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I think most people miss the point of public, large-scale divestment (as opposed to private, small scale consumer ethical purchases which I find not super usefu

I think most people miss the point of public, large-scale divestment (as opposed to private, small scale consumer ethical purchases which I find not super useful). Divestment by a well-respected organization like the Gates foundation is a signal to others: a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered. Thus, it's a bad investment, as likely you will lose capital in the very long term investing horizon. If this sounds a bit circular, you're right! You're looking as an activist to start a spiral: first a few high profile, respected institutions signal that an industry is no longer acceptable to society, then all investors start to wonder about the viability, then all investors start pricing that risk into investment, then startup capital dries up, and eventually you see a slow decrease in power of a once dominant industry. Generally that's a bit naive and simplistic, but you get the idea. Who on HN is willing to start a tobacco startup today in the US? No? Didn't think so :)

usrusr 11y ago
“a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered.“ Or it might be seen as a signal that said industry might be full of undervalued stock, because a certain fraction of potential buyers opts out without even considering potential revenue and so on, lowering demand in the stock. If enough investors are following this heuristic (instead of actually analyzing the true potential of the companies in question), then high-visibility ethical divestment might even lead to a twisted amorality bubble. For the tobacco example, I think it's the other way around: if (and only if) there is policy against an industry, then divestment will make that policy appear a lot more serious. But this signal would be even stronger when the divestment is done by "pure market rational" actors, that are not influenced by ethics (or that at least give the outside appearance thereof).
- notahacker 11y ago
  It largely depends on critical mass. One large institutional investor pulling out isn't going to harm a company because a pure profit seeking firm will pick up the slack. But a significant proportion of investors that won't touch a stock is going to have an impact, because even purely rational investors are going to consider the fundamentals of the business affected by the implied lower future liquidity, higher costs of capital and lower ability to retain senior executives with attractive equity offers in future. Even though that impact is unlikely to be large, it's probably large enough for firms keen to avoid being labelled "evil" by activist investors being encouraged to spend a bit more on CSR, tightening up their supply chain and abandoning an unpopular policy or two. It's that secondary effect of encouraging ordinary firms to be more ethically conscious - which GiveWell's article doesn't mention - that's the larger one. A good analogy is democracy. A few people voting for a fringe candidate doesn't harm the mainstream candidates; awareness there's another party complicating the result might even boost the mainstream candidates' votes. As soon as the fringe party gains some sort of critical mass, however, one of the mainstream candidates is likely to start wooing their supporters by adopting one of their more inoffensive policies in some form.
mattmanser 11y ago
You say that, but has the hookah craze not hit your city? And what of the vape craze? They're rebranding nicotine addiction, cigarettes are uncool just like snuff and chewing tobacco became uncool. Today's tobacco startups are in hookah. I also wonder whether India, for example, has any cigarette focused startups. I think in reality regulation or the threat of it is what ultimately determines the fate of an unpleasant industry.
im3w1l 11y ago
>Who on HN is willing to start a tobacco startup today in the US? Meanwhile, an accelerator near you is funding cannabis startups. Not that I mind
vlehto 11y ago
>a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered. So what you are saying that if Gates foundation stops investing in McDonalds, then in the long run people will stop eating fast food? Because the idea that Gates foundation starting some kind of "movement of divestment" would have to be executed in secrecy form all of the "evil" investors who currently operate in the market. Otherwise these "evil" guys will reap profits of the obviously devalued stock and grow. And then they have bigger market share of all investment.
- Retric 11y ago
  If McDonalds needed to raise there prices because they had trouble accessing capital then people would eat there less. Which starts a downward spiral for the company.
  - vlehto 11y ago
    Slight increase in capital cost, should show as slower expansion to foreign markets. Self destructive rise of burger price is unlikely, as McDonalds executives are likely not idiots.
    - Retric 11y ago
      At first it's not a problem. However, any disruption is going to have a magnified impact without free access to capital. ex: A short term fad, supply chain issue etc. Further, economies of scale often cause local optima which don't exist for smaller companies. (Advertising, infrastructure, price) So, large but lean companies can easily hit downward spirals. That said, this is really an edge case. A more common cause is conglomerates selling off lines of business which are then less stable on their own.
GrinningFool 11y ago
> Who on HN is willing to start a tobacco startup today in the US? You'd be surprised: http://www.forbes.com/sites/freddiedawson/2015/06/30/e-cigs-a-controversial-but-profitable-sector-for-start-ups/#21e93abf3407 http://www.forbes.com/sites/freddiedawson/2015/06/30/e-cigs-... (Keeping in mind that the nicotine in ejuice comes from tobacco...) Edit: You'd said in the US, but that was just the first example that google gave me - lots of US discussion about it as well.
douche 11y ago
You could have made a mint if you had a decent product and strong marketing as the e-cig wave hit...

