In recent years, the campaign to persuade investors to divest from the fossil fuel industry has gained increasing prominence. Motivated by climate change, groups such as Reclaim the Power and 350.org have managed to persuade investing groups, big and small, to sell off their shares in companies working in the fossil fuel industry. The Stanford endowment fund (worth $21bn) and Norway’s sovereign wealth fund (with assets of almost $900bn) have both pledged divestment.

Apparently successful divestment campaigns have been waged in a number of areas, from the tobacco industry to firms operating in Apartheid South Africa. Within the animal advocacy movement, while there have been boycotts of certain firms, such as KFC, and divestment campaigns against groups involved in animal testing, there do not appear to be any divestment campaigns against firms which use farmed animals, which after all account for the vast majority of man-made animal suffering. This blog aims to briefly investigate the evidence for the effectiveness of divestment campaigns and figure out whether they have been neglected by the wider animal advocacy movement.

What are the aims of divestment campaigns?

Divestment campaigns have direct and indirect goals. They hope to have a direct impact by persuading a sufficient number of investors to sell their stock in target companies, in turn causing the share price to fall, which motivates the company to change its practices or to be unable to continue as a going concern.

Divestment campaigns may have indirect impact by creating stigma towards target firms. If the movement gains sufficient support, firms may be deprived of social, cultural and political esteem. Related to this, divestment campaigns may encourage governments to impose restrictive legislation on target firms.

Do the campaigns work?

Direct impact

The direct impact of divestment campaigns is likely to be small. Selling a number of shares in a company may cause the share price of the company to fall temporarily, but since one cannot sell shares without a buyer, divested shares will often end up in the hands of neutral investors. If there are enough neutral investors, as has been the case in past divestment campaigns and as is likely to be the case for firms which use animals, then divestment will have minimal impact. So, divestment will likely simply present neutral investors with an underpriced stock.

Moreover, the evidence suggests that only a very small proportion of divestable funds are actually withdrawn. For example, according to a review by Oxford University’s Stranded Assets program, despite the huge interest in the media and a three-decade evolution only about 80 organizations and funds (out of a likely universe of over 1,000) have ever substantially divested from tobacco equity and even fewer from tobacco debt.

In spite of divestment campaigns, tobacco companies have yielded huge returns. The cost of capital in Israel has fallen while the Boycott, Divestment and Sanctions (BDS) campaign has continued. Even in South Africa, where divestment seemed to be associated with economic decline, the evidence that divestment actually had any causal role is inconclusive. Overall, the evidence suggests that divestment has negligible direct impact.

Indirect impact

By contrast, the indirect impact of divestment through stigmatization is likely to be more positive. This is in large part due to the fact that divestment campaigns seem to encourage the imposition of restrictive legislation on target companies. The Stranded Assets program say that “in almost every divestment campaign we reviewed from adult services to Darfur, from tobacco to South Africa, divestment campaigns were successful in lobbying for restrictive legislation affecting stigmatized firms”. For example, even though the share prices of tobacco companies have performed well throughout the divestment campaign, the industry has faced increasing restrictive legislation.

Indeed, stigma attached to one area of a large company may damage sales across the board. For example, Motorola divested from its defense business in order to stave off bad publicity in reputable news outlets. Similarly, Revlon’s decision to disinvest its South African operation was due to credible threats by customer groups to boycott Revlon products.

All this said, the evidence for the overall impact of divestment campaigns, while positive, is not particularly robust. There have not been many such campaigns, so the sample is not particularly big. Moreover, in most instances, divestment has been one part of a package of other campaigns, making it difficult to disaggregate the impact of divestment in particular. Finally, we have not found any estimates of the costs of divestment campaigns to campaigners. As a result, it is difficult to provide a reliable cost-effectiveness estimate.

Possible detrimental effects of divestment

Divestment campaigns are not without risks. Critics point to the opportunity costs of divestment campaigns. Given that divestment has little direct impact, some have argued that activists would do better to focus on more directly effective measures. Moreover, neutral firms—who buy divested shares—will be less concerned with the relevant issues than ethically-motivated investors. Consequently, life might actually get easier for the target firm. Indeed, animal advocacy groups often pressure investors to encourage firms to change their cruel practices. Divestment would preclude this kind of potentially effective action.

These considerations do not appear to have outweighed the positive indirect benefits of past divestment campaigns, but they do illustrate that there is no guarantee that divestment campaigns will not produce negative outcomes.

Lessons for the animal advocacy movement

College students are a potentially receptive target audience for animal advocacy, and previous divestment campaigns have tended to gain significant publicity from student pressure on university endowments. If a university endowment fund invests in firms which commit particularly gross abuse, then a well-orchestrated student-led divestment campaign could potentially be a good way to raise awareness about animal suffering. A more extended campaign outside of universities could be developed on top of this. Past experience suggests that, over the medium to long-term, this may either encourage the firm to change their practices, or legislators to impose restrictive legislation.

Currently, if there are divestment campaigns against firms which use animals, they are not yet particularly visible. Since impact chiefly comes through indirect stigmatization, if animal advocacy groups do start to engage in divestment campaigns, they should publicize their efforts as much as possible.

However, there is good reason to be cautious about recommending divestment campaigns. At present, the evidence for their effectiveness is fairly limited, and there are currently no cost-effectiveness estimates of past campaigns. In the absence of good evidence, alternative strategies, such as undercover investigations, currently look to be a better bet for effective animal advocacy.