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.

Source: https://www.ft.com/content/814cbd2c-00db-41b7-91af-28435301a8a2