A Reminder: Divestment is not the Answer

Institutions that are considering removal of certain stocks and investments from their portfolio need to reconsider this politicized approach to accomplishing a social agenda. In California, especially, the insurance companies are feeling pressure from the state-elected insurance commissioner who has asked for companies to “voluntarily” divest from a certain industry. However divestment is not the right answer to achieving these politicized social whims and ultimately harm the benefactors of the portfolio.

Whether it’s universities and colleges, city boards, or pension organizations, divestment action fails to benefit anyone on any side of the argument.

Activists who are pushing for divestment are not seeing the full picture. By divesting funds from a company or industry, those stock options get picked up by others and therefore don’t harm the intended target. In fact, Robert L. Bradly Jr. pointed this out in a column in Queen Creek Independent. Bradley mentions how divestment action against fossil fuels has “not harmed producers.” And a study conducted by University of Chicago’s Daniel R. Fischel also points out that there is “no evidence of any discernable impact on the companies being targeted by the policy.”

Instead, the insurance companies, endowments or pension funds that take part in divestment campaigns have the potential of being harmed by the financial repercussions that result from divestment. The same study by Fischel found that universities that divest from energy equities perform at a lower rate of 0.7 percent compared to universities that chose their investments based on secure and reliable facts. As a result, the funds had a lower return of investments thanks to divestment action.

As students go back to schools and politics heats up throughout the country, board members of pressured institutions should remember these facts when making their decision. Divestment does not benefit anyone – only harms the civil servants, public officials, students, and many more deserving benefactors of the funds.

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