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I'm pretty unclear on how anyone even thinks divestment works, actually. When a company sells stock in an IPO, buying stock from them allows them to raise capi

I'm pretty unclear on how anyone even thinks divestment works, actually. When a company sells stock in an IPO, buying stock from them allows them to raise capital, so it seems clear to me that you shouldn't buy stock from a fossil fuel company. But that's non-investment, not divestment. Divestment is about selling existing stock. It's true that divestment drives down the stock price. This could mean that if a company has retained stock, it would limit their ability to sell that stock to raise capital in the future. However, if you drive down the stock price, it's just as likely that you'd be allowing the company to buy back its own stock at a bargain price, which could help the company by allowing them to retain greater control. It's not guaranteed that you're hurting the company by driving down the price of their stock--in fact, you may be helping them. It might be possible to look at the needs of individual companies and divest from those companies to drive down the stock price if and only if you think they will be attempting to sell stock in order to raise capital in the future. But this strategy has risks, and I've also never heard anyone talk about this strategy when talking about divestment.

bcoates 7y ago
I think it assumes that large investors aren't really passive, but intervene on behalf of their investments. If you convince someone to divest from X, then they have the luxury of remaining neutral when you propose that X be destroyed.
- gbrown 7y ago
  Exactly, carbon regulation will be a lot easier to pass if the direct impact to peoples' finances is lessened.
  - facorreia 7y ago
    But some other investor bought the stock, didn't they?
    - gbrown 7y ago
      Perhaps, though most people don't buy stock. If you can get institutional investors to divest, that limits most people's direct exposure. Do I expect it to necessarily make a big difference (especially in the short term, without becoming a broader movement)? No. I do believe, however, that it's not nothing, and that we need to pursue everything. There's also a personal aspect - I want nothing to do fossil fuel stocks. I try to limit my emissions in my personal life, so why not exercise that preference in whatever small way I can in my financial life?
      - jpttsn 7y ago
        We need to pursue _everything_? Your time is surely scarce. Wouldn’t you want to pursue only the most effective things? Every minute you spend arguing for divestment is a minute you don’t spend arguing for nuclear.
        MiroF 7y ago
        Yes but if everyone is vested in fossil fuels nuclear won't happen, don't you see?
        gbrown 7y ago
        Ok, sure - pardon my use of expressive and imprecise language. I meant that we should pursue everything feasible from among the set potentially helpful or promising actions in as sensible a way as we can (infer a few more sensible qualifiers if you wish). Spending a couple minutes to switch my retirement allocations doesn't affect my ability to advocate for other policies. What I think we definitely want to avoid is the temptation to see an incomplete or minimally effective action (in the current context) and dismiss it, while we wait for a silver bullet. For example: "Individual actions aren't going to be enough, we need regulation. I might as well fly instead of drive." "Your divestment isn't going to make a difference, so don't bother." Both of those statements contain kernels of truth, but miss the fact that individual actions do have consequences in the aggregate, and cultural change is possible (and is one way to motivate policy change!).
cortesoft 7y ago
They use the example of South Africa, but that was a very different process. It wasn't just about not investing in South African companies... it was about not buying their goods, too. Is part of this 'divestment' also about not investing in the purchasers of fossil fuels? Or reducing consumption in any way? It doesn't sound like it.
- gruez 7y ago
  >They use the example of South Africa, but that was a very different process. It wasn't just about not investing in South African companies... it was about not buying their goods, too. So boycotting? Not sure what's the point of bundling something that's actually effective (boycotts) with something with questionable effectiveness (divestment).
sideshowb 7y ago
I think Ha Joon Chang suggested that managers will likely receive reduced bonus, or in extreme cases fear losing their jobs, if their actions lead to drop in share price?
- kerkeslager 7y ago
  But the managers' actions aren't leading to a drop in share price, it's divestors' actions that are leading to the drop in share price, and this would be obvious with any divestment effort large enough to create an effect.
  - benj111 7y ago
    But managers can stop doing the thing that leads to divestment (or so the theory goes).
  - sideshowb 7y ago
    The managers bear ultimate responsibility for continuing the actions which investors dislike.
    - kerkeslager 7y ago
      But divestors aren't investors any more. I really find it hard to believe that someone would be fired for doing fossil fuel company things at a fossil fuel company because of divestment.
