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Divest or engage? A question to raise strong views or shrugs. With our early Sustainable Banking...

...project we received guidance from a well-known advocacy organization “it’s better to buy a share in a bank and advocate for change as a shareholder, than to advocate for change as a customer – even a large one.” Why? “shareholder advocacy is a much more established path for corporate change.” But what if the change you want essentially causes the company to not exist?

A recent article in ESG Investor Engagement with Consequences, looks at instances where the necessary advocated business changes would have “major negative effects” on the company’s business model, essentially making the company a very bad investment. To buy the shares to advocate for change, which if made may make the shares drop significantly or to zero.

In this case, divestment, according to this article, is the better option, using the example of Dutch pension ABP’s decision to divest fully from all fossil fuel holdings over the past year as these “…companies run a major transition risk: If legislation were to force [them] to operate sustainably, these companies would be hit hard.” In other industries less dramatically linked to climate change, ABP uses an escalation approach to engagement, starting with “intensive dialogues”, reporting on relevant metrics, and votes at shareholder meetings or sponsoring resolutions. “If that does not bring about change, we will eventually divest.”


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