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ET Index blog series: Divestment versus Engagement – the battle of two ideologies



The divestment movement has been gathering pace like wildfire over the last few years with over 400 institutions globally now committed to divesting from fossil fuels. Fuelled by the findings of Carbon Tracker and the idea of a carbon bubble, a grassroots, student-led movement has been sweeping across the world putting pressure on institutions, predominantly universities, to drop holdings across oil, gas and coal. Sam Gill, CEO of ET Index writes.

This campaign has been spearheaded by and for anyone who has not seen the film Do the Math explaining more about it – I thoroughly recommend it. Like all good campaigns, the message was simple and easy to understand. If oil companies follow through with their business plan, the planet tanks. Therefore, their social license needs to revoked.

Divestment, in most cases, has been seen by these grassroots groups as a political tool rather than a concrete investment mechanism designed to tackle climate change.

The main pushback from progressive investors has been the argument that they ‘engage’ with these companies to cajole them into being better companies, and if they no longer have a seat at the table – having sold all their shares – they will no longer be able to do that.

Ignoring the fact that ‘engagement’ strategies clearly haven’t worked at the scale required to address the problem, the rationale behind this argument is solid. And it would certainly be a shame for there to be no investors left at the table who are promoting a more progressive agenda within corporates, that much is clear.

So far this has led to institutions such as the Bill and Melinda Gates’ Foundation and the Wellcome Trust, being the focus of a fierce campaign by the Guardian calling upon them to divest their holdings of fossil fuels. The stance of both institutions is that they will continue with their ‘engagement’ strategies, tabling shareholder resolutions and voting to make them more sustainable.

In the final post of this series we will explore if there is a way of combining the logic of engagement with the potential of divestment. In essence divestment acknowledges the dynamic nature of capital, and that shifting it can be a very powerful tool in changing company behaviour. Can the two seemingly opposed camps be united and can the logic of divestment be applied to the rest of the companies listed on the stock market since climate change is not exclusively attributable to fossil fuel companies after all?