      - sideshowb 7y ago
        The threat is that more existing investors might divest. Some of the fossil fuel companies are putting significant investment into 2nd generation biofuels, I guess because they have the potential to leverage existing infrastructure. But possibly also because they care what divestors think.
kulkarnic 7y ago
Possibly -- you sell stock in fossil fuel companies, and reinvest in some other, hopefully more sustainable, company. It's not the divestment part that helps, it is the reinvestment.
- kerkeslager 7y ago
  Okay, if that's the case, then say "investing in sustainable companies" rather than "divesting from fossil fuel companies" because doing the latter does not imply that you are also doing the former. And by the same logic I mentioned, you'd still have to be buying the stock from the company itself, not from someone else, to ensure that you're actually helping them. If a company isn't selling their stock, it's not at all clear that buying their stock from someone else helps the company.
andylei 7y ago
This explains it pretty well: https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-Reward-Or-One-Mans-Ceiling-is-Another-Mans-Floor https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-...
thereisnospork 7y ago
If anything, shouldn't the green contingent buy more stock in oil companies to try and effect a hostile takeover?
- zopa 7y ago
  That seems very unlikely to be the most cost-effective use of capital. Exon Mobile has a market capitalization of $309 billion. So figure $200 billion for a hostile takeover --- that's approaching the yearly cost of a Green New Deal plans, and you've only taken out one fossil fuel company.
  - TaylorAlexander 7y ago
    It would make a great 80's style underdog movie though. Some scrappy kid scrapes together $200B to take over Exxon Mobile.
  - Cyph0n 7y ago
    And the remaining companies would probably swoop in to fill the void, so you’d end up doing nothing.
  - thereisnospork 7y ago
    To do some really grotesque napkin math, there are about 7 major oil companies. On paper then the vast bulk of the liquid + gas fossil fuel market could be taken over and their combined resources diverted entirely towards green in perpetuity for less than a decade of the GND. Will never happen, but an interesting thought experiment maybe.
Havoc 7y ago
>I'm pretty unclear on how anyone even thinks divestment works, actually. Bank/major fund/major anything announces no more coal investment. If you a early stage/small player that just took the jam out of your doughnut. >But that's non-investment, not divestment. Same thing at sector scale.
hinkley 7y ago
If I own shares in a retailer and I decide that, say, soda is bad, I can try to use my shareholder rights to talk to them about how prominently they display soda and possibly reducing their shelf real estate for soda. But what if I own shares of a soda company? What exactly should I do in that case? Try to convince them to exit their primary market and become an entirely different company? Why would I waste my time and energy that way? It makes absolutely no sense to invest in one kind of company and then insist they become something else. Find another company that is conceptually similar to what you had in mind and invest your time and money in them instead. Get energy companies to invest in not-coal and not-natural gas, sure, but investing in a petroleum or coal company so you can vote? What exactly do you think you are going to vote for? Suicide?
- fkdo 7y ago
  Theoretically if 51% of ownership of an oil company wants to seal all oil wells isn't that what the company should do?
  - sigstoat 7y ago
    certainly they could elect board members who'll hire CEOs to execute that plan.
    - simonh 7y ago
      Then minority’s shareholders will sue because their share value declined and the board’s legal obligation is to pursue shareholder value, not do what the majority owners of company want them to do. I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected.
      - dragonwriter 7y ago
        > the board’s legal obligation is to pursue shareholder value No, its not. > not do what the majority owners of company want them to do. Actually, the purpose laid out in most corporate charters is, within the law, to do exactly that. > I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected. They have a legitimate expectation that their rights should be protected, but the right you are basing this argument on does not exist.
OBLIQUE_PILLAR 7y ago
Divestment pushed South Africa to abolish apartheid.
- armenarmen 7y ago
  Yeah, but countries != companies. Divesting from SA meant smaller tax base, fewer jobs and a fall from international prominence. Divesting from a company/industry means that the stock price may fall. Assuming that the actual profitability of the company remains unchanged all divesting did was make the stock a better buy.
  - dr_dshiv 7y ago
    Why wouldn't SA companies simply become a better buy?
    - ineedasername 7y ago
      Because people actually stopped buying the products along with not investing in companies. The equivalent with fossil fuel investment would be that people actually stop using fossil fuels, which isn't what happens with divestment.
