Divestment: Divest of both worlds

Ethical divestment—withholding or withdrawing capital from industries or companies that do not align with an investor’s values—has been a powerful tactic throughout the history of values-driven investment. And lately, the call to divest from fossil fuels can be both a soul-satisfying strategy, and a financially sound one.

Divest case scenario

Historically, ethical divestment hasn’t always been the most profitable investment strategy. In the past it was used more to demonstrate morality or leverage political clout than as a calculated investment tactic. For instance, an investor who sold off $10,000 of ExxonMobil stock after the 1989 Exxon Valdez oil spill might have slept better knowing his money wasn’t going to fund any subsequent crude-oil moisturization treatments for harbor seals. But had he held onto that stock, he’d have $179,000 today (as of October 2016)^[1].

Then again, a mindful investor wouldn’t take his $10,000 stock sale proceeds and bury it in the backyard in a coffee can. Had this hypothetical fellow rolled that ten-large over into shares of Apple Computer (AAPL) in the spring of ‘89, he’d have $244,000 now^[2]. He could buy a whole lot of frigatebird degreaser with that kind of cash.

The point is that selling off a profitable investment because of a moral objection requires the investor to replace it with another profitable investment, or to be willing to take a financial hit in the name of an ethical victory.

Under “divessure”

Sometimes the ethical victory is exactly what investors are after. Sometimes it’s about political action and pressing for change. Divestment movements helped to turn the tide of public sentiment about the Vietnam War, to bring about the end of apartheid in South Africa, and to cause companies to clean up their acts in the wake of environmental disasters.

Even so, most investors aren’t likely to wield their stock portfolios as weapons against injustice, unless there is some assurance that it won’t negatively affect the bottom line. And in the current movement to divest from fossil fuels, that is looking like a pretty good bet.

Divestivus for the rest of us!

If you’re an ecologically minded investor, you might opt to air your grievances with Big Oil by divesting your portfolio of fossil fuel stocks. Or, if you’re a Catholic institution (or parishioner) you might choose to scrap your fossil-fuel investments because of Pope Francis’s strong statements on climate change. And, if “green” isn’t really your scene, you might divest from fossil fuels because there’s a growing financial case to do so.

Regardless of motivation, investors who have dumped holdings in fossil fuel companies have come out ahead of those that remain invested in coal, oil and gas over the past five years.

And the movement is gaining traction. What began in part as a series of student protests in 2011 has turned into a worldwide movement, with more than 500 organizations worldwide pledging to rid their combined $3.4 trillion portfolios of fossil fuels.

Better than all divest

So is it time for you trim your portfolio of its reliance on fossil fuels? Maybe. Or maybe you already have, without specifically meaning to.

If you are a mindful investor with well-screened holdings vetted on environmental, social and corporate governance performance, there’s a pretty good chance you have already limited your portfolio’s carbon footprint. Because companies that are leading the way in terms of ESG behaviors are also faring better in the markets.

Mindful investors are attracted to mindful companies. Mindful companies know themselves, know the behaviors that can be beneficial to their own health and prosperity over time, and work to eliminate risk factors that will diminish their success in the long run. For an increasing number of firms, moving away from fossil fuels just might be a strategic move for their future.