As all of us witness the tragic end to the United States’ 20-year military involvement in Afghanistan, we have been asked if there are ways we as investors can promote peace. While our short answer is an emphatic “yes,” the nuances and limits to what investors can do are worth exploring in more detail.
The most straightforward approach for those who wish to use their investment dollars to oppose state-sponsored violence is divestment. As a firm, for instance, we fully screen out potential investments in weapons or defense, private prisons, or gun manufacturing and retail. We do this with deep research and the help of a range of resources, from industry screens within the subscription-based Bloomberg database of companies, to the excellent arms industry databases produced by the Stockholm International Peace Institute (SIPRI), to internally-produced screening on gun retailers and even the NRA’s own list of its top industry allies.
But does divestment work? Even the widely praised divestment campaign against apartheid in South Africa has been shown to have had little direct effect on the stock prices of the companies involved. This is because when an investor with ethical concerns decides to divest and sell a stock, a less ethical investor is typically standing by, looking for a bargain. The net effect on a company is minimal.
Instead, where divestment can be highly effective is in the social stigma it puts on industries and on specific ways of doing business. Actions as simple as mentioning, in this article, that prisons and immigration detention facilities are an important business segment for Aramark, or that software products from companies like Palantir Technologies and Motorola Solutions are heavily used in the surveillance of immigrants, prisoners, and predictive policing, or that Boeing not only manufactures fighter jets, but also designed a surveillance system for the US-Mexico border, can all add to public pressure on companies (and ultimately governments) to change how they do business. Some of these examples are drawn from the excellent divestment database of the American Friends Service Committee (AFSC), another example of the amplification effect of divestment campaigns. Joined with boycotts, protest movements, and other forms of activism, this amplification becomes even more powerful.
Investors with the time and resources—or with activist managers leveraging their aggregated assets—can go beyond divestment, actively voting shares and pursuing direct engagement with companies to stop them profiting from violence. Shareholder voting is a powerful tool for investors to express their views to company management, particularly when shareholder resolutions directly target practices that support violence or endanger human rights. Even a significant minority of investor votes can ultimately cause companies to change, thanks to the likelihood that shareholder movements will continue to grow and amass more votes over time if not addressed (another form of amplification).
Like divestment and shareholder voting, direct corporate engagement by investors can build pressure through public stigma. But it carries the further expense for companies of managing the engagement, compounded by the risk that unsatisfied shareholders will ultimately file resolutions anyway, forcing them to consider business changes not of their choosing. Some analyses have suggested engagement is more effective than divestment at producing direct results at specific companies. Among our own current engagements, several are focused on improving human rights and making violence unprofitable—topics on which most companies are at pains to show they are listening.
While we mourn the manner in which the US military occupation of Afghanistan is ending, as investors we are renewed in our commitment to work for a more peaceful world. If we can contribute to the reduction of factors such as global inequality, mass incarceration, and the production and dissemination of weapons, we hope in a small way to help undermine the context for state-sponsored violence.