repsilat 7y ago
> However, if you drive down the stock price, it's just as likely that you'd be allowing the company to buy back its own stock at a bargain price, which could help the company by allowing them to retain greater control. Stock buybacks shrink the size of the company. They lose money they could otherwise use to (say) drill for oil, instead returning it to shareholders' hands to deploy in other ways. That sounds like a win for divestment to me. "Less likely/more painful to raise money" and "more likely/less painful to buy stock back" are two sides of the same coin, both meaning less money invested in the business.
noego 7y ago
The argument made by most economists and Bill Gates is that divestment does not drive down the stock price, unless it is practiced by a overwhelming majority of all investors. The reasoning is that anyone not participating in the divestment scheme will simply bid the share price back up to near the market value. If divestment did indeed drive down share price, it would succeed in hurting the company. The company would have to issue more shares when raising capital in future. It would also have to issue its employees more shares to remain competitive in compensation.
- mikemotherwell 7y ago
  Is capital raising relevant? When was the last time a fossil fuel company raised capital? How is that the way to hurt a company? Also, markets price in these sorts of things. If divestment was a real threat, that would already be factored into the price. It is partly why the P/E ratio of BHP is 13.94, whereas it is 75.56 for Amazon. Lastly, with a lot of money in index funds (~50%), divestment seems close to impossible. Unless index funds specifically were pegged to non-fossil fuel indexes, they will alway be investing in those companies. This seems likes the investment version of the plastic straws ban: ineffectual at best.
  - dragonwriter 7y ago
    > Also, markets price in these sorts of things. Markets price in the expected value of them, but since if divestment works, the impact is driven by the funds-available-for-investment weighted aggregate of public opinion, markets can only price it in if they have advance knowledge of both the content and wealth-distribution of future public opinion. Which they obviously don't. (Even if they did, all this would be saying is "if divestment works, then it not only works but works retrocausally to reduce the stock price even before the decision to divest occurs." Which, whatever it is, isn't an argument against divestment.) If divestment was a real threat, that would already be factored into the price.
  - parasubvert 7y ago
    > When was the last time a fossil fuel company raised capital? cough all the time? Fracking projects, refineries, exploratory initiatives, site/rig expansions... through bonds and equity partnerships. Capital is their life blood for anything new. Source: I live in an energy state
BurningFrog 7y ago
> It's true that divestment drives down the stock price. I find that hard to believe. Stock prices are set by the profitability of the company. This doesn't change by investors divesting. Only if you manage to get a 100% boycott could that happen, but then it would be insanely profitable to break the boycott and cash in. To me divestment just looks like a form of shunning. People think some companies are disgusting, and our tribal instincts are to throw them out of the tribe. In 2019, this urge can be satisfied by selling stock, which shows what a flexible, yet primitive, primate species we are :)
- peeters 7y ago
  > Stock prices are set by the profitability of the company. No, stock prices are driven by demand. The most dominant factor in determining demand might be profitability for some investors, but it's one of many (stability, risk, ethics are all other factors). Even saying profitability is the dominant factor for stock prices is dubious, since many unprofitable companies have outrageously high stock prices based on speculation of growth. If demand dropped enough in spite of profitability, it would reduce the stock price.
  - BurningFrog 7y ago
    > Even saying profitability is the dominant factor for stock prices is dubious Sure I simplified, and you're right that it's more the expected future profitability than the current one that's important. > If demand dropped enough in spite of profitability, it would reduce the stock price. Technically true, I guess, but pretty meaningless. To me that's a tautology, boiling down to that if the stock price falls then the stock price falls. I'm not sure you appreciate the armies of analysts who crunch the numbers for every possible investment, trying to spot under- or overvalued companies and make a profit on their deeper insight. Even if 95% or 99.9% of investors decline to invest in companies with the right numbers, there will always be a few who will gladly take the free money. Maybe that's the disconnect here. The "Divest People" think of this as a democracy where you have to sway the majority. But that's not at all how the markets work.
bigYahnz 7y ago
Where else can I get a 6-10% tax deferred growing dividend?
MiroF 7y ago
> But that's non-investment, not divestment. Divestment is about selling existing stock. I'm not sure this distinction makes sense when you're talking about things like sector funds

