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Encampments sprang up on university lawns across the world this spring, with students loud in their demands for institutional divestment. One of the primary calls is for their universities to divest from companies involved in the manufacturing of arms used in the ongoing humanitarian crisis in Gaza.

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Financial sector divestment from companies deemed unethical or unsustainable has seen considerable scrutiny in recent years. Critics, including this author, have highlighted occasions in which divestment fails to yield any significant financial impact on targeted companies and how alternative strategies, such as continued ownership and engagement, can be more effective avenues for tangible results. Academia remains split on this thorny subject, yet in the case of Gaza, there is a strong case for divestment.

It is well established in academic circles that isolated divestment does little to change business strategy or to reduce funding available to companies. In order to make an impact, the divestment needs to be systematic, conducted by numerous institutions with significant combined financial might. While such cases are rare, research is beginning to demonstrate examples of viral divestment campaigns causing severe share price depression, most notably in the fossil fuel divestment movements of the twenty-first century.

Even if divestment doesn’t affect the company financially, the call to action can prove effective in a different way. By combining the demand for divestment with public statements explaining the misalignment with core values and principles, investors can stigmatize companies, shifting public discourse in a desired direction. When even the financial industry acknowledges an injustice with which it refuses to be associated, wider society is compelled to take notice. The announcement of intent to divest can depress stock value even if the act of withdrawing the capital does not. Further, divestment campaigns can raise awareness for consumer boycotts, shown to be powerful tools for driving change. Divestment, therefore, can be more powerful as a social argument than an economic one.

We saw this series of events during South African apartheid. Investors, led by universities and student activism, withdrew capital systematically and loudly, calling for an end to apartheid. The coordinated and widespread nature of this divestment means it may have been one of the few times in history that institutional investors materially affected the balance sheets of a country’s companies. Yet any financial damage suffered by those companies wasn’t the most significant outcome of the movement. By divesting publicly, those investors sent a message to policy makers that their financial system, and the public they represent, wouldn’t tolerate their money being used to support apartheid. State-imposed economic sanctions followed, which were critical in isolating the South African economy and applying pressure to the government to end apartheid.

This brings us to the current war on Gaza. The calls from students to support Palestinian liberation by disclosing and divesting from companies providing weapons to Israel are growing louder. In this case, divestment may trump engagement; while the latter can be utilized to improve governance and transparency, it can’t change the core business model of a company, nor is it likely to alter Israeli military mindsets.

Will the divestment of universities from companies arming Israel affect the arms companies themselves? Maybe, or maybe not. Their revenue won’t be greatly impacted by the limited amount of capital universities are able to divest. But what can be shifted is discourse. Universities are the intellectual epicenters of our society, built to be voices of logic, reasoning, and rigor. A public commitment to divest from arms companies from these universities would be very powerful indeed.

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Oxford University Press. Sponsor: The Society for Financial Studies.
European Council on Foreign Relations
Southern Economic Journal, Vol. 86, No. 2 (October 2019), pp. 503–529
Southern Economic Association
Consilience, No. 13 (2015), pp. 247–265
Columbia University
Minerva, Vol. 24, No. 2/3 (June 1986), pp. 223–241
Journal of International Affairs, Vol. 46, No. 1, Sub-Saharan Africa: Dilemmas in Political and Economic Development (Summer 1992), pp. 193–217
Journal of International Affairs Editorial Board