We’ve become uncomfortable with how often we hear things like “divesting from a company’s stock doesn’t have an impact on the company”, “short selling doesn’t undermine the health of a company”, “buying a stock doesn’t improve that company’s prospects”.
We think these are nonsense. We’ve never agreed with these notions. They are statements that regularly get used in the context of sustainability and have been used recently to explain how short selling works. They are simple arguments that were made early in the journey of the shift to sustainable investing. We immediately rejected them, but some people got caught up in them and now mindlessly repeat them because they don’t know how to think for themselves. Two of New York’s biggest pension schemes have been bothered to think, and recently sold $4bn of fossil fuel stock a few weeks ago. How does that circle square? We’re much more comfortable believing those two thoughtful investing behemoths than we are joining the uninformed bandwagon.
Divesting from company stock does have an impact on the company’s prospects. Fundamentals affect stock prices and stock prices affect fundamentals. If you don’t believe that, then you’re not allowed to use the word ‘fundamental’ ever again. In fact, why is there even a stock market at all if stock prices don’t matter for companies?
Have you ever tried to get a £600k mortgage on a house worth £400k? Without equity you can’t borrow, you can’t invest, you can’t grow, and you fail or fall into obscurity. The value of your equity is critical for your survival as a company and your ability to thrive. The removal of support for a company’s equity – through investors selling the stock – has a major impact on the company.
Those who say that “equity doesn’t matter for company fundamentals” are one or more of the following:
- They’re trying to prevent sustainable investors from divesting from unsustainable companies,
- They’re inexperienced financial commentators, and relying on simple arguments and what other people say rather than doing their own work, or
- They’re festering in last decade’s knowledge about how the world works.
Divestment from company stock does make a difference. Don’t be scared off by those who say it doesn’t.
To the pound 