If you have an existing investment portfolio or superannuation fund, divestment is the withdrawing of money from existing investments that do not align with your values. This might include companies involved in activities you feel are causing harm to people and/or the environment.
The proceeds from the sale can be added to new investments, including companies you believe are having a positive impact on people and/or the environment.
Over $11 trillion dollars has been divested from fossil fuels already. (1) If you want to use your money to address climate change, you may choose to divest your investments and super from companies contributing to climate change such as fossil fuel companies or companies with high carbon emissions.
Divest Invest is a global movement to address climate change where organisations and foundations divest from oil, gas and coal, and instead redirect investments to sustainable solutions such as renewable energy or companies creating energy efficiencies. (2)
Some people divest because they want their money to reflect their values, so they stop all investments in companies whose activities do not align with their values. For example, a nurse or doctor may review his/her investments and learn that the super fund of their choice has invested in tobacco and fast food companies. As a result, he/she will divest the funds (withdraw that investment in the tobacco and fast food companies). For many people there is personal satisfaction and peace of mind knowing their super and investments are not supporting activities they do not believe in.
Impact of divestment
Divestment is a way of using money to send a message with regard to what you believe is acceptable behaviour by a company.
Divestment can also put pressure on companies directly to change their behaviour in business. Some people divest from major suppliers, as a way to indirectly influence companies’ activities. For example, you may divest from major banks or financial institutions in order to pressure them to stop financing fossil fuel companies’ projects because you are concerned about climate change.
If enough people decide to no longer support a company’s activities and divest, this can have a negative impact on the company’s share price and may lead to changes in their behaviour. It can also limit the ability for a company to raise funds through the debt markets or capital markets at a competitive rate, if demand is reduced.
However, as organisations become more globalised it takes substantial numbers of investors to create change. For example, it would take large numbers of investors to divest tobacco to impact the share price of global tobacco companies. In order to gain attention to the underlying issue and have more of an impact, people who are divesting funds can write to the organisation and/or state publicly (including social media) why they are divesting. Some people like to engage with companies to ask them to change their behaviour prior to divesting. Other people work with organisations like the Australasian Centre for Corporate Responsibility (ACCR) to join with other shareholders in order to approach companies on particular issues including climate and energy, human rights and workers’ rights. (3)
Arsineh Houspian, SMH (4)
It is worth remembering that one person can make a difference. For example, Melbourne radiation oncologist Bronwyn King contacted industry super funds and other fund managers asking them to stop investing in tobacco companies and now $1.3 trillion in funds under management in Australia is tobacco free. (4)
Divestment in South Africa
Some people use divestment to make a political statement and create social change. As part of the anti-Apartheid movement, from the 1960s to the 1980s students called on US universities to divest from companies carrying out business in South Africa. (5) Many universities had substantial endowment funds and the divestment movement gained the attention of corporations who became aware of the potential for bad publicity.
By 1988, 155 universities had partially divested and, by 1990 over 200 US companies had cut all ties with South Africa resulting in a loss of $1 billion in US investment.(5) By the end of 1990, 90 cities, 22 countries and 26 states had taken economic sanctions against the South African government.(5) As a result, many public retirement funds were required to sell South African related investments. The South African government saw that, if enough companies withdrew business from the country, this had the potential to have a significant impact on the economy. Divestment and the publicity it created highlighted the issue of Apartheid and influenced the South African government who, in turn abolished the Apartheid system in the early 1990s. (5) (6)
Recent scandals in the media indicate a number of high profile Australian companies have underpaid staff from supermarkets, clothes retailers and the hospitality industry. You may have a view of whether you want to invest in companies potentially exploiting Australian workers and not meeting the legal requirements. (7)
Global supply chains are complex, however, many companies are aware of potential environmental and community issues and have ethical sourcing and supply chain policies. Many Australians were concerned with working conditions in the fashion industry after learning about the collapse in 2013 of the Rana Plaza garment factory in Bangladesh, killing 1,138 workers and injuring more than 2,000 people. (8) You may choose to divest from companies that have not signed the Bangladesh Fire and Building Safety Accord allowing staff to stop work if their safety is under threat. (9)
In Australia, the Modern Slavery Act requires businesses to report on the risks of modern slavery in their own business. (10) You may choose to invest in companies that are assessing the risk and making changes to their businesses accordingly. For example, after the ABC Four Corners report in July 2019 regarding human rights concerns including forced labour, some clothing retailers in Australia, stopped sourcing cotton from areas in China. (11)
If you are concerned about the impact on your community of problem gambling, you may choose to divest from gambling companies and other companies that own poker machines. If you feel that payday and short term lenders take advantage of people who are on low incomes and who are vulnerable in society, you may choose to divest from companies involved in payday lending.
Other social issues you might consider include companies’ positions on same sex marriage bill, diversity and inclusion (gender, disability, age, race, background).
Other ways money can send a message
When purchasing products, you are choosing which companies to support and you are also sending a message. Boycotts are a form of activism where consumers avoid buying products from a particular company as an expression of protest in order to create change. If enough consumers choose not to buy from a particular company, product sales can significantly reduce. For example, Greenpeace’s boycott of Shell in 1995 reduced sales in Germany by up to 40% and the public pressure saw Shell reverse its decision to dispose of its Brent Spar oil rig at sea. (12) (13) You can learn more about the companies behind many consumer brands using the Shop Ethical guide.
