Where such action by sizeable investors leads to 'copycat' action by others, this can create a self-reinforcing trend that will affect companies' access to capital.
At present, such 'policy-based' divestment is largely confined to those companies with direct exposure to the most carbon-intensive parts of the energy value chain (thermal coal, oil sands etc). However, it is easy to see how these initial steps might extend to other companies in the energy value chain and also to companies exposed to issues that have investment relevance and also resonate with (retail) end investors. Tropical deforestation might be one such issue.
Strategy & planningFAQs
Is ‘divestment’ a concern? Which companies should be concerned?
Yes - it has become a concern in some sectors over the last two years. Whereas previously, 'negative / exclusionary screening' that was applied to individual funds was too small to have any impact on a company's cost of capital. However, 'policy-based' divestment has seen a number of sizeable investors withdraw all investment in certain companies or sectors - typically those most exposed to climate change.