In the realm of impact investing, there is an argument between divesting wholly from a business or industry that does not meet the fund’s ESG mandate and buying shares in order to engage with the business in a meaningful way.

There are innumerable ethical or religious reasons why a particular investment is not in line with a fund’s ESG mandates, such as a business operating in a high-polluting industry like coal, concerns over human rights issues such as cocoa farming, or personal moral objections to industries such as armaments or alcohol. The question is, which approach is more appropriate?

The UN PRI has an excellent figure depicting the path of logic in approaching divestment versus engagement.


Divestment is a clearcut means of removing a stock from a fund, such as the movement from the 1960s to the 1980s wherein the anti-apartheid movement in South Africa called for divestment from any country cooperating with the government. If a stock does not meet the necessary ESG standards, it is simply sold. In some cases, this is a wider moral issue, such as Islamic finance mandating zero investment in alcohol products or environmentally-focused investors refusing to invest in coal or oil and gas.

Divestment can be used as part of a larger campaign targeting a specific company or industry, such as the coordinated effort of the 350 Campaign to ‘divest, desponsor, and defund’ fossil fuel companies. Signatories of this campaign include Norway’s Sovereign Wealth Fund, the Church of England, and the Rockefeller Brothers Fund, representing over $1.5 trillion in assets.

The argument against flat out divestment is twofold; first, selling your stocks means that someone else is buying them, and second, you lose any ability to influence the company’s direction if you don’t hold a stake in it. This is to say that by divesting from a firm, activist investors lose the ability to influence change in that particular company. The company can operate as normal.

Especially considering the rise of anti-ESG investing firms, who actively invest in ‘sindustries’ or pollutants such as oil and gas, flat out divestment will not necessarily starve the company of much-needed capital. Fortunately for proponents of positive impact investing, the anti-ESG firms seem to be on more of a roller coaster than their ESG-conscious counterparts (see articles from The Economist, Reuters, and Morningstar).


The alternative to divestment is engagement, wherein activist investors use their leverage to influence corporate behavior by working with senior management, proxy voting, and working with corporate boards. In exercising proxy votes, investors can also influence who is elected to a company’s board and can stack the board with ESG-conscious members.

Unlike divestment, engagement keeps the investors closely connected to the company it is seeking to influence. As ESG is now being approached from a strategic and risk management perspective, conversations around ESG issues are more common in the board and C-Suite. If an investor is seeking to influence change in a company and they are patient, determined, and it does not conflict with their personal moral code, holding stocks in that company offers the investor access to the company’s leadership.

This may seem like an unlikely way to influence change, particularly in industries reliant on environmentally damaging practices; however, there are examples of positive steps being taken thanks to investor pressure. For instance, Canada’s Oil Sands Pathways to Net Zero is an alliance of leading oil and gas companies representing 90% of oil sands production in the country, which has come together to form a three phase plan to achieve net zero by 2050. The plan works through leveraging the strong investment in research & development in order to create actionable transition plans, incorporating ESG strategies into long-term planning.

There is a time and a place for both divestment and engagement, with a plethora of considerations to work through. While a client’s religious or ethical code may bar them from engaging with a particular industry, it is a deeply personal decision and should not be addressed lightly. There are many pathways to take to achieve ESG goals and net zero, and a good long-term strategy incorporates many different approaches.