Changing banks and insurers
Many people make choices to bank with a more ethical banking institution, because they have had a bad experience, are concerned with the scandals exposed in the Royal Banking Commission, or their banks are financing fossil fuel companies contributing to climate change. (14) This choice can be made with every day banking accounts, savings and term deposits. Further, as financial organisations make significant profits from home loans and investment property loans, changing lenders can also make a difference. Also, insurance companies invest the premiums paid by customers, so choosing a more ethical insurer (eg. one not investing in fossil fuel companies) can reflect your values.
It is worth noting that governments worldwide also withhold money and impose economic sanctions on other countries in response to their activities. For example, the Australian government implemented sanctions, which commenced on 31 March 2015, in response to Russia’s ongoing threat to the sovereignty and territorial integrity of the Ukraine. (15) These sanctions include financial sanctions prohibiting the direct purchase or sale of shares and other financial instruments issued by a Russian organisation without a sanctions permit. Sanctions have also been imposed on Russia by the US and the EU. (16)
At Gold Leaf Financial we can assist you to divest from companies whose activities you do not agree with and instead invest in activities you want to support.
Contact a Gold Leaf Financial Planner today to review your investments to make sure they match your values and will help you reach your goals.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment decision.
The above article and website links are provided for information only. Gold Leaf Financial Services, Mary Campbell and Affinia Financial Advisers do not endorse or recommend any business, charity, product or service mentioned in this blog post.
1. Global divestment movement hits $11 trillion, pushes for more – and faster, Michael Mazengarb Renew Economy 17 September 2019 https://reneweconomy.com.au/global-divestment-movement-hits-11-trillion-pushes-for-more-and-faster-98161/
2. Moral Money: Divestment pledge pays off; solar microgrids; RBS social bond, Gillian Tett, Billy Nauman, and Patrick Temple-West Financial Times, 6 November 2019 https://www.ft.com/content/b0707c88-0020-11ea-b7bc-f3fa4e77dd47
3. Australasian Centre for Corporate Responsibility (ACCR) website 2019 https://accr.org.au/
4. How one doctor's dream funnelled $1.3 trillion away from tobacco companies, Esther Han Sydney Morning Herald, 18 October 2018
5. Protest Divestment And The End Of Apartheid, Gregory Gethard, Investopedia, 16 July 2008
6. South Africa celebrates 20 years since the end of apartheid, The Telegraph 27 April 2014
7. 'They're madly checking their payrolls': the ugly truth of Australia's underpayment epidemic, Ben Butler, The Guardian 3 November 2019 https://www.theguardian.com/australia-news/2019/nov/03/adly-checking-their-payrolls-the-ugly-truth-of-australias-underpayment-epidemic
8. Rana Plaza factory collapse: Australian clothing retailers yet to sign Bangladesh safety accord, ABC News 24 April 2014
9. Accord on Fire and Building Safety In Bangladesh 2015
10. Australian companies need to take modern slavery seriously, Martijn Boersma The Sydney Morning Herald, 31 May 2019 https://www.smh.com.au/business/workplace/australian-companies-need-to-take-modern-slavery-seriously-20190524-p51qz8.html
11. Cotton On and Target Australia stop buying cotton from Xinjiang over human rights concerns, By Sophie McNeill, Jeanavive McGregor, Michael Walsh, Meredith Griffiths and Echo Hui ABC News, 17 October 2019 https://www.abc.net.au/news/2019-10-17/target-cotton-on-drop-suppliers-after-four-corners-investigation/11607518
12. Shell, Greenpeace, and Brent Spar, Daniel Diermeier, Harvard Business Review 1 September 1996
13. When Do Company Boycotts Work? Daniel Diermeier, Harvard Business Review 6 August 2012
14. If you’re Australian, chances are your bank and super fund are helping make climate change worse – here’s how to find out, Jack Derwin, Business Insider, 20 September 2019
15. Sanction Regimes: Russia, Australian Government Department of Foreign Affairs and Trade 2015
16. How far do EU-US sanctions on Russia go? BBC News, 15 September 2014
17. ANU defends divestments, says fossil fuels companies must diversify into new energy, Sydney Morning Herald 13 October 2014
18. At last, divestment is hitting the fossil fuel industry where it hurts, Bill McKibben The Guardian 17 December 2018 https://www.theguardian.com/commentisfree/2018/dec/16/divestment-fossil-fuel-industry-trillions-dollars-investments-carbon
Elisabeth learns about her super investments
Elisabeth likes watching documentaries and in the last few years has become concerned about gambling and animal cruelty including live animal exports. She is also troubled after watching a documentary which showed the poor conditions of workers in Bangladesh and China. These workers were making clothes that were being sold by many Australian retailers.
Elisabeth contacted her Gold Leaf Financial Planner and was surprised to discover that her super fund was invested in many areas that she wanted to avoid. She was happy her adviser had the expertise and experience in ethical investments to change this. Her adviser recommended a new super fund with investments that align with her personal values and have shown a sound financial performance.
Elisabeth is happy now that her super no longer invests in live animal exports or gambling. Instead she is now invested in companies with good labour safety standards, and in activities she considers positive like education and renewable energy.