Divestments means the selling or disposing of shares or other assets. Changes in corporate behaviour or investment policies can lead investors to reduce or eliminate investments.
Investors who practice active ownership often view divestment as the last resort. In some cases, continuing to invest in a company which has been identified as causing or contributing to adverse impacts may pose reputational and financial risks to investors. In such cases it may be in the pension fund’s interest to publicly explain their decision to stay invested, how this align with their ESG Policies and what action they are taking to attempt to apply leverage to mitigate the impacts and how the investment will continue to be monitored.
However, should the company fail to respond to all engagement attempts and the negative impact prevails, a response for investors may be to divest. Some factors to consider when deciding if divestment is an appropriate response include the investors leverage over the company and the severity of the impact.