In a recent investment policy meeting I found myself explaining the difference between “holding shares in…” and “providing capital for…” companies. The discourse, as many in investment management are experiencing, is how to respond to calls to divest from fossil fuel shares, by which protagonists mean shares in the oil producing companies. Doing this, they insist, is an ethical imperative.

But I wish to challenge this.

What counts as ethical?

The short answer is: Whatever your ethics says it is. A longer answer, I venture, can be broken into two categories: companies whose businesses are in activities you actively oppose; and companies whose businesses are in activities you want to change.

In the first category, we might be comfortable opposing manufacturers of cluster bombs. We have no association with their products and believe the world would be a better place if nobody else did either. We honestly don’t want income from these companies landing in our bank accounts.

In the second category, we might not like oil companies, but we continue to use their products either directly (e.g. driving, flying, heating our homes) or indirectly (e.g. cement and iron – two major consumers of fossil fuels). In this category we might feel uncomfortable about holding shares yet recognise that as contributors to such companies’ profits, it’s not unreasonable to accept a share of those profits in the form of dividends.

I realise that my explanation of this second category will cause some green investors to question my ethics, trivialising the divestment agenda that’s moving across our financial management space just now. But please bear with me.

Holding shares in…

This is where I wish to differentiate between “holding shares in…” from “providing capital to…” companies. Because holding shares in companies or not holding shares in companies makes absolutely no difference to the company itself. In fact I would argue that divesting from Second Category companies results in a greater concentration of share ownership by investors who care less about ethics than we do. Sometimes I have to explain that selling shares doesn’t mean repatriating capital from the companies themselves. It means selling shares to another investor. And how ethical is that?

So my preference is to hold shares in companies I wish to change, because as a shareholder I can do that more than if I am not a shareholder. This is shareholder activism.

This does not apply to First Category companies, because I have already decided that their profits are too toxic for me.

Providing capital to…

So this is where I think the real activity should be, if we want to make change over and above voting at AGMs. By providing capital to companies, perhaps new ventures, who are active in a space in which we ethically approve we put our money where our mouth is, as it were.

As an investment policy, it is of course more risky than simply eliminating an industry sector from our portfolio. And good governance when we’re responsible for money that isn’t ours must take this into account. However “impact investing“, as it is called, is a growing area and once the euphoria about divestment has calmed down, is likely to become an established “alternative investment” strategy alongside things like infrastructure, private equity and absolute return. Impact investing can be by way of either equity or debt capital.


Disposing of your BP shares doesn’t turn your portfolio into an ethical portfolio. It really doesn’t. It’s Greenwashing. It has an impact on the environment of absolutely nothing. In fact, I would argue as I did earlier that it has a negative impact as control is lost to investors who care less.

I appreciate that divesting from fossil fuels is the zeitgeist and perhaps reluctant investment managers will find it easier to just go along with this than to truly address how their capital can be used to make real change. I was at the sharp end of such a move back in June 2019. So my appeal is to stakeholders in funds with an ethical flavour to stop kidding themselves and to decide if they really want to risk their capital in ventures that bring about real change, or whether they want investment decisions alone to inform what shares to hold in their investment portfolios.