Should investors stay and fight for green change — or divest?

Socially conscious investors, employees and consumers are increasingly pushing funds to divest certain shareholdings, to address the big social problems of our time. But we have conducted research that suggests, in most cases, they would do better to retain their stakes and engage with management to bring about reform.

To have an effect, divestment must depress the stock price of the company targeted for change. Unfortunately, that decline attracts investors who are not socially conscious and are glad to acquire the stock at a discount. This opportunistic buying tends to attenuate if not eliminate the price decline, negating any incentive for a company to act socially. For example, divestment from oil stocks makes oil companies an attractive buy for investors less engaged with removing fossil fuels. The only certain effect of divestment is that such investors will grow richer at the expense of socially conscious ones. Read More