Voice Through Divestment

Date November 22, 2022
Speaker Marco BECHT (Professor, Free University of Brussels / ECGI)
Commentator FURUSAWA Koyu (Chief Executive, Japan Center for a Sustainable Environment and Society / Visiting Professor, Kokugakuin University)
Moderator MIYAJIMA Hideaki (Professor, Waseda University / Faculty Fellow, RIETI)

While many finance and economics experts make arguments against the effectiveness of divestment, large numbers of institutions have made divestment pledges to move away from fossil fuels. Professor Marco Becht from Université libre de Bruxelles explains how this has largely been driven by social movements that apply pressure through moral outrage as opposed to price pressures, through a detailed case study of twitter accounts conducting targeted campaigns to get institutions of high prestige and social influence to divest and thereby stigmatize fossil fuels. In this presentation, Professor Becht explains how these divestment pledges have influenced other organizations, from private companies to cities and countries, to make broader net-zero pledges toward climate goals.


Voice through divestment is a paper written by Marco Becht, Anete Pajuste and Anna Toniolo regarding the puzzle of why so many institutions (1552 as of November 2022) have made pledges towards divestment of fossil fuels when many finance and economics experts have raised arguments in opposition of the process, which is not considered to be an effective way to push down the stock price of divested companies, assuming that that is a main goal of this movement. Scholars argue that divestment has limited price impact, and limits engagement, as once shares have been sold, those who divest no longer have the ability to vote or otherwise engage with the divested company. It is clear that divestment as defined by finance scholars and the intentions of the divestment movement do not line up in reality. Becht et al. suggest that the fossil-free movement is not about price pressure and engagement, so the finance-based scholarship has largely misunderstood the situation. In fact, the movement, which began over a decade ago is based on a moral outrage narrative that seeks to raise awareness. It is a social movement that applies strong pressure to do something about fossil fuel-based climate problems by threatening the license to operate of coal, oil and gas companies. The movement has shifted the framework and contributed to an acceleration in net-zero pledges and accompanying measures, for example the recent EU agreement to impose the world’s largest carbon border tax. In light of these developments divestment has shifted from a moral outrage argument to a rational argument for investors to decarbonize their portfolios from a purely financial risk management perspective.

Fossil free divestment movement

One such movement is the 350.org carbon budget divestment movement, which started in 2012, which has progressed a long way within the last ten years. The movement managed to formulate an economic narrative, as defined by Robert Shiller, who argues that such stories and narratives are important factors driving economic events. They are largely ignored within economics and finance, but widely studied in other fields of the social sciences. Shiller defines such narratives as simple stories or explanation of events with direct or implied human interest and a core contagious element that are easily expressed and brought up in news or social media. This narrative starts with a 2008 article published by Hansen, explaining that a concentration of under 350 particles per million (PPM) of atmospheric carbon dioxide is vital for maintaining the conditions that allowed us to create a prosperous and thriving civilization. While the atmosphere is already beyond this limit, this idea led to the creation of the carbon budget concept that makes it easier to understand how much carbon has been burned and how much humanity has left to burn. The message that in order to keep within the carbon budget, exploration and extraction of fossil fuels must be stopped, is easy to understand and widely published. A 2012 article in Rolling Stone magazine by well-known climate activist Bill McKibben, that included skepticism of the current state of measures and solutions, noted that self-interest on the part of the fossil fuel industry would not drive change, but moral outrage could, citing industry changes made following the 1980s campaigns demanding divestment from South Africa. This was adopted by students in the U.S. aiming to put climate issues on the national political agenda by publishing a list of 200 publicly traded companies in control of oil, coal and gas yet to be extracted. This list was named the Carbon Underground 200 ™, referring to keeping the budgeted carbon in the ground, and given the hashtag #Keepitintheground, with the intention of putting pressure on these companies via calls for public divestment.

Analyzing the fossil free Divestment narrative

In order to analyze this narrative, Becht et al. tracked the Go Fossil Free Divestment movement in terms of resulting divestment pledges, related twitter activity and stock price impact. Analysis was based on three groups, those directly targeted by the movement, other fossil fuel companies, and companies in other non-directly targeted industries with high carbon emissions such as cement or airlines. While divestment based on price pressure or engagement only has effects on directly targeted industries, a narrative-based movement is likely to have a broader impact on linked industries. The nodes of the movement were found and tracked based on keywords such as “Divest” in twitter account handles, and their connections were analyzed in terms of reciprocity and transitivity and ranked by centrality. Central nodes included those targeting large Universities, such as “DivestHarvard” and “FossilFreeMIT”, but also included accounts for the movement itself such as “350” and those aiming for broader divestment in cities or countries such as “DivestDE” and “350Australia”. The researchers identified 504 node accounts, 60% of which were added between 2013 and 2018, with over 400,000 tweets in total, and 800,000 including retweets. The accounts use a variety of movement-specific hashtags, as well as those for other climate issue-related topics. 350.org also runs a divestment database to track divestment pledges, highlighting big organizations including universities and charities, but also prestigious entities such as the monarchy of the United Kingdom and the Vatican, and government bodies such as New York City and the state of Maine. The inclusion of the UK monarchy and the Pope shows that the prestige of these pledges is a priority, maybe even over the amount of fossil fuel divested, as it is unlikely that they are very high on the list of amounts to be divested. Another example of this focus on prestige is a current campaign to divest the endowment invested by the Nobel Prize Foundation, which has gained over 150,000 signatures, but which has not yet seen any success.

