The Power of Divestment
3 min read
- What is divestment?
- Divestment as an ESG approach
- The growing popularity of divestment
Divestment, a Standard Practice in Business
The phenomenon of divesting from certain industries, particularly fossil fuel, has picked up pace and popularity in the last several years. Divestment is a practice that occurs when a company, individual, or institution sells off their particular assets or subsidiaries that are underperforming, not in line with regulatory policy — or now more popular than ever — in industries or including practices that go against codes of conduct, environmental policy, or other social and governance standards. When divestment occurs, the owner either directly sells, encourages spin-off, or divests through an equity carve-out. Divestment is a key practice that can help an investor of any type streamline the efficiency and performance of their assets.
The New Wave of Divestment
Divestment is now being used as a tool for asset owners to evaluate their investments through sustainable, ethical, and social lenses. Responsible investors refer to corporate social responsibility reports to go beyond standard business metrics. This new type of report that in just a few years has become mainstream, allows stakeholders and outside parties to measure the impact that companies have on their region, state, country, and even the world.
Divesting from Fossil Fuels and Beyond
While the divestment movement began with the fossil fuel industry as the main target, other industries are now facing similar disruptions. Gofossilfree.org is one of the leading organizations promoting the practice of divesting from fossil fuels. To date, over 1,200 companies representing roughly $14 trillion have signed divestment pledges through the organization. Other industries such as tobacco, fast-fashion, and the food industry (think: beef and other unsustainable farming practices), are all under heat now as companies move away from investing in these industries.
Divest to Reinvest
Divestment, however, does not have to mean a complete loss in assets. Many companies now are divesting as a way to reinvest in other industries that are more resilient, innovative, and socially or environmentally responsible. Growth within green industries has led many institutions to seek divestment not solely as a way to act socially or environmentally responsible, but as a means of remaining competitive: industries such as clean tech and green infrastructure are becoming increasingly competitive, making returns on these investments advantageous from a business perspective too — not just ethical.
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