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Don't Stop with Divestment

Don’t Stop With Divestment

Author:

Sloane Ortel

Founder and Chief Investment Officer of Ethical Capital.

Fossil duel divestment is all the rage these days, with bellwethers like the Harvard University endowment joining a decades-long movement to banish hydrocarbons from their investment programs.

According to the Global Fossil Fuel Divestment Commitments Database, they join 1500 other institutions representing a total of $39.88 trillion that have taken such steps. To people who care about the environment, this is great news! Surely the first step towards a post-carbon economy is to stop investing in new coal, oil, and gas projects. And grassroots groups like 350.org have done a great job mobilizing people through their go fossil free campaigns.

But what happens after they succeed?

Once one arrives at the conclusion that these hydrocarbon-intensive undertakings no longer belong in a long-term investment portfolio, I would suggest that it becomes natural to look around and see what else is potentially unfit for investment. After all, the energy industry isn’t the only one with moral shortcomings.

Sadly, they abound.

Most proponents of divestment understand this, acknowledge it, and are hoping that shifting assets away from these retrograde industries is the first step in a more comprehensive remaking of our financial system. But in general, they lack the deep financial expertise to translate that hope into a set of tangible proposals.

So let’s jump start that conversation, shall we?

At Ethical Capital, our process compels us to draw barriers of acceptability in the capital markets. That’s because some practices – like commodifying animals through the sale of furs and hides – are reprehensible enough that we place any company that engages in them on a “naughty list” and exclude them from our investment portfolios.

From a philosophical standpoint, it’s important that we not make these evaluations in a vacuum. Though we might be intuitively motivated to align with certain causes over others, any honest exploration of problematic corporate practices will reveal many intersecting issues that cannot be examined in isolation.

Divestment Campaigns Are Narrow By Necessity

Thinking broadly about these issues is contrary to the prevailing trend in sustainable asset management, which seems to emphasize picking one cause, examining its impact, and creating a portfolio that narrowly reflects it.

Many divestment campaigns unwittingly endorse this approach, since their advocacy is centered on a relatively narrow issue. I don’t mean to minimize the work that they do. These campaigns are profoundly mobilizing, and tend to kick-start an institution’s ability to think about sustainable investing in the way that only public attention can.

But it would be ideal if they could also advocate for regenerative approaches to investing that would never have bought fossil fuels in the first place. Because what happens after they win?

Though it might be tempting to count each institution’s divestment as a victory, it won’t amount to much in the long term if they don’t commit to reforming the mindset that led to purchasing those positions in the first place. And the only way to do that is to move into a more positive frame of mind, where the focus is on what they will do, rather than what they won’t.

How To Do More Than Divestment

The challenge when moving from a narrow engagement to a broader, longer-term one is that it can be hard to identify what goals to work towards. It’s one thing to express a vague ambition to use one’s portfolio to help people and the planet, but a different thing entirely to translate that into an investment program that is capable of meeting your personal, organizational, and ethical goals.

Fortunately, there are a few questions you can ask that will help identify a path forward. Whether you’re managing your own money, considering the best way to make change within your university, or just trying to understand ethical investing more broadly.

  • Who manages the money? The asset management industry has an abysmal track record when it comes to diversity and inclusion. And often, the people making actual investment decisions aren’t able to benefit from a broad diversity of experiences when they set out to make investment decisions. So be mindful about who you trust, and try to team up with people who actually share your values?
  • What is their approach to investing in climate solutions? Do your best to look past vague “vanity” metrics and get a sense of the outcomes that the companies you have entrusted your assets to are trying to create. There are countless “low-carbon” portfolios that produce little real-world impact, load up on technology stocks with questionable ethics, and try to paint themselves as champions of change.
  • Where does ethics sit in their investment process? Traditional asset managers tend to try and separate ethical questions about what they fund from standard questions around risk and return, which can lead to a confused portfolio. Asking probing questions about the role of ethics in their investment process can help to highlight whether they’re really capable of adjudicating the complex moral issues that often arise in the capital markets.

Whatever you decide to do, I hope you’ll feel like Ethical Capital is available to you as a resource. We are committed to publishing as much useful content here as we can, and would relish the opportunity to help you in your sustainable investment journey. Please don’t hesitate to talk to us whenever you think we might be able to help!

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