Australian National University vice-chancellor Ian Young was, you could say, a sceptic about the fossil fuel divestment movement before the hysterical reaction to his university’s decision to sell its shares in seven resource companies, just $16m worth out of a $1.1bn portfolio.

In fact that decision was driven, in part, by the university’s desire to resist a long-running student campaign for it to shed investments in fossil fuel companies, just as Stanford University has, backed by a referendum showing 82% of ANU students supported that idea.

Young has told the students he originally thought the divestment movement was “just a sideshow”.

Instead, as a compromise step, the university council engaged the research company CAER and received its social responsibility assessments of the environmental, social, ethical and governance performance of 45 Australian companies in which it invested. CAER was chosen from a number of similar firms and, based on its advice, the university decided to divest itself of the lowest-ranked stocks: Iluka Resources, Independence Group, Newcrest Mining, Sandfire Resources, Oil Search, Santos and Sirius Resources.

One giveaway that this was not about fossil fuel divestment is the fact that the ANU continues to hold major resource stocks, for example in BHP and Rio Tinto. Another is Young’s public statement that, while he believes the world must eventually move away from the use of fossil fuels, this will take decades. Because of the long transition, and the diverse nature of many major Australian companies, he says “the ethical issues involved are complex”.

None of this stopped the decision being portrayed as fossil fuel divestment, as it was attacked as “stupid” and “bizarre” by the prime minister and many of his ministers and lauded for the same reason by climate activists and Greenpeace.

On Friday CAER finally broke its silence, with the chief executive clarifying that he had not given the ANU divestment advice, nor a “secret” report. Rather, the university bought access to his company’s database and its social responsibility assessments of the companies. The chief executive, Duncan Paterson, stands by the advice and insists it is not about to change, despite the companies’ vocal protestations.

Some of furore has been about this advisory process. Mid-tier firms less familiar with the world of social responsibility scrutiny felt ambushed, marked down for not providing information about their human rights policy or strategy to manage future environmental risks, which bigger companies would do routinely, and then suddenly finding their poor ranking splashed on the national news.

Many critics have asserted the miners should have been warned they had been assessed negatively. (CAER says they should have worked it out when they were regularly asked for missing information.)

“I find it extraordinary that a publicly-funded institution, particularly one of such standing as the ANU, would make such a simplistic moral judgment on an Australian company, let alone seven, without first providing the directly interested parties with an opportunity to respond to the allegations,” assistant infrastructure minister Jamie Briggs wrote in a blistering letter to Young this week.

(In what may be seen as a warning, he also said the university was sacrificing its own financial returns with the move, apparently on the assumption that “these losses will be topped up by taxpayers”.)

And some of the support for the ANU’s decision has been focused on the university’s right to invest how it sees fit.

The 50 prominent Australians, including former Liberal prime minister Malcolm Fraser and former Liberal party leader John Hewson, who put their names to an open letter published as a full-page advertisement in the Canberra Times, were primarily concerned at what they saw as the unjustified nature of the government’s intervention. Hewson says he doesn’t agree with full divestment, he just thinks it is smart for investors to identify and manage climate change risk.

But any discussion about the ANU’s processes or decision-making rights was swamped by the furore over the idea that it was primarily about fossil fuel divestment.

Abbott said on Wednesday of the ANU’s decision: “Of course they should be free to do what they want, but when they make stupid decisions we should be free to criticise them. Any entity which says that they’re simply not going to invest in energy companies is frankly depriving its members of the benefit of some very good investments, because Australia ought to be one of the world’s energy superpowers.

“We ought to be the world’s affordable energy capital and that means in the months and years and decades to come, Australia’s energy companies will be a very, very good investment for people who are sensible enough to see where their opportunities are.”

In an interview with the Guardian after his Man Booker prize win, author Richard Flanagan said politics had become “the god that’s failed”.

“For a century, people have looked to politics for change. And now people don’t look to politics – but there is no new mechanism; people are searching around for one … I think we are living in a new period where the old forms don’t hold – a new form hasn’t yet been invented.”

After a week in which the political debate has been dominated by the prime minister’s promise to “shirtfront” the Russian president at a meeting that might never happen, during a visit to Australia that has not been confirmed, it’s hard to argue with him.

The divestment movement was conceived exactly as such a “new form”, a bottom-up movement to force action on climate change, founded precisely because governments were seen to be failing.

As Greenpeace points out in a blogpost praising the ANU decision, divestment is not really about denying fossil fuel companies the financial resources to operate, it is about denying them reputation, legitimacy, what corporate responsibility types like to call a “social licence”.

And, as the list of divesting organisations grows among churches, universities, local councils and philanthropic foundations, that has got fossil fuel companies worried.

It is why Peabody has responded with a morality-based counter argument – cheap coal-fired energy is essential to solve the world’s “poverty crisis”; it is why the mining industry is lobbying for such an argument to be recognised by the G20; it may be why the prime minister is arguing that increasing coal production for many, many decades will be “good for humanity”; and it is almost certainly why questions about the process by which an Australian university took a relatively small investment decision has escalated into such a big national issue so fast.

As for Young, he has told students the reaction to the ANU’s move has caused him to change his mind about the power of the divestment movement. He no longer thinks it is a sideshow; he thinks it is powerful. He told them: “Turns out you were right all along.”