Andrew Pitt and Matt Crossman: To divest or not to divest?

09 May 2023 Expert insight

Rathbones’ head of charities, Andrew Pitt, and stewardship director, Matt Crossman, write that divesting or not depends on what you hope to achieve.


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The idea of investing for a sustainable future has gone mainstream. Because of this, companies and their management are being scrutinised for their impact on society and the environment, not just their ‘bottom line’.  This heightened awareness of environmental, social and governance factors can be an opportunity for charities to have an influence in changing things for the better. This gives them an important role to play as investors. That realisation prompts new questions, however. One of the absolute key questions: when is it right to divest?

Be clear on your objectives

We believe there are two main things that all charities need to consider - there’s creating impact and there’s values alignment. Sometimes these two objectives can get confused. 

Fossil fuel companies are probably the prime example when it comes to the divestment debate. A charity may choose to divest because it doesn’t feel the production of fossil fuels aligns with its values. But that doesn’t actually achieve a huge amount in our view, if the goal is to reduce overall carbon emissions.

Divestment can also create unintended negative consequences.  For example, amid pressure from divestment campaigners, oil majors Shell, TotalEnergies and Eni sold their jointly owned Umuechem oil field to smaller operator Trans-Niger Oil and Gas, only for the environmental performance of the oil field to deteriorate sharply under its new management.

An alternative to divestment is to engage with companies, working with them to reduce their carbon footprint as part of a wider responsible investment strategy. We believe this has greater potential to exert a positive influence. Obviously, you have to work with companies that are willing to engage, are willing to listen and have signed up to decarbonisation goals. By influencing their choices you can help drive their transition.

Of course this is a long-term and complex process for companies, but it’s about more than just some distant commitment to achieving ‘net-zero’ carbon emissions through their operations. It’s about having genuinely robust plans that impact the entire carbon footprint of the business and setting interim targets that are tangible. It has to cover the entire emissions profile of the company, not just the direct output. That should include everything from transportation to the footprint of the products it sells.

We regard divestment, on the other hand, as a drastic last step for investors, because once you are no longer a shareholder your power to effect change within a company shrinks dramatically.

One clear lesson we can draw from our experience engaging with companies is that shareholders can bring about change. But it takes time and patience. And it can take collaboration.

It is not always easy to conduct collaborative engagement. Moreover, inevitably some companies join these campaigns simply to look good. But when collaborative engagement goes well, few think methods can match it.

Beyond box–ticking

To take one example, Rathbones’ engagement played a role in ensuring that when the Modern Slavery Act was passed in the UK in 2015, a vital clause was included. This clause forced large companies to report on their efforts to deal with the problem of modern slavery, one of the great social ills of our day, including throughout their supply chains. 

Experts estimate modern slavery to be a $150 billion trade that involves around 50 million people in some form of servitude. The suffering slavery inflicts cannot be ignored.

But despite the successful inclusion of the reporting requirement in the Modern Slavery Act, we subsequently found that a sizeable minority of the 350 biggest listed companies in Britain were ignoring this demand. We drew this to the attention of fellow signatories to the UN-endorsed Principles for Responsible Investment and in 2020 we convened an investor collaboration called Votes Against Slavery to address this gap in the law. The coalition of investment managers we brought together has expanded rapidly since that time. This coalition initially managed about £3 trillion of assets; today it manages around £8 trillion.

Rathbones initially identified 22 companies it regarded as not meeting the reporting requirements. The Votes Against Slavery coalition wrote to these firms ahead of their annual general meetings, calling on them to comply with the Act by disclosing what actions they had taken to identify and eliminate slavery in their supply chains.

The results were incredible. Of the 22 companies we initially identified, 20 were compliant by the end of 2020. While the number of non-compliant companies went up following the disruption of COVID, the project is continuing, now with a list of 29 companies and a goal of encouraging 100% of them to meet the reporting standards.

Modern slavery thrives in the darkness, when companies do not ask enough questions about where their contractors source their labour. For this reason, the starting point is for firms to look for signs of it.

Our priority is to protect and grow the wealth of the families and charities who entrust it to our care. Their interests often span generations, so we’re extremely long–term investors. Because of this, it’s in our clients’ interests not just that we invest in sustainable businesses, but that we try to make businesses more sustainable, too — through engagement. If listed companies fail to fight climate change, their businesses will be less sustainable as the global economy transitions towards net zero and rewards businesses on the same path. Likewise, relying on slave labour isn’t a sustainable business model.

Avoidance and divestment have value as strategies but we believe engagement is the best way to change companies for the better.

You can read more about the Votes Against Slavery investor collaboration in an article on this subject in Rathbones’ latest InvestmentInsights publication.