Trinity, Israel and the problem with divestment of stocks

In a move echoing student protests across the US, Trinity College Dublin recently announced it would divest from three Israeli companies linked to settlements in the occupied Palestinian territory. Protesting students are delighted, but does divestment actually work?

Divesting from so-called sin stocks can have unintended effects. In the US, tobacco was the best-performing stock market sector in the 20th century, while alcohol stocks took top spot in the UK. Ironically, researchers have noted that unpopular stocks become cheap, allowing less scrupulous investors to profit by buying in at lower prices.

Returns aside, evidence indicates it’s better to engage with companies than to divest from them.

In one study examining controversies faced by US-listed companies from 2010 to 2020, researchers found that divestment by investors had little impact. However, companies facing social issues were much less likely to repeat offences if investors held a 1 per cent stake and engaged with them. Other studies have come to similar findings.

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When it comes to corporate change, engagement trumps divestment.

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