Divestment

Divestment refers to the disposal of assets in any one of a variety of ways. For example, a new judge can divest herself of stock holdings that might generate a conflict of interest, or an individual investor might divest himself of computer stocks if he thinks they have a poor future. At the institutional level, divestment is a policy and set of economic sanctions used by corporations, groups of shareholders, individuals, and governments to put pressure on a company and/or a country, to protest either the company's or the country's policies and practices. It is a means of leveraging economic power to help bring about political, economic, legal, and/or social change in the target company or country. Divestment is a result of pressure from shareholders, consumers, activists, nongovernmental organizations, and/or government sanctions. Divestment can take several forms, including the withdrawal of new corporate investment, withdrawal of available credit from banks, the selling off of operating units, cutting off all operations, and reducing portfolio holdings in firms doing business in the target country.

There are four reasons for divestment at the institutional level: political, legal, financial, or moral, and these often overlap one another; a company may respond to shareholder and/or consumer pressures and close down its operations in a country with a poor human rights record, doing so for financial and moral reasons. Then the government may pass legislation banning an investment in that country, so the company is now complying with legislation. Because divestment has been used as leverage by corporations to bring political, social, and/or economic change in countries where human rights have been violated, it is considered to be an ethical or moral action by business that can be used to promote human rights. In this way, investment and divestment can be seen as either ethical or unethical, based on moral foundations. In both Burma and South Africa, the democratic opposition coalitions encouraged multinational corporations to return and reinvest only after a democratically elected government was established.

Sanctions, selective purchasing, and disinvestment are additional actions that can be used along with divestment to bring about political, economic, and social reforms in a targeted country. Another strategy, constructive engagement, is the continuation of economic activity between a corporation or government and a targeted country. Often those who oppose divestment support constructive engagement as a viable alternative, maintaining that the ongoing economic relationship will bring about dialogue or pressure for change in the targeted country.