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  • Writer's pictureGustavo Bernal Torres

The ESG Investor’s Dilemma: to Engage or Divest?

Asset managers are debating whether it is time to get tough with problem companies-

  • Seen historically as a pressure tactic reserved for students and religious investors, divestment has become an issue that the world’s biggest asset managers can no longer ignore.

  • But divestment comes at a cost. Investors might lose out on juicy returns in legal and profitable — albeit controversial — companies. They also lose their voice as partial owners of a company when they sell their stakes.

  • In a 2020 paper on the debate over engagement versus divestment, a trio of professors at the Universities of Trento, Harvard and Chicago found that exiting is less effective than engagement in pushing companies to act in a socially responsible manner. There is no guarantee that a divestment will achieve a desired social goal, while consistent badgering can.



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