chasing answers newsletter #55
Divest or Protest?
“Who are businesses really responsible to? Their customers? Shareholders? Employees? We would argue that it’s none of the above. Fundamentally, businesses are responsible to their resource base. Without a healthy environment there are no shareholders, no employees, no customers and no business.” - Yvon Chouinard
It’s no secret I’m a big proponent of taking care of our planet. I also like to manage my own investments.
This can lead to quite a dilemma. I want to find the investments that will give me the greatest returns, but I also don’t want to “help” companies destroy the planet in the name of capitalism.
But is holding stock in companies such as fossil fuel companies “helping” them?
Many out there would say yes. These people believe we shouldn’t be investing in any companies causing direct harm to the environment. They don’t believe you can be a shareholder in these businesses while caring about climate change.
Divesting is their method of enacting change. This means selling any stocks or bonds of these companies, as well as selling shares of investment funds that are tied to them. They believe divesting makes a statement that can trigger political action or possibly bring financial stress upon these organizations by demonstrating to others that they are risky investments.
Among those that have announced fossil fuel divestment plans are the Ford Foundation, the Church of England, and Harvard and Oxford Universities.
But when they divest and sell the stock of these fossil fuel companies, all they are doing is temporarily driving down the price so that someone who doesn’t give a shit about climate change can buy it and drive the price back up. Any negative impact on the company itself is temporary.
I have long disagreed with the thought that divestment is the only option, and it looks like there is evidence to support me. If you want to prevent a company from behaving a certain way or want to bring about change in its business model, the best way to do so is to protest.
I’m not just talking about standing on a street corner with a ‘fossil fuels suck’ picket sign type of protest. But protest with your shareholder vote, engage with management, and, if need be, organize public campaigns.
As a shareholder, these are legitimate ways to impact a business's policies.
To be clear, you or I alone can’t have much of an impact, but large groups of us together can. So can large endowment and investment funds like those mentioned above.
A student group at Arizona State University is doing precisely this. They were given a small portion of the school’s endowment to manage, and instead of divesting from fossil fuel companies, they invested in Black Rock (the largest asset manager in the world, which has stressed its commitment to fossil fuel companies in recent years) and Chevron. They then began initiating shareholder proposals that gave them a voice within the companies where they wished to see change.
And they have had some success. In 2021, BlackRock revised a policy, "allowing some shareholders to more directly control a portion of their proxies," in response to a question the group asked at a private meeting they were able to arrange with BlackRock representatives.
They were also able to get Chevron to release more data on financial contributions to trade groups that may lobby on its behalf.
This strategy is not without risks. These companies are valued based on their future profits and their future assets. For instance, an oil company is valued on how many barrels of oil they are expected to produce. If demand for their product should decrease, whether it be due to economic or policy changes, they could end up with stranded assets, greatly reducing the company's value and leaving investors with significant losses.
Despite these risks, I still believe shareholder protests and activism should be considered viable alternatives to divestment. If these companies are left in the hands of only those who don’t believe in or care about climate change, there is little hope of them being a part of the solution. At that point, we can only hope for their obsolescence.
I hope you all have a great week!
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