Marco Becht Presents: Voice Through Divestment

2023-10-30 Mo 14:00 PDT :: Evans Hall 597 :: U.C. Berkeley :: No, it is not economic history but rather political economy, so sue me...

In-person in 597 Evans & by zoom at <https://berkeley.zoom.us/j/95165612221?pwd=d2QvcGFUMzBaNC9ydFk2V0gzMFZzZz09>: Meeting ID: 951 6561 2221 :: Passcode: 143574…

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Marco Becht, Anete Pajuste, & Anna Toniolo: “Voice Through Divestment” <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4386469>:

A common argument against divestment is that it discards voting power and has a small effect on stock prices. We argue that divestment is a statement of disapproval that aligns actions with words for effectiveness. We show that the “Go Fossil Free” divestment movement is a narrative with impact. Viral divestment pledges depressed the share prices of all high carbon emitters, including those with no divestment. Peak virality coincided with a concurrent rise in the carbon premium and preceded net-zero commitments. The introduction of these commitments effectively recast divestment from a moral statement to a strategic exercise in risk management…

The things that I found most interesting in the paper was the last point made in the abstract. Stigmatizing target companies made shareholders in them and in other fossil fuel companies wake up to the possibility that regulation was not the only carbon risk. If Elon Musk can quadruple the price of GameStop and pay 50% above market for Twitter for the LULZ, more serious people who see the fututre of humanity on the line may be able to impinge your value by making it illiquid—even if the flow of dividends continues uninterrupted.

I was also very happy to see that serious data work was done: the divestment pledges from the “Go Fossil Free” campaign and the use of Twitter-as-it-was to measure the virality and media attention of the divestment movement were cool. I am not sure I believe the negative effect on the stock returns of high-carbon emitters not just in the short term but in the long term, but the data say what the data say. Yes, Heinkel & al. (2001) are right to point out there are huge numbers of unconcerned investors. But, as Larry, Robert, Andrei, and I pointed out long ago, such stabilizers have to be both unconcerned but also aware—and almost all of the unconcerned are off doing other things, plus for them climate-activist trader risk is as real as any other risk.

Yes, causation. But it is the correlation that is written in stone, and once you identify the correlation you can argue about causation using lots of kinds of evidence. Pretending that we can say nothing without natural or unnatural experiments is an insult to the reasoning powers of the human brain. Yes, heterogeneity. But it is good practice to concentrate on the average effects first.