While many pledges in the full database were not dated, Becht et al. were able to find and visualize around half of the pledges, finding a linear increase over time, starting with faith and education institutions in 2011. While some asset managers were targeted and involved in the movement, the Twitter accounts for prestigious institutions were more active, both in terms of tweets and mentions. Using a standard measure of virality on Twitter, which is the number of tweets and retweets combined with the numbers of followers for retweeting accounts, the researchers discovered that for the 231 days when the movement or its resulting divestment pledges went viral, the stock prices dropped not only for the targeted fossil fuel and carbon underground-listed companies, but also for the third group of linked industries. This illustrates the effectiveness of such movements.

As for why such movements are effective, the researchers suspect that the divestment pledges increased general awareness and contributed to an acceleration in net-zero pledges from cities, regions, companies. To make good on these pledges by 2030 or 2050 much of the carbon that is currently underground will become unburnable, i.e., a stranded asset. From 2014, entire countries began to make divestment pledges, including a 2018 pledge put into law by Sweden. Japan has also committed to net zero by 2050 by law. Current stock valuations are based on the assumption that companies can continue to extract and use fossil fuels, however moral outrage narrative movements have announced to risk-averse investors that divestment from fossil fuels is necessary. If governments are serious about their decarbonization commitments, this gives the message that all risk averse investors should decarbonize their portfolios, regardless of the moral standpoint. While Japan has enshrined net zero by 2050 into law, there are very few asset managers, or prestigious institutions targeted by these types of campaigns, that have made divestment pledges.


I would like to briefly comment on Professor Becht’s presentation from the wider perspective of sustainability, finance and corporate governance, firstly by introducing the Japan Center for Sustainable Environment and Society (JACSES) founded in 1993 after the Rio Earth Summit. JACSES is focused on policy research and sustainability of the environment and society through broad cooperation of citizens. It also has many programs on green tax, SDGs and finance, with importance placed on climate change and biodiversity. JACSES promotes fair finance networks and is involved in international networks including divestment movements. The organization focuses on four strategic approaches to sustainability: technical innovation, legal regulation frameworks, economic methods of control (including investment and divestment), and socio-cultural adaptation, plus the associated financial aspects. A “fair finance guide” is published for Japan every year, ranking targets including banks and insurance companies based on environmental standards and social aspects. This encourages sustainable measures such as climate change activities within companies, with the banks that support these companies also considered key actors. As professor Becht mentioned, the climate change issue is very severe now. With a broader picture of our society and industrial system, investment and divestment are key actors in controlling production and consumption, which are the main activities of our civilization, and which cause resource depletion and other environmental impacts. Putting this into a wider historical perspective, current events within the global community are creating a shift in the global sustainability regime that started with the 1992 earth summit in Rio de Janeiro. Consumers are moving towards green and ethical movements increasingly focused on investment and finance. CSR (Corporate Social Responsibility) and Socially Responsible Investment (SRI) are keywords that are heavily promoted by the UN through its ongoing Global Compact and ESG activities, and the UN FCCC (Framework Convention on Climate Change) conference just finished in Egypt with a focus on financial disclosure related to climate change. The 20th century has created a rapidly growing population with increased use of energy and transportation, closely related to fossil fuels. Society must now change. Three characteristics of modern civilization must change: the pattern of rapid growth and expansion, the large gap in global inequity, and the linear maximization of production based on mono-cultural value, which is a major cause of the loss of biodiversity. Sustainability must be implemented through the economy, the environment and socially, through a comprehensive approach from the micro to macro levels, from the individual and family level to the enterprise / business s level. The socio-economic sector, a kind of mixed economy, involves three activities: private enterprise, government, civil society, in particular, the role of the civil sector is important in forming a sustainable society. Today citizens are taking the first steps to change society to a new mixed socioeconomic system that is free from fossil fuel-based living. As we are focused on divestment movements, is there any difference in the divestment effects among society, for different countries, or political systems, as a first question? Professor Becht mentioned the importance of pledges from big companies however the background of different countries’ political systems and relations with divestment movements is complicated. What kind of differences are there among societies internationally? My next question is, how has the fluctuating unstable world post COVID-19 with the Ukraine crisis directly affecting European countries related with the situation for divestment movements? Is there acceleration, or other reactions and backlash? Finally, what kind of possible strategic developments are there for the relationship between investments and divestments for sustainable corporate governance? Those are all of my comments. They range widely but we can discuss them in more detail.

