Comment by m12k | Hacker News Reader

Comment by m12k | Hacker News Reader

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So while this doesn't appear to be an 'ethical divestment' but more of a 'spread the risk'sort of move, I'd still like to say: I've never heard a convincing argument for ethical divestment (and this is coming from someone who's a bit of a SJW). My main point is that unless you buy stock in an IPO, then buying shares does not increase the funds the company has available to perform its operations (some or all of which you may disagree with ethically), so you're not changing anything. Unless you think that you can shame the whole world into not buying the stock even if it's a good investment (yeah, right), then all you're doing is making sure the company is owned by people more scrupulous than yourself. If you really want to influence a company to change its ways, you should become a major shareholder and actually change it. And if a given company is the best investment you could make (to the best of your knowledge), wouldn't you be able to accomplish more good with the money you could make from that investment? (e.g. using the money to lobby lawmakers to make a carbon tax does way more than divesting from fossil fuel companies does). So it seems to me that ethical divestment has this in common with terrorism, that the action itself doesn't actually achieve anything, and the whole point of it is really just to cause a fuss and get in the news.

The secondary market for stocks absolutely influences the company. It influences executive pay, employee share-based compensation, certain performance-based compensation vehicles, and sets the reference price for any secondary offerings of shares by the company (whether for cash for operations or acquisitions). Those are substantial influences on the company, IMO, and anytime a cohort of investors who would otherwise hold the shares elects to not hold the shares, the clearing price for those shares goes down.

I think "ethical investing" is largely a -EV game, but I do think it has beyond symbolic value.

What is "a -EV game"

-EV = "has negative expected value" (versus a control)

IOW, investing with the additional constraint of "investments must be ethical in the following ways" is likely to underperform an equally skilled peer who is free to invest anywhere.

Now, that may still be OK, and it's more than possible to show positive gross returns from ethical investing, of course.

I always assumed it was more about what you do elsewhere in life once you've invested in an "unethical" company: If I'm invested heavily in the lemonade stand, it's against my interest to point out that too much lemonade could give you diabetes.

So the point is more to free yourself from an obligation to act immoral.

Ok, I'll try.

Ethical divestment quietly, by regular individuals: mostly useless.

Ethical divestment loudly (publicized), by respected institutions or famous investors can be useful if done correctly.

The utility of divestment comes in its' signaling power. A large, well-respected university divesting signals that the university expects the future value of oil to be less than it is today. The expectation is backed up by putting it's money where it's mouth is (see: http://longbets.org/).

If I'm an unscrupulous investor and see powerful institutions signaling that they believe society will change in some way such that an investment in oil is less valuable, I should probably believe them. They are, after all, powerful institutions for a reason (partially b/c they are good at surviving), and their divestment ensures that those institutions will welcome carbon taxes or other measures that reduce the value of oil.

Lastly, divestment can start to signal social stigma against the industry, making that industry less attractive to skilled talent.

I think the reasoning is that divesting can reduce demand for a stock. Thus reducing the stock price, and reducing the future financing capacity of the company.

Does it do that, though? I find it hard to believe divestment would have much long term effect on stock price. The value of a stock stems from the the company's profits and those remain unchanged. In a competitive market, no player has market power, and stocks seem pretty competitive.

The only financing that happens with a stock is at the point of IPO, which is obviously not applicable for these ancient oil companies. I'm not sure an oil company has issued more outstanding shares for financing in a very long time. They get the vast majority of their financing through low-interest debt.

> The only financing that happens with a stock is at the point of IPO

False. Companies make secondary offerings for acquisitions or other purposes as well as issuing shares as part of employee/executive compensation.

Public companies can issue more stock to public markets at any time. That stock would be priced at the market rate. If a company’s stock price tanks due to lack of demand, that is bad for the company. Similarly, companies with failing stock prices have problems attracting (and bleeding) talent.

> all you're doing is making sure the company is owned by people more scrupulous than yourself.

You mean "less scrupulous".

Ethical investing suffers from a really rough dilemma: it either doesn't work or underperforms the market.

If ethical investing works, then it does so by making capital more expensive for companies you do not invest in. And the market for capital is two-sided, so the people who do invest in it get above-market returns at your expense.

If you get market-rate returns, on the other hand, you haven't made capital any more expensive for the unethical companies.

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