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It's really "threat that more people will want to divest or remain divested when they would have otherwise invested" that can cause change. The board answers t

It's really "threat that more people will want to divest or remain divested when they would have otherwise invested" that can cause change. The board answers to the shareholders, and shareholders generally want to be able to sell their shares at a profit. If shareholders start to believe that the market for the shares is going to continuously decline because of some activity the company engages in, that creates an incentive to pressure the company to change behavior.

shkkmo 7y ago
Rising stock prices is not the only way or even the primary way that companies generate returns for their investors. Many oil companies pay dividends to their stockholders and these can outweigh the gain from increasing stock prices. BP, for example, uses a significant amount of their cashflow to pay dividends and buy back stock. Their current dividend return is ~6% and has varied between ~2% and ~8% over the last 10 years meanwhile their stock price has fluctuated (by a significant amount) in the 30s and hasn't produced any meaningful gains in value for the average "Buy and hold" investor. Long term holders of BP stock make their money from dividends, not from increases in value in the BP stock. Making that stock cheaper just means that the dividend rate of return goes UP.
- dannypgh 7y ago
  It is true that stocks are assigned some value based on expected future dividends, but this only one component of the value of a share, and for any company undergoing a divestment campaign, this will shift. A publicly traded Ponzi scheme can maintain a 10% yield for 10 years with only an IPO.
  - shkkmo 7y ago
    I don't think I understand your point. Did I ever claim that expected dividend returns are the only factor in stock price? > for any company undergoing a divestment campaign, this will shift. Since you don't specify, I will presume that you are implying that the "shift" would be an decrease in the portion of the value of the stock that is derived from expectations of future resale value. High dividend companies will thus be less susceptible to divestment campaigns as their stock's value is less dependent on that future resale value. If divestment happens gradually enough, it is potentially feasible for stock buybacks to somewhat compensate. With companies (such as BP) that do both buybacks and dividends (and aren't thus aren't raising capital by selling stocks), the lower stock price directly helps the company buy back more stocks which then reduces the costs of dividends and makes the company financially stronger. As long as enough of their remaining shareholders don't make waves (because they like the idea of a stronger company that will be more likely to continue paying dividends) divestment is actually beneficial to that company. As I mentioned elsewhere, I think coordinated, contingent and relatively quick divestment has the greatest potential for motivating share holders to demand changes from the company to protect stock price. This sort of control is ONLY possible if you haven't already gradually divested your stock. This sort of shareholder activism does have great potential, but it is rarely done out of concern for morality or society rather than profit. So it seems to me that if environmental activists want to influence the behavior of oil companies, they would be better served by buying and holding oil company stock and becoming activist investors. (I agree with Bill Gates the best result for the planet is served by taking that money and investing it into green tech companies.) Note that companies (such as BP) are only as invulnerable to divestment as they are because of they don't need to raise money by selling stocks. In a situation such as South Africa in the 1980s, their need to raise money by selling stocks made the country much more vulnerable to a divestment campaign. (It also helped that South Africa in the 1980 had a GDP of ~250MM after inflation and that is ~1/1000th of BP's current gross revenue)
nabla9 7y ago
That's good attempt at reasoning, but it's incorrect. Oil and gas industry is stable and established industry where the earnings and dividend yield makes the return for the investment. The stock prices are in long term decline. They are not growth stocks. If P/E drops because divestment and earnings stay the same, it will generate extra ROI for investors. To get you into the same page, consider BP and Royal Dutch Shell Company: BP dividend yield: 6% (2018), P/E : 14.67, 10y stock price : -46% Company: Royal Dutch Shell (RDS) dividend yield: 6% (2018), P/E : 11.70, 10y stock price : -30% SP500 price index is up 114% during the same period.

shkkmo 7y ago

Rising stock prices is not the only way or even the primary way that companies generate returns for their investors. Many oil companies pay dividends to their stockholders and these can outweigh the gain from increasing stock prices. BP, for example, uses a significant amount of their cashflow to pay dividends and buy back stock. Their current dividend return is ~6% and has varied between ~2% and ~8% over the last 10 years meanwhile their stock price has fluctuated (by a significant amount) in the 30s and hasn't produced any meaningful gains in value for the average "Buy and hold" investor. Long term holders of BP stock make their money from dividends, not from increases in value in the BP stock. Making that stock cheaper just means that the dividend rate of return goes UP.

dannypgh 7y ago
It is true that stocks are assigned some value based on expected future dividends, but this only one component of the value of a share, and for any company undergoing a divestment campaign, this will shift. A publicly traded Ponzi scheme can maintain a 10% yield for 10 years with only an IPO.
- shkkmo 7y ago
  I don't think I understand your point. Did I ever claim that expected dividend returns are the only factor in stock price? > for any company undergoing a divestment campaign, this will shift. Since you don't specify, I will presume that you are implying that the "shift" would be an decrease in the portion of the value of the stock that is derived from expectations of future resale value. High dividend companies will thus be less susceptible to divestment campaigns as their stock's value is less dependent on that future resale value. If divestment happens gradually enough, it is potentially feasible for stock buybacks to somewhat compensate. With companies (such as BP) that do both buybacks and dividends (and aren't thus aren't raising capital by selling stocks), the lower stock price directly helps the company buy back more stocks which then reduces the costs of dividends and makes the company financially stronger. As long as enough of their remaining shareholders don't make waves (because they like the idea of a stronger company that will be more likely to continue paying dividends) divestment is actually beneficial to that company. As I mentioned elsewhere, I think coordinated, contingent and relatively quick divestment has the greatest potential for motivating share holders to demand changes from the company to protect stock price. This sort of control is ONLY possible if you haven't already gradually divested your stock. This sort of shareholder activism does have great potential, but it is rarely done out of concern for morality or society rather than profit. So it seems to me that if environmental activists want to influence the behavior of oil companies, they would be better served by buying and holding oil company stock and becoming activist investors. (I agree with Bill Gates the best result for the planet is served by taking that money and investing it into green tech companies.) Note that companies (such as BP) are only as invulnerable to divestment as they are because of they don't need to raise money by selling stocks. In a situation such as South Africa in the 1980s, their need to raise money by selling stocks made the country much more vulnerable to a divestment campaign. (It also helped that South Africa in the 1980 had a GDP of ~250MM after inflation and that is ~1/1000th of BP's current gross revenue)

nabla9 7y ago

That's good attempt at reasoning, but it's incorrect. Oil and gas industry is stable and established industry where the earnings and dividend yield makes the return for the investment. The stock prices are in long term decline. They are not growth stocks. If P/E drops because divestment and earnings stay the same, it will generate extra ROI for investors. To get you into the same page, consider BP and Royal Dutch Shell Company: BP dividend yield: 6% (2018), P/E : 14.67, 10y stock price : -46% Company: Royal Dutch Shell (RDS) dividend yield: 6% (2018), P/E : 11.70, 10y stock price : -30% SP500 price index is up 114% during the same period.