Marco BECHT:
Thank you for the comments. Let me maybe start with your last question, about the war in Ukraine and the reaction to the increase in energy prices we've seen from governments around the world. In the short run, it is necessary to support households that have no means of becoming more energy efficient. Those who can't afford to pay should be helped. I think that most governments that can afford it have done so. However, this really shows that countries must double down on the energy transition, yet more spending commitments have been made for defense than for improving energy efficiency. It is necessary to make similar commitments to insulating houses or installing heat pumps and other measures that would move commitments towards net-zero forward. To address the question from the chat regarding my opinion of COP27. It is good that rich countries that were the largest fossil fuel emitters in the past and have most responsibility for causing the problem are helping out those that cannot afford to mitigate its effects. But what is really missing is more urgent action to make good on net-zero commitments. President Biden has probably gone furthest in this by pledging money to energy efficiency in the U.S., and instead of Europe complaining about U.S. competition and protectionism in this field, the EU should match this commitment. The same of course goes for Japan. I have seen during my visit that Japan could also do a lot more to make good on its net zero commitment.

Comment one from Dr. Furusawa concerned different divestment effects among different countries. Do you have any reply regarding this point?

Marco BECHT:
That's a very good question, which we haven't analyzed yet. We will need to finish the paper and establish a relationship between the imprints of the movement, both the tweets from the movement itself, and the reaction to the pledges, linking that in some sense to the net-zero pledges that have been made by the governments. Now, this is a loose correlation, but the places where you have pledges and where the movement has been most active are also where you get governments, (and I would include cities and regions in that) making most of the pledges. The outlier may be Japan, because Japan’s government has made a commitment. But there's nothing in Japan in terms of divestment pledges and the 350.org movement in Japan is very mute. So, Japan is in some sense an outlier.

So, including the Japanese case, understanding the different effects of divestment will further your research agenda. The other question which Dr. Furusawa raised is the possible strategic development in the relation between investment and divestment for sustainable cooperative governance.

Marco BECHT:
Well, if you apply the logic here and you think about other issues you can see how the same narrative logic could apply to other pressing issues. I gave a speech in Brussels the other day to open the ECGI Responsible Capitalism Summit and picked two topics. One was health and sugar, and the other one was plastic pollution, which of course is related to fossil fuels. Plastic pollution is a massive problem in Asia, where it is brought to shore and where it is affecting fishing and where consuming fish is such an important part of the diet, meaning that it should be a major concern. We know who the main plastic polluters are, you could launch a campaign called “plastic free” to divest from companies that are plastic polluters in exactly the same way as fossil free. If you look at the risk statements in the annual reports of the top plastic polluters and companies producing sugary drinks, public policy on plastic and on sugar and health are listed as a risk factor by these companies. As soon as investors start to believe that these companies will have to take the sugar out of their drinks or use different packaging, there will be a negative impact on their share price. If you believe that governments are going to do something, you should be divesting from these companies. That's the difference between the moral outrage divestment that creates risk and the pure financial divestment that aims to mitigate risk.


Time is limited so let's move to the question-and-answer session. The first question is about CO2 concentration issues, which Marco has already answered so let's go to a broader question. The first question is about the results of the recent COP27. Do you have any comments or impressions on the results of COP27?

COP27 is a very important conference during a difficult ongoing situation. The current situation of this world is just over the prevention level for climate change issues so the focus is on adaptation and mitigation, how to reduce that risk. This COP27 focused more on actual loss and damage that might occur if the situation is not resolved. What big losses or big damages could occur and how can these be compensated by whom and for whom ? This is a very big financial issue which will likely continue for the next conference and into the future. It's very important to find a solution at these big international conferences, but the situation is getting more severe in reality.

Marco BECHT:
Japan has put the net zero commitment into law, and my knowledge of Japan suggests that this is serious. What needs to follow a pledge is a plan on how to get there. I have not studied whether the Japanese government has published a serious plan like this. The other question is whether 2050 is too late, and could we go even faster? Within my limited knowledge of practical measure to decarbonize as a finance professor, I would have a group of independent experts evaluate the plan and see whether it is sufficient to get Japan to net-zero maybe even before 2050.

I will move on to the last question. You emphasized the role of divestment pledges and from the basic financial literature said that engagement or voice, and exit or divestment, are tradeoffs. What is the relation between the two? Are they substitutive or complementary, and if complementary, what are the mechanisms, or are there any divisions of labor that would allow for engagement and on the other hand that would allow for divestment?

Marco BECHT:
I think the movement has been very clever in picking the institutions it's lobbied to make divestment pledges, so that socially influential institutions make the pledge. Initially they target the most prestigious institutions in the country, and once they attain the social influence, it becomes a self-fulfilling prophecy, due to the material risk that investors should take into account. The question is what next? Bolton, Kacperczyk and Samama, (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3922686) have proposed net-zero index investing, which involves commitment to divesting along the path to net zero. If companies react and become net zero, you don't divest from them. If they don't act, you divest very publicly. Engagement and divestment then go hand in hand because you commit to divesting. It's smart from the engagement point of view and good risk management.

*This summary was compiled by RIETI Editorial staff.