bcoates 7y ago

I think it assumes that large investors aren't really passive, but intervene on behalf of their investments. If you convince someone to divest from X, then they have the luxury of remaining neutral when you propose that X be destroyed.

gbrown 7y ago
Exactly, carbon regulation will be a lot easier to pass if the direct impact to peoples' finances is lessened.
- facorreia 7y ago
  But some other investor bought the stock, didn't they?
  - gbrown 7y ago
    Perhaps, though most people don't buy stock. If you can get institutional investors to divest, that limits most people's direct exposure. Do I expect it to necessarily make a big difference (especially in the short term, without becoming a broader movement)? No. I do believe, however, that it's not nothing, and that we need to pursue everything. There's also a personal aspect - I want nothing to do fossil fuel stocks. I try to limit my emissions in my personal life, so why not exercise that preference in whatever small way I can in my financial life?
    - jpttsn 7y ago
      We need to pursue _everything_? Your time is surely scarce. Wouldn’t you want to pursue only the most effective things? Every minute you spend arguing for divestment is a minute you don’t spend arguing for nuclear.
      - MiroF 7y ago
        Yes but if everyone is vested in fossil fuels nuclear won't happen, don't you see?
      - gbrown 7y ago
        Ok, sure - pardon my use of expressive and imprecise language. I meant that we should pursue everything feasible from among the set potentially helpful or promising actions in as sensible a way as we can (infer a few more sensible qualifiers if you wish). Spending a couple minutes to switch my retirement allocations doesn't affect my ability to advocate for other policies. What I think we definitely want to avoid is the temptation to see an incomplete or minimally effective action (in the current context) and dismiss it, while we wait for a silver bullet. For example: "Individual actions aren't going to be enough, we need regulation. I might as well fly instead of drive." "Your divestment isn't going to make a difference, so don't bother." Both of those statements contain kernels of truth, but miss the fact that individual actions do have consequences in the aggregate, and cultural change is possible (and is one way to motivate policy change!).

cortesoft 7y ago

They use the example of South Africa, but that was a very different process. It wasn't just about not investing in South African companies... it was about not buying their goods, too. Is part of this 'divestment' also about not investing in the purchasers of fossil fuels? Or reducing consumption in any way? It doesn't sound like it.

gruez 7y ago
>They use the example of South Africa, but that was a very different process. It wasn't just about not investing in South African companies... it was about not buying their goods, too. So boycotting? Not sure what's the point of bundling something that's actually effective (boycotts) with something with questionable effectiveness (divestment).

sideshowb 7y ago

I think Ha Joon Chang suggested that managers will likely receive reduced bonus, or in extreme cases fear losing their jobs, if their actions lead to drop in share price?

kerkeslager 7y ago
But the managers' actions aren't leading to a drop in share price, it's divestors' actions that are leading to the drop in share price, and this would be obvious with any divestment effort large enough to create an effect.
- benj111 7y ago
  But managers can stop doing the thing that leads to divestment (or so the theory goes).
- sideshowb 7y ago
  The managers bear ultimate responsibility for continuing the actions which investors dislike.
  - kerkeslager 7y ago
    But divestors aren't investors any more. I really find it hard to believe that someone would be fired for doing fossil fuel company things at a fossil fuel company because of divestment.
    - sideshowb 7y ago
      The threat is that more existing investors might divest. Some of the fossil fuel companies are putting significant investment into 2nd generation biofuels, I guess because they have the potential to leverage existing infrastructure. But possibly also because they care what divestors think.

kulkarnic 7y ago

Possibly -- you sell stock in fossil fuel companies, and reinvest in some other, hopefully more sustainable, company. It's not the divestment part that helps, it is the reinvestment.

