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The Caisse and DP World have invested together in ports and container terminals outside the UAE since 2016.Ryan Remiorz/The Canadian Press

The day after Russia invaded Ukraine in February, the United Arab Emirates joined China and India in abstaining on a United Nations Security Council resolution calling on Moscow to “cease its use of force against Ukraine, and withdraw all its military forces immediately, completely, and unconditionally from that country’s territory.”

Russia’s veto ensured that the resolution failed to pass the security council. But the oil-rich UAE’s decision to adopt a neutral stand on Russia’s invasion of Ukraine did not go unnoticed in Washington and the European Union.

Since then, not only has the UAE refused to impose sanctions on Russia, it has welcomed an influx of wealthy Russian citizens and companies seeking to avoid them. Russians have scooped up real estate in Dubai, the country’s largest city, and commodity traders have used Dubai as a base to broker sales of Russian resources. Russian oligarchs have parked their yachts and planes there, while the UAE’s state-owned Emirates airline has maintained regular flights to and from Russia.

The result has been to frustrate, if not undermine altogether, Western efforts to use sanctions to inflict economic pain on Russia and force President Vladimir Putin to end his aggression. Western leaders have expressed consternation at the UAE’s stand.

“I’m not asking that they join the sanctions … but I ask [them] not to be a profiteer of European and U.S. sanctions,” German Economy Minister Robert Habeck said in March.

The UAE appears, however, to be doing just that. And that puts Caisse de dépôt et placement du Québec’s decision to invest US$5-billion in a joint venture with DP World, Dubai’s state-owned logistics giant, in an unflattering light.

The Caisse said on Monday that it will pay US$2.5-billion to own 22 per cent of the venture, which will control Dubai’s port, the Middle East’s largest, and two industrial zones in the emirate city-state. The $420-billion Quebec pension-fund manager is also investing another US$2.5-billion in debt in the joint venture, building on its six-year-old partnership with DP World.

Since 2016, the Caisse and DP World have invested together in ports and container terminals outside the UAE. Monday’s deal marked the Caisse’s first direct investment in DP World’s domestic operations, which are not affected by Russian sanctions.

State-owned companies like DP World “have become vehicles of statecraft in their own right, granting the UAE control over critical supply chains globally,” Andreas Krieg, an associate professor at the School of Security Studies at King’s College London, wrote last week in Time magazine.

“Dubai is one of the world’s leading dirty-money hubs, a key node in illicit financial networks offering a financial safe haven for warlords, sanction-evaders, terrorist organizations and mobsters. It’s no surprise that the Kremlin’s kleptocrats have washed up on the shores of the Emirates of late. Allowing Putin and his inner circle to bypass sanctions makes the UAE a key enabler of Russia’s great power interests.”

A Caisse spokesperson said in an e-mail statement that the pension-fund manager “respects Canadian sanctions regarding all its investment decisions” and proceeded with its latest deal with DP World “after an exhaustive and meticulous process.”

“It’s a good investment for our depositors that presents solid growth factors and offers good resilience against inflation,” the statement said. “Our partner assured us that it respects the highest standards. DP World has no assets in Russia.”

The Caisse’s depositors, which include the Quebec Pension Plan, can decide for themselves whether the DP World deal is consistent with the ESG (environmental, social, governance) principles the pension-fund manager claims to subscribe to.

The war in Ukraine has sparked a reordering of ESG principles, forcing fund managers to consider the geopolitical implications of investment decisions that enable Russia’s aggression, even if only indirectly.

Last fall, the Caisse announced that it would divest its oil-production holdings by the end of 2022, including its investments in Canadian oil companies such as Suncor Energy Inc. That decision now looks short-sighted, or at the very least the result of tunnel vision, as Europe scrambles for responsibly sourced oil to replace Russian crude.

Caisse chief executive Charles Emond said then the divestment from oil-producing holdings was required to meet the pension-fund manager’s goal of becoming net zero by 2050. “We’re trying to send the right signal with our capital that we’re serious about making that pivot,” Mr. Emond said last fall.

Just what signal the Caisse means to send with investment in DP World is unclear. But in no way is it a good one.

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