Debating Divestment and Shareholder Activism on Campus

Earlier this month, I was invited by the University of Washington (UW) to speak to their Board of Regents on divestment and shareholder activism.

I have a history with UW.  In the mid-1990s, I helped the UW Free Burma Campaign student group successfully lobby the Board of Regents to join the shareholder campaign on Burma. To this day, UW remains the only university endowment to co-file shareholder resolutions on Burma, which they did for a decade at PepsiCo and Unocal.

More recently, I have advised the students at Divest UW in their ”call upon the University of Washington to divest from the top publicly-traded companies that own the majority of carbon reserves and reinvest in socially responsible funds.”  My main advice was that they should also explore with UW the opportunities to engage in broader shareholder activism on climate change, particularly with the electricity utilities, in conjunction with the Investor Network on Climate Risk.

After rallies at the UW Board of Regents and dialogue with UW’s Treasurer’s office, UW Divest posted on Facebook in November 2013: “Our decision to stand with the Treasury in support of ESG, 25 million dollars in new green energy investment and shareholder advocacy (for as long as we continue to hold fossil fuel-related assets) was an unorthodox step for a divestment campaign, but we believe that, given the circumstances, it was the right move to make.”

UW Board of Regents has continued to receive additional calls to divest its endowment from all fossil fuel companies, private prisons, and corporations operating in the Occupied Territories of Israel/Palestine.  To help develop an overall policy on calls for divestment, the UW Treasurer’s office invited me to join them in making a presentation on June 9th to the Board of Regents.

The discussion by the regents was informed and wide-ranging. Many of the regents saw the value of pursuing more shareholder engagement. Joel Benoliel attested to the power of shareholder resolutions in changing corporate behavior that he witnessed as Corporate Secretary of Costco. I’m optimistic that UW will move further in this direction.

A copy of my written presentation is below.


Presentation to: University of Washington Board of Regents

June 9, 2016

Shareholder Activism and Divestment: Key Considerations and Decision Points

Simon Billenness, President, CSR Strategy Group  

Executive Summary

  • What is the Right Moral Choice? Ethical Investment vs. Socially Responsible Investment
  • What is the Impact? Divestment vs. Shareholder Activism
  • What Are the Steps of Shareholder Activism?

What is the Right Moral Choice?  Ethical Investment vs. Socially Responsible Investment

Many investors decide to incorporate moral criteria in their investments to express their values.  In such cases, it is important to distinguish between the two ways in which investors can express their values: ethical investment and socially responsible investment.

Ethical investment is the approach whereby investors first define their moral values or mission.  Then the investor evaluates the industry sectors and companies in its portfolio against those values.  An example would be a healthcare foundation with a mission that is counter to investing in tobacco companies.

Ethical investment is an approach that is inward-focused.  It is implemented primarily through divestment of companies that fail to meet certain moral criteria.

Socially responsible investment is the approach in which investors evaluate the impact that its portfolio companies have on society and the environment. Socially responsible investors seek to use their power as shareholders to bring them in line with their values.

Socially responsible investment is an approach that is more outward-focused. It is implemented primarily through shareholder activism that may include direct dialogue with portfolio companies and the filing of resolutions at annual shareholder meetings.

Mission-based investors, such as religious institutions, need to consider how they wish to express their values through a combination of ethical investment (exclusion and divestment) and socially responsible investment (shareholder activism).

That decision should be informed by an understanding of the relative impact of stock divestment versus shareholder activism.

What is the Impact? Divestment vs. Shareholder Activism

Divestment (or exclusion) of stock by an investor is primarily a symbolic action. It involves an investor divesting itself of stocks by selling them to another investor.  It has no direct impact on the company or its bottom line.  In most cases, the company will not be aware of the divestment unless it is sufficiently large or made public.

The symbolism of divestment can be significant politically. In politics symbolism is powerful and can be used to effect political change. Divestment of stock – particularly by universities, cities, and state governments, of companies doing business in apartheid South Africa was an effective organizing tool in putting grassroots pressure on Congress to enact sanctions on South Africa in the 1980s. Today, divestment of stock in fossil fuel companies is similarly helping to organize a similar grassroots movement to force governments to counter climate change.

Divestment may have impact on an investor’s financial returns.  Divestment can be ill-timed in terms of stock market prices and/or expensive in terms of transaction costs.  By limiting the scope of investable stocks, divestment may reduce future portfolio returns. This is important to any investor, such as a university endowment, with a fiduciary duty to maximize its investment returns.

Shareholder activism involves investors using their power as shareholders to press companies to change their behavior. Shareholder activism can range from private conversations with company officials to publicly filing shareholder resolutions and using the publicity around a company’s annual shareholder meeting to press for specific changes in a company’s policy and practices.

Shareholder activism also demonstrates symbolic power that is politically significant. When the Free Burma movement emerged in the 1990s, Free Burma activists called on investors not to divest their stock but to vote their shares in favor of shareholder resolutions that put pressure on companies to withdraw from Burma.  I worked with the UW Seattle Free Burma group in the mid-1990s in their successful campaign to persuade the Board of Regents to join other shareholders in co-filing resolutions at PepsiCo and Unocal.  PepsiCo subsequently withdrew from Burma amid pressure on university campuses.  The Free Burma campaign was also successful in using grassroots pressure to lobby Congress to enact its first sanctions on Burma in 1996.