kerkeslager 7y ago
Okay, if that's the case, then say "investing in sustainable companies" rather than "divesting from fossil fuel companies" because doing the latter does not imply that you are also doing the former. And by the same logic I mentioned, you'd still have to be buying the stock from the company itself, not from someone else, to ensure that you're actually helping them. If a company isn't selling their stock, it's not at all clear that buying their stock from someone else helps the company.

andylei 7y ago

This explains it pretty well: https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-Reward-Or-One-Mans-Ceiling-is-Another-Mans-Floor https://www.aqr.com/Insights/Perspectives/Virtue-is-its-Own-...

thereisnospork 7y ago

If anything, shouldn't the green contingent buy more stock in oil companies to try and effect a hostile takeover?

zopa 7y ago
That seems very unlikely to be the most cost-effective use of capital. Exon Mobile has a market capitalization of $309 billion. So figure $200 billion for a hostile takeover --- that's approaching the yearly cost of a Green New Deal plans, and you've only taken out one fossil fuel company.
- TaylorAlexander 7y ago
  It would make a great 80's style underdog movie though. Some scrappy kid scrapes together $200B to take over Exxon Mobile.
- Cyph0n 7y ago
  And the remaining companies would probably swoop in to fill the void, so you’d end up doing nothing.
- thereisnospork 7y ago
  To do some really grotesque napkin math, there are about 7 major oil companies. On paper then the vast bulk of the liquid + gas fossil fuel market could be taken over and their combined resources diverted entirely towards green in perpetuity for less than a decade of the GND. Will never happen, but an interesting thought experiment maybe.

Havoc 7y ago

>I'm pretty unclear on how anyone even thinks divestment works, actually. Bank/major fund/major anything announces no more coal investment. If you a early stage/small player that just took the jam out of your doughnut. >But that's non-investment, not divestment. Same thing at sector scale.

hinkley 7y ago

If I own shares in a retailer and I decide that, say, soda is bad, I can try to use my shareholder rights to talk to them about how prominently they display soda and possibly reducing their shelf real estate for soda. But what if I own shares of a soda company? What exactly should I do in that case? Try to convince them to exit their primary market and become an entirely different company? Why would I waste my time and energy that way? It makes absolutely no sense to invest in one kind of company and then insist they become something else. Find another company that is conceptually similar to what you had in mind and invest your time and money in them instead. Get energy companies to invest in not-coal and not-natural gas, sure, but investing in a petroleum or coal company so you can vote? What exactly do you think you are going to vote for? Suicide?

fkdo 7y ago
Theoretically if 51% of ownership of an oil company wants to seal all oil wells isn't that what the company should do?
- sigstoat 7y ago
  certainly they could elect board members who'll hire CEOs to execute that plan.
  - simonh 7y ago
    Then minority’s shareholders will sue because their share value declined and the board’s legal obligation is to pursue shareholder value, not do what the majority owners of company want them to do. I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected.
    - dragonwriter 7y ago
      > the board’s legal obligation is to pursue shareholder value No, its not. > not do what the majority owners of company want them to do. Actually, the purpose laid out in most corporate charters is, within the law, to do exactly that. > I’m torn on that, but minority’s shareholders have a legitimate expectation their rights should be protected. They have a legitimate expectation that their rights should be protected, but the right you are basing this argument on does not exist.

OBLIQUE_PILLAR 7y ago

Divestment pushed South Africa to abolish apartheid.

armenarmen 7y ago
Yeah, but countries != companies. Divesting from SA meant smaller tax base, fewer jobs and a fall from international prominence. Divesting from a company/industry means that the stock price may fall. Assuming that the actual profitability of the company remains unchanged all divesting did was make the stock a better buy.
- dr_dshiv 7y ago
  Why wouldn't SA companies simply become a better buy?
  - ineedasername 7y ago
    Because people actually stopped buying the products along with not investing in companies. The equivalent with fossil fuel investment would be that people actually stop using fossil fuels, which isn't what happens with divestment.

