Understanding Divestment
Many campaigns call for divestment. But few understand what it means practically, and how this differs between different types of financial investment.This site provides an easy overview to help activists understand divestment and shape their demands. We focus only on divestment of financial assets, and not divestment of wider relationships (such as academic partnerships).This is a website by the Capital Shift Project.
The basics
How do big organisations actually invest?
Big organisations like universities and pension funds invest in many different types of financial 'asset'. This includes stocks and shares (ie companies listed on the stock market); government debt; corporate debt; and directly in companies in return for an ownership stake.When an investor buys corporate debt, or provides capital via a private market or venture capital investment, they are giving money to the company directly. This often enables the company to expand their activities as they have more money available to spend. Some investors also buy corporate debt or outstanding loans from other investors on the secondary market.When an investor buys a share in a company, they usually buy from another investor on the secondary market. A share is a bit like a second hand good: once it has been bought from the company, investors buy and sell shares between eachother.When investors own shares in a publicly listed company, this also gives them a say in the company’s operations by voting at annual general meetings (AGMs). This includes voting on company resolutions, such as re-electing directors and approving pay packages. Shareholders can also bring forward their own resolutions to ask the company to take a certain action. However, this is often done by investors without clear escalation steps or consequences for the company failing to act.When investors buy debt or provide loans they typically do not have the right to vote on company operations. However, they can choose not to provide additional money at the end of the period by refinancing loans or buying new debt.Investors may also purchase sovereign debt, or ‘gilts’: debt issued by a country or federal state. Bonds from major economies such as the US, UK and Japan are seen as very safe investments, and so favoured by pension funds and other investors seeking long-term, stable returns.When people call for divestment, they often mean stocks and shares, and do not often consider other kinds of investments. However, this matters because the type of asset will have an impact on the way the company responds. Read more below.
The basics part ii
What happens when an organisation divests?
Most big investors such as pension funds and universities (sometimes called ‘institutional investors’) invest through asset managers.Some may choose to invest directly in specific ‘off the shelf’ funds which are available to other investors. This is sometimes called ‘pooled funds’, as they ‘pool’ the money from multiple investors to buy financial assets. These funds may be ‘actively managed’, where an investment analyst picks which assets to buy, or ‘passively managed’, in which the fund just buys everything on a specific list (such as buying every company in the FTSE100).In pooled funds, the asset manager usually chooses how to vote at the companies the fund invests in, and casts these votes on behalf of the institutional investors.Some investors may choose to invest in a ‘segregated’ fund, which is set up by the asset manager just for them. This means they can instruct the manager to include more or less of certain types of asset, and in some cases choose to control the votes at companies directly by applying a bespoke voting policy. These funds often come with higher management fees.When an investor chooses to divest their existing holdings in a given sector, or ‘exclude’ any future investments, they will need to tell their asset manager.If they are in segregated funds, the asset manager should be able to apply this straightforwardly by selling the assets they no longer want to invest in.If they are in pooled funds, it may be more difficult as the asset manager may be unwilling to apply these exclusions to other clients, so the institutional investor may need to switch to different funds or a fully segregated mandate instead.
The implications
What do we know about the impact of divestment?
When an organisation divests from stocks and shares, it does not always affect the financing for the company. This is because, as discussed above, a share is a bit like a second hand good: the company does not receive any more or less money as a result.If a lot of shares were sold in a short period of time (for example, when stock prices dive in relation to a particular controversy), it can affect the stock price - as happened to Tesla in 2025. However, if an organisation is divesting in isolation, it is unlikely to have a significant impact. This is because when an organisation divests it sells its holdings to another organisation - so for every seller, there is a buyer. For this reason, there is little evidence to show that past campaigns have had a significant impact on company stock prices.When an organisation divests from primary financing, by refusing to refinance loans or buy new corporate debt, it may more directly affect the company's finances. This is because the company may face higher interest rates and so reduce the money available to them.In both cases, divestment may be embarrassing for the company in question: it shows a lack of confidence in the company's strategy and in the leadership of the company directors. However, this means that divestment announcements should be done loudly and publicly to have an impact.For a full review of the evidence of divestment campaigns, we recommend this academic review from the University of Cambridge.
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Divestment can embarrass companies, reinforce moral stigma and open the space for government to act
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Divestment of primary finance (such as corporate bonds) can affect borrowing costs for firms
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If enough investors divest secondary capital it may affect the company's finances - but only under some circumstances
The options
What does this mean for activists?
There is no one ‘right’ way to use divestment calls as a campaign tool, and it will depend on the particular campaign.Divestment campaigns usually aim at two purposes: (1) to cut off financing for activities perceived to be harmful; and (2) to drive moral stigma around a given topic.The theory of change appropriate for a given campaign will depend on the nature of the financing source, and the levers of influence available to activists.
The moral case
Use divestment to reinforce moral stigma
Activists can call for full divestment of investments to reinforce moral stigma and enable wider political space for government to act.In these cases, investors should reinforce this by divesting publicly if possible; and using their voice to advocate for policy change.if this can be done in a coordinated manner (insofar as antitrust law allows), it may reinforce the communication value - and so financial impact - of the move.
Financial pressure
Use the threat of divestment to pressure companies
Activists could call for divestment of any new capital (for example, by halting the purchase of any new debt, loans or venture capital funding), to increase financing costs for the company in question.The most strategic financing lever to focus on will depend on the target, as different sectors and companies rely on different sources of funding.However, as explained above, divestment of shares by individual organisations may not have a direct financial impact on the company. Some therefore advocate for a ‘divest debt, engage equity’ approach: for organisations to halt any new capital, but use their power as shareholders to pressure companies to act, rather than divesting shares.This includes using their rights as shareholders to vote against directors and pay packets at target companies, voting 'for' shareholder resolutions that call for environmental or social change, and using public statements to pressure the company. Any engagement should ideally be done with a threat of future divestment if demands are not met, so the failure of the company to act has clear consequences.
Any questions?
Get in touch
The Capital Shift Project exists to help activist groups understand the finance sector better. If you're an activist group with questions about divestment, please get in touch.