If you have an existing investment portfolio or super fund, divestment is withdrawing money from existing investments that do not align with your values.
The proceeds from the sale can be used to add to other existing investments or to new investments, including companies you believe are having a positive impact on society and/or the environment.
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 who has strong views on smoking may review his/her investments and learn that the super fund of their choice has invested in a tobacco company. As a result he/she will divest the funds (withdraw that investment in the tobacco company). 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 themselves.
Impact of divestment
Divestment is a way of using money to send a message about what you believe is acceptable behavior by a company. Divestment can also put pressure on companies directly to change their behavior 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 other companies’ projects that are not in line with your values.
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 can lead to changes in behavior. 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 markets are more globalised this impact is not guaranteed. For example there are many people willing to purchase tobacco company shares and it would take substantial numbers of investors divesting from tobacco to impact the share price of global tobacco companies. As a result, NGO’s often encourage people who are divesting funds to tell the organization as well state publically (including social media) why they are taking that action in order to gain attention to the underlying issue and have more of an impact.
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 1960-1980s students called on US universities to divest from companies carrying out business in South Africa.(1) 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 $1Billion in US investment.(1) By the end of 1990, 90 cities, 22 countries and 26 states had taken economic sanctions against the South African government.(1) 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.(1),(2)
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.(3),(4) You can learn more about the companies behind many consumer brands using the Shop Ethical guide.
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 Ukraine.(5) 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. (6)
You may be concerned about 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.(7) 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.(8)
If you want to use your money to address climate change, you may choose to divest from companies contributing to climate change with high carbon emissions such as fossil fuel companies.(9)
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.
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 blog post and website links are provided for information only. Gold Leaf Financial Services, Mary Campbell and GWM Adviser Services do not endorse or recommend any business, charity, product or service mentioned in this blog post.
1.Protest Divestment And The End Of Apartheid, Gregory Gethard, Investopedia, 16 July 2008
2.South Africa celebrates 20 years since the end of apartheid, The Telegraph 27 April 2014
3.Shell, Greenpeace, and Brent Spar, Daniel Diermeier, Harvard Business Review 1 September 1996
4.When Do Company Boycotts Work?, Daniel Diermeier, Harvard Business Review 6 August 2012
5.Sanction Regimes: Russia, Australian Government Department of Foreign Affairs and Trade 2015
6.How far do EU-US sanctions on Russia go?, BBC News, 15 September 2014
7.Rana Plaza factory collapse: Australian clothing retailers yet to sign Bangladesh safety accord, ABC News 24 April 2014
8.Accord on Fire and Building Safety In Bangladesh 2015
9.ANU defends divestments, says fossil fuels companies must diversify into new energy, Sydney Morning Herald 13 October 2014
Meet the $1.3 billion super woman: How Dr King trumped big tobacco