Divestment is the process of reducing investment in a company or industry. Although divestment can be motivated by several reasons, the motives behind divestment campaigns are typically moral or political. A recent example of a divestment campaign is Fossil Free, which sought to divest from energy companies that rely on fossil fuels.^[1]

Advocates of divestment campaigns sometimes argue that they reduce the funding available to firms, thus limiting their capabilities. However, this seems not to be backed up by empirical evidence: while some investors will divest from objectionable companies, others, focused only on maximizing returns, will make up the funding gap.

Will Macaskill claims that divestment leads to higher returns ending up in the hands of the least scrupulous investors, who are likely to spend their returns in more harmful ways than their more socially conscious counterparts.^[2] He notes that divestment might be more impactful if its primary purpose is to affect the brand of the firm, and that product boycotts are more likely to have an impact than divestment campaigns.

Further reading

Macaskill, William (2015) Does divestment work?, The New Yorker, October 20.
A critical piece on the effectiveness of divestment campaigns.

Related entries

investing | marginal charity

1. ^

   Fossil Free (2016) What is fossil fuel divestment? , Fossil Free.

2. ^

   Macaskill, William (2015) Does divestment work?, The New Yorker, October 20.