usrusr 11y ago

“a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered.“ Or it might be seen as a signal that said industry might be full of undervalued stock, because a certain fraction of potential buyers opts out without even considering potential revenue and so on, lowering demand in the stock. If enough investors are following this heuristic (instead of actually analyzing the true potential of the companies in question), then high-visibility ethical divestment might even lead to a twisted amorality bubble. For the tobacco example, I think it's the other way around: if (and only if) there is policy against an industry, then divestment will make that policy appear a lot more serious. But this signal would be even stronger when the divestment is done by "pure market rational" actors, that are not influenced by ethics (or that at least give the outside appearance thereof).

notahacker 11y ago
It largely depends on critical mass. One large institutional investor pulling out isn't going to harm a company because a pure profit seeking firm will pick up the slack. But a significant proportion of investors that won't touch a stock is going to have an impact, because even purely rational investors are going to consider the fundamentals of the business affected by the implied lower future liquidity, higher costs of capital and lower ability to retain senior executives with attractive equity offers in future. Even though that impact is unlikely to be large, it's probably large enough for firms keen to avoid being labelled "evil" by activist investors being encouraged to spend a bit more on CSR, tightening up their supply chain and abandoning an unpopular policy or two. It's that secondary effect of encouraging ordinary firms to be more ethically conscious - which GiveWell's article doesn't mention - that's the larger one. A good analogy is democracy. A few people voting for a fringe candidate doesn't harm the mainstream candidates; awareness there's another party complicating the result might even boost the mainstream candidates' votes. As soon as the fringe party gains some sort of critical mass, however, one of the mainstream candidates is likely to start wooing their supporters by adopting one of their more inoffensive policies in some form.

mattmanser 11y ago

You say that, but has the hookah craze not hit your city? And what of the vape craze? They're rebranding nicotine addiction, cigarettes are uncool just like snuff and chewing tobacco became uncool. Today's tobacco startups are in hookah. I also wonder whether India, for example, has any cigarette focused startups. I think in reality regulation or the threat of it is what ultimately determines the fate of an unpleasant industry.

im3w1l 11y ago

>Who on HN is willing to start a tobacco startup today in the US? Meanwhile, an accelerator near you is funding cannabis startups. Not that I mind

vlehto 11y ago

>a signal that a particular industry is morally unappealing to a society, so much so that it's days are numbered. So what you are saying that if Gates foundation stops investing in McDonalds, then in the long run people will stop eating fast food? Because the idea that Gates foundation starting some kind of "movement of divestment" would have to be executed in secrecy form all of the "evil" investors who currently operate in the market. Otherwise these "evil" guys will reap profits of the obviously devalued stock and grow. And then they have bigger market share of all investment.

Retric 11y ago
If McDonalds needed to raise there prices because they had trouble accessing capital then people would eat there less. Which starts a downward spiral for the company.
- vlehto 11y ago
  Slight increase in capital cost, should show as slower expansion to foreign markets. Self destructive rise of burger price is unlikely, as McDonalds executives are likely not idiots.
  - Retric 11y ago
    At first it's not a problem. However, any disruption is going to have a magnified impact without free access to capital. ex: A short term fad, supply chain issue etc. Further, economies of scale often cause local optima which don't exist for smaller companies. (Advertising, infrastructure, price) So, large but lean companies can easily hit downward spirals. That said, this is really an edge case. A more common cause is conglomerates selling off lines of business which are then less stable on their own.

GrinningFool 11y ago

> Who on HN is willing to start a tobacco startup today in the US? You'd be surprised: http://www.forbes.com/sites/freddiedawson/2015/06/30/e-cigs-a-controversial-but-profitable-sector-for-start-ups/#21e93abf3407 http://www.forbes.com/sites/freddiedawson/2015/06/30/e-cigs-... (Keeping in mind that the nicotine in ejuice comes from tobacco...) Edit: You'd said in the US, but that was just the first example that google gave me - lots of US discussion about it as well.

douche 11y ago

You could have made a mint if you had a decent product and strong marketing as the e-cig wave hit...