For funds undeterred in their investment choices by the killing of Saudi journalist Jamal Khashoggi or China's treatment of the Uyghurs, Russia's invasion of Ukraine is proving a wake-up call.
Buying into companies on the basis of environmental, social and governance (ESG) factors is one of the hottest trends in the fund management industry, attracting investments totaling more than $35 trillion by the start of 2020.
But for money managers from Boston to London, the focus has largely been on companies, with governance risk largely ignored in decisions over whether to invest in a country itself.
China has denied allegations of abuses against the Uyghurs in southern Xinjiang. Saudi Arabia's government has said Khashoggi's killing was committed by a rogue group.
Now, as western banks and companies revisit hundreds of billions of dollars worth of exposure to Russia, more than half a dozen fund managers interviewed by Reuters said the Ukraine crisis was causing them to rethink how they assign country risk.
"We have to accept that we, as an industry, committed a very big blunder by not taking that invasion (of Crimea) in 2014 for what it was and acting accordingly," said Sasja Beslik, head of sustainability at Danish $87 billion pension investor PFA.
"Is this something that we would like to repeat?" Beslik said of investors who have been left holding often distressed Russian assets since its invasion of Ukraine, which Moscow describes as a "special operation" to disarm the country.
While a fund may make its own assessment of the quality and structure of a country's government, this is only one of many factors for investment decisions.
For some 71% of the $35 trillion invested with an ESG focus, the analysis focuses on the risk of an investment, rather than a country's human rights record or other governance factors.
It can be easier to ignore human rights if an ESG fund manager feels the chances of losing money on an asset, such as a sovereign bond, is sufficiently low given its price, because, for example, the relevant country's ruling government is secure.
Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, said for investment decisions on China at least western investors are more focused on shareholder value than on human rights.
However, engagement on sovereign risk is the next frontier for investors, said Martina Macpherson, president of Network for Sustainable Financial Markets, a non-profit organization that is run by finance and academic experts.
This is particularly the case "where systemic ESG risks such as climate, biodiversity, human rights violations, and poor state governance are concerned," Macpherson added.
Government clampdowns can sometimes be followed by more investment flowing into the country concerned as disruptions to daily economic activity cease, as was seen after China brought pro-democracy protests in Hong Kong two years ago to a halt.
Foreign direct investment into China rose 14.9% in 2021.
Beijing rarely discusses the issue of democracy, but has previously referred to China's governance arrangements as "whole-process people's democracy". read more
Bets on such market moves have not always been safe ones.
International investors, for example, were criticized last year for holding bonds issued by Belarus when its President Alexander Lukashenko intensified a crackdown on protesters.
And investors in a range of Chinese companies, from technology to property developers, suffered losses as Beijing unleashed a regulatory crackdown last year.
While some funds dumped investments in such countries, citing reputational and moral concerns as well as the risk of losses, these have tended to be smaller ones or those with a mandate to invest towards a sustainable outcome.
Most have stayed, not least because the task of exiting becomes tougher the bigger the market.
The BlackRock iShares ESG Aware MSCI EM ETF (ESGE.O) fund, for example, has around 3% invested in Russia, but 28% in China, Refinitiv data shows.
"It's too big to ignore and it's too profitable," Lardy said of investor holdings in China.
This view is echoed by Ross Gerber, president of Gerber Kawasaki Wealth and Investment Management, who said China's huge global economic reach makes it hard for any investor to avoid.
"There's no way around China," said Gerber, who owns shares in Tesla, for instance, with a big factory in Shanghai.
"People criticize me for having investments in China and not Russia, but it's very nuanced, the people criticizing are typing on a Chinese-made iPhone and wearing Chinese-made clothing." Reuters!