microsoft and Apple are removing RT’s mobile apps from their respective app stores (the latter has also disabled certain features in Apple Maps in Ukraine).
CNN also reports TV providers in Europe and Australia dropping RT, while RT America has been dropped by DirectTV but it has said it will now start broadcasting on video site Rumble. UK media regulator Ofcom, meanwhile, has opened 15 new investigations into RT.
While Microsoft, Twitter and Snapchat are halting ad sales to Russian entities, a UK-based initiative is using digital ads as a Trojan horse to smuggle in uncensored news to Russia.
The Kyiv Independent, an English-language media outlet in Ukraine, reports that Ukraine has conducted a successful test of SpaceX's Starlink satellite internet system – which may prove crucial when Russian forces look to take down the country’s internet connectivity. The Wall Street Journal adds that Microsoft has given assistance in guarding against cyber attacks.
6. Packaged goods firms brace for higher prices
A long-term issue for FMCG companies will be the potential impact on the supply of commodities and raw materials: Ukraine and Russia are major exporters of agricultural products such as wheat, corn and sunflower oil (as well as being important sources of various metals, including specialised materials like palladium and xenon).
Food prices, already rising following disruptions to global supply chains after the pandemic, will become even higher if this year’s wheat harvest is threatened. The WFP has already warned of an increase in food poverty across the Middle East and North Africa, where local production is limited. India, meanwhile, imports around 60% of all its sunflower oil and Ukraine accounts for nearly three-quarters of the imports, the Economic Times notes.
There is no doubt that consumers around the world will be paying more for basic foodstuffs, exacerbating an existing cost of living crisis. Brands will have a role in explaining why it’s happening.