Emblazoned in red across a large banner at Sacramento State University are the worlds “Divest from Israel…Stop Funding Genocide.” Similar calls are reverberating through a number of US university campuses, such as Columbia, NYU and UCLA, where, in the recent months before graduation, there had been a surge in student protest encampments. Across the US, similar sentiments have reverberated on university campuses, leading to events like Duke graduates walking out at their graduation ceremony, graduation ceremonies cancelled as a whole, and presidents of Harvard and UPenn resigning.  These protests, driven by concerns over the Israeli-Palestinian conflict and human rights violations, have sparked intense debates on campus and beyond. The escalation of student activism into demands for disclosure and divestment of Israeli-linked investments has placed pressure on university administrators to respond and brought billions of dollars’ worth of endowments to the forefront of public scrutiny.

While the demands for divestment are primarily rooted in social and political issues, it is important to understand how they may apply to the ESG investment landscape and what the implications are for fund managers.

The Case of Israeli-Related Businesses

The student protests for divestment from Israeli-related businesses primarily denounce/ are in response to the Israeli government’s policies towards Palestinians and the alleged human rights violations in the occupied territories. Students argue that investing in companies that contribute to or support these policies contradicts the social responsibility of universities. They argue that divestment is a way to express solidarity with the Palestinian people and pressure companies and governments to change their behavior.

History appears as an echo chamber when it comes to student divestment protests. While the protests related to the Israel-Palestine conflict stand as the largest movement in recent history, it is certainly not the first.  The most successful nation-wide divestment campaign was in protest of the South African Apartheid in the 1970s and 80s. 55 universities and colleges were partially or fully divested from the cause by 1985.¹  Although the impact of such divestment cannot be quantified, Nelson Mandela, the famous South African anti-apartheid activist and the first president of South Africa, said that divestment was crucial for the end of apartheid and thanked universities for their efforts.²

The Interplay of Divestment, ESG and the UN Sustainable Development Goals

The interplay between divestment, ESG considerations and the UN SDGs (which serve as a benchmark to measure the progress of sustainable development) lies in their shared objective of promoting sustainable and responsible investment practices. Divestment refers to the action of selling or disposing of investments or assets, and divestment campaigns, driven by social and ethical concerns, seek to reallocate investments away from companies or industries that conflict with certain values or goals. This aligns with the “S” social pillar of ESG, which encompasses factors such as human rights, labor practices, and community impact. Moreover, divestment initiatives often aim to contribute to broader societal objectives, including the UN SDