October 16, 2019

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Reshaping Corporations: Can Divestment Work?

With enough collective action, mass divestment campaigns can be effective in creating social change. But shareholder activism continues to be as important.

Bob_monks

By Bob Monks

Part of the Citizens Disunited series.

It seems natural to express support or enthusiasm for an idea by getting involved, and so it would also seem natural to show dissatisfaction by withdrawing support. And, in many cases, this works.

Divestment Does Not Work Like A Consumer Boycott

Boycotting can be successful when a large group of consumers express themselves by not buying a product. Unless they are hardcore ideologues, retailers and manufacturers backtrack as fast as they can to fix the situation and avoid losing profits. Consumers win because they have expressed themselves through buying power and forced a change.

By extension, it would seem to make sense that this type of action would also work for investors. After all, they are buying something and the sellers want their money. So, avoiding stocks that go against our values (through screens and socially responsible funds) or by divesting of companies that do or make things we don’t like seems like it should have power. 

And it can, but it’s a mistake to think that divestment and screening out undesirable companies work the same way as boycotting.

Boycotting leaves products on the shelves and reduces profits for a manufacturer or retailer – maybe even both. Can investing screens and divestment really have the same kind of financial impact? If a large number of people divest or enough money were collectively diverted from the stocks of a abolish apartheidcompany, it might.

What Makes Divestment Effective?

Still, there are some important factors to consider:

The largest companies (fossil fuel companies included) have so much money in reserve that they can weather a temporary storm. How much stock has to be divested or go “unbought” to motivate corporations to change?

Large corporations make large profits and that’s all some investors care about. You may divest but others will buy those stocks and they may not care about social issues, the environment or workers. So can divesting bring about change if someone else buys those stocks?

There are some similarities between boycotting and divesting, though. Boycotting works as collective action when scores of consumers participate. In order for divestment to work, they would also require collective action.

To be effective, a huge amount of money must be withdrawn from a company. Where boycotting unites individual buyers to have impact, individual stockowners aren’t likely to make a huge enough hit with divestment or negative investing for a corporation to take notice. Institutional owners, though, could impact a company or industry because collectively they control vast amounts. 

The Fossil Fuel Divestment Campaign

The current student campaign to divest from fossil fuels is interesting. For example, Harvard has $30 billion in endowment while Yale has $16.7 billion.

While it’s clearly not all in one company or industry, what kind of impact could university endowments have if they withdrew from fossil fuel companies and allied industries? By my count, there are well over a hundred campaigns at universities around the nation, and there are additional groups working to get towns and communities to join the fight. As a collective action, the potential for these divestment campaigns is fascinating to ponder.

Mass Divestment Creates Cultural Change

Perhaps the most important thing divestment shares with boycotting is publicity.

The attention that a mass divestment can bring to an issue could be profound. The student fossil fuels divestment effort is garnering national media attention, and rather than fizzling out seems to be gaining momentum. This attention could be as effective as actual divestment for dealing with climate divestmentchange and fossil fuel issues. 

As Cecelie Counts wrote in January, divestment was just one tool used to combat apartheid and bring change in South Africa. I don’t know if there will be mass divestment among universities, but I suspect that this campaign will be successful in the long run because it’s educating a generation and could create the cultural change necessary to pursue long-term alternatives, change policy and pressure energy companies to adapt.   

Owning Our Democracy

That’s ownership – ownership in our democracy and in our future. In some ways, this divestment campaign is a descendent of the Occupy Movement because, as a recent post on Daily Kos put it,

“For a church, a municipality or a business to divest from the entire energy sector in a mutual fund has more meaning to the fund managers than it does to any single fossil fuel company. It is not the direct dollar impact to any bottom line that’s most important here. When there are thousands of entities and individuals doing the same thing, either demanding fossil fuel-free mutual funds and/or leaving entirely in favor of socially responsible investment vehicles, that begins to look like a movement for Wall Street to reform itself.” 

And so does thousands of students and community members standing up for the same thing. They may not get divestment, may not win the battle, but I think that, bit by bit, they will win the war.

I have hope because I’ve met some students involved with fossil fuel divestment and am inspired by their commitment, intelligence and ideals. I think they will have impact – whether or not they are successful in getting universities to divest, these are our future leaders and their energy and vision will shape our world. I hope that they will consider active and responsible ownership as a part of their plan. 

If divestment doesn’t happen or doesn’t happen right away, we still need to be active and responsible owners. The guiding principle that has driven my career is that it’s important to have active, thoughtful owners invested in bad companies because they can have an impact on corporate behavior.

And I still believe that. 

Yes, it’s an uphill battle and yes, it takes work and money to make it happen (and even the power of collective action). But in the end, we have to make change happen – whatever method we choose to use – because problems don’t solve themselves.

Only we can do that.

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Part IV: Is Doing Nothing The Same As Doing Bad?

Part III: A To-Do List for Shareholders: Three Things We Must Address

Part II: If We Want Responsible Corporations We Need To Be Responsible Owners

Part I: A Simple Solution to Runaway Corporate Power

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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