repsilat 7y ago

> However, if you drive down the stock price, it's just as likely that you'd be allowing the company to buy back its own stock at a bargain price, which could help the company by allowing them to retain greater control. Stock buybacks shrink the size of the company. They lose money they could otherwise use to (say) drill for oil, instead returning it to shareholders' hands to deploy in other ways. That sounds like a win for divestment to me. "Less likely/more painful to raise money" and "more likely/less painful to buy stock back" are two sides of the same coin, both meaning less money invested in the business.

noego 7y ago

The argument made by most economists and Bill Gates is that divestment does not drive down the stock price, unless it is practiced by a overwhelming majority of all investors. The reasoning is that anyone not participating in the divestment scheme will simply bid the share price back up to near the market value. If divestment did indeed drive down share price, it would succeed in hurting the company. The company would have to issue more shares when raising capital in future. It would also have to issue its employees more shares to remain competitive in compensation.

mikemotherwell 7y ago
Is capital raising relevant? When was the last time a fossil fuel company raised capital? How is that the way to hurt a company? Also, markets price in these sorts of things. If divestment was a real threat, that would already be factored into the price. It is partly why the P/E ratio of BHP is 13.94, whereas it is 75.56 for Amazon. Lastly, with a lot of money in index funds (~50%), divestment seems close to impossible. Unless index funds specifically were pegged to non-fossil fuel indexes, they will alway be investing in those companies. This seems likes the investment version of the plastic straws ban: ineffectual at best.
- dragonwriter 7y ago
  > Also, markets price in these sorts of things. Markets price in the expected value of them, but since if divestment works, the impact is driven by the funds-available-for-investment weighted aggregate of public opinion, markets can only price it in if they have advance knowledge of both the content and wealth-distribution of future public opinion. Which they obviously don't. (Even if they did, all this would be saying is "if divestment works, then it not only works but works retrocausally to reduce the stock price even before the decision to divest occurs." Which, whatever it is, isn't an argument against divestment.) If divestment was a real threat, that would already be factored into the price.
- parasubvert 7y ago
  > When was the last time a fossil fuel company raised capital? cough all the time? Fracking projects, refineries, exploratory initiatives, site/rig expansions... through bonds and equity partnerships. Capital is their life blood for anything new. Source: I live in an energy state

BurningFrog 7y ago

> It's true that divestment drives down the stock price. I find that hard to believe. Stock prices are set by the profitability of the company. This doesn't change by investors divesting. Only if you manage to get a 100% boycott could that happen, but then it would be insanely profitable to break the boycott and cash in. To me divestment just looks like a form of shunning. People think some companies are disgusting, and our tribal instincts are to throw them out of the tribe. In 2019, this urge can be satisfied by selling stock, which shows what a flexible, yet primitive, primate species we are :)

peeters 7y ago
> Stock prices are set by the profitability of the company. No, stock prices are driven by demand. The most dominant factor in determining demand might be profitability for some investors, but it's one of many (stability, risk, ethics are all other factors). Even saying profitability is the dominant factor for stock prices is dubious, since many unprofitable companies have outrageously high stock prices based on speculation of growth. If demand dropped enough in spite of profitability, it would reduce the stock price.
- BurningFrog 7y ago
  > Even saying profitability is the dominant factor for stock prices is dubious Sure I simplified, and you're right that it's more the expected future profitability than the current one that's important. > If demand dropped enough in spite of profitability, it would reduce the stock price. Technically true, I guess, but pretty meaningless. To me that's a tautology, boiling down to that if the stock price falls then the stock price falls. I'm not sure you appreciate the armies of analysts who crunch the numbers for every possible investment, trying to spot under- or overvalued companies and make a profit on their deeper insight. Even if 95% or 99.9% of investors decline to invest in companies with the right numbers, there will always be a few who will gladly take the free money. Maybe that's the disconnect here. The "Divest People" think of this as a democracy where you have to sway the majority. But that's not at all how the markets work.

bigYahnz 7y ago

Where else can I get a 6-10% tax deferred growing dividend?

MiroF 7y ago

> But that's non-investment, not divestment. Divestment is about selling existing stock. I'm not sure this distinction makes sense when you're talking about things like sector funds