Andy Howard: Want to invest ethically? It's not that simple, sadly

The founder of the research firm Didas Research says selling shares won't make oil or tobacco companies shut up shop or wind down

Andy Howard
Andy Howard

The criticism Comic Relief attracted in 2013 for its holdings in controversial companies has pushed charities' investment policies up the agendas of trustees. More recently, initiatives such as 350.org and the UN's Montreal Pledge – both of which call for investors to sell their shares in fossil fuel companies – have added more pressure. Initiatives that encourage people to sell their investments in tobacco companies, defence businesses or other targets offer a tangible way for charities to make their portfolios more ethical - and they send a clear message to donors that the charities don't support what these firms stand for.

It's unfortunate, therefore, that the fundamental rationale for divestment of this kind is so shaky. The reality is that shareholders no longer provide capital to most companies. Selling your shares in, for example, Shell and investing the money in a more ethical alternative neither deprives Shell of any money nor hands any to the alternative company – all that happens is that money moves from one group of investors to another. There is no evidence that selling shares will lead oil or tobacco companies to shut up shop or wind down. It could happen in the case of smaller firms, which rely on new investments to grow, but these are rarely mentioned in the ethical divestment debate.

So before charities jump in and divest from particular firms, it is worth both querying campaigners about how this will affect those companies and their activities, and making a clear distinction between avoiding negative publicity and addressing social or environmental challenges in an effective way.

Andy Howard is founder of the research firm Didas Research, which focuses on long-term investing

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