Shareholder activism puts continual pressure on companies.  Unlike stock divestment, which is a one-time action, shareholder activism can be used by investors again and again.  Moreover, shareholders can escalate their pressure on companies by starting with a simple dialogue and later adding more weight by supporting and filing shareholder resolutions and other, more public forms of power.

Shareholder activism has demonstrated track record of changing company behavior.  This can be seen across a broad range of environmental, social, and governance issues. Through organizations – such as the Interfaith Center on Corporate Responsibility, Ceres/Investor Network on Climate Risk, and Council of Institutional Investors – religious institutions, public pension funds, socially responsible investment firms, trade unions, and university endowments have worked together to produce a significant record of achievement in changing the behavior of companies and entire industries.

Shareholder activism works in changing company behavior.  But it is not effective in forcing companies to abandon their core business.  In the case of companies with a harmful core business, such as the tobacco companies, investors have generally preferred to divest their stocks rather than engage in shareholder activism.

Some stock divestment campaigns have later shifted to advocating for shareholder activism.  The Genocide Intervention Network transformed its project, the Sudan Divestment Task Force, into the Conflict Risk Network as it shifted tactics from advocating stock divestment to calling for shareholder activism. This was due to a realization by the organization that shareholder activism was more effective than stock divestment in putting pressure on companies to stop doing business with the Sudanese government.

Shareholder activism has no impact on overall portfolio returns.  This approach does not alter an investor’s portfolio.  It simply ensures that the investor uses its power as a shareholder with the stocks that it owns.  This is important to any investor, such as a university endowment, with a fiduciary duty to maximize its investment returns.

What Are the Steps of Shareholder Activism?

Shareholder activism works in changing company behavior.  But it is not effective in forcing companies to abandon their core business.

Typically, investors will experiment with increasingly stronger forms of shareholder pressure to discover which, if any, result in the desired changes in corporate behavior.  Steps in shareholder activism include:

  • Private dialogue with company executives or board members
  • Public letter to company followed by further dialogue
  • Private and/or public dialogue with company in collaboration with other shareholders, likely through ICCR, CERES, CII, or other shareholder organization
  • Filing a shareholder resolution
  • Soliciting the support of other shareholders for a resolution either directly or through proxy advisory services
  • Supporting alternative, independent director(s) for election to the board of directors

Investors can make many asks of companies short of exiting their core business.

In the case of fossil fuel companies, shareholders can address climate change by pressing companies to:

  • End fugitive emissions of methane gas in a company’s extraction and transportation of natural gas
  • Fully respecting communities right to free, prior, and informed consent to any corporate operations in their community
  • Disclose or end lobbying of elected officials in opposition to government regulations and curbs on emissions of carbon dioxide and other global warming gases
  • Shift investment away from exploration and development of new carbon-based fuels and instead direct the funds to investments in renewable energy or returning the cash to investors as dividends

In the case of private prison companies, shareholders can press companies to:

  • End abusive practices on prisoners, such as use of stun belts
  • Improve overall prison conditions
  • Shift from punitive to rehabilitative treatment of prisoners
  • End lobbying for laws that increase demand for incarceration, such as new restrictions and crackdowns on undocumented immigrants and mandatory sentencing of non-violent drug offenders


3 thoughts on “Debating Divestment and Shareholder Activism on Campus

  1. I agree that divestment is primarily a symbolic action that has no direct effect on the company.

    But you contrast divestment with socially responsible investing, which you describe as shareholder activism.

    What about socially responsible investing involving buying securities in clean energy and energy efficiency companies? To me, the value of divesting is that it can provide funds for such socially responsible investing. As Archbishop Tutu said, “Move your money out of the problem and into solutions.”

    It’s estimated that we need to invest, worldwide, $1 trillion per year for, I think, around 30 years to make the transition from a fossil fuel economy to a clean energy economy. Divestment can help to provide those funds.

    Also, you discuss shareholder activism with fossil fuel companies. How about shareholder activism with other companies, encouraging them to become more energy efficient, etc.? Companies might be willing to do that because it would save them money.

    • Positive screening or favoring investment in companies providing solutions to climate change, such as wind and solar power, is a long-standing practice of socially responsible investors, such as the UU Common Endowment Fund (UUCEF). For many years by screening out many companies, including most fossil fuel companies, the UUCEF has already investment towards clean energy companies.

      More recently, UUCEF has participated in the Clean Trillion initiative of Ceres to increase annual global investment in clean energy to at least $1 trillion by 2030.

      More information on the Clean Trillion is here:

      The heated debate over divestment or activism with the fossil fuel companies has taken away attention from other effective ways to stop climate change. For instance, shareholder activists have played a role in the Beyond Coal campaign of the Sierra Club and other groups that has helped bankrupt the coal mining companies by successfully pressing electric utilities, the biggest buyers of coal, to shift to renewable energy and conservation efforts. Shareholder activism is already being used effectively to press big users of fossil fuels to shift to renewable energy, which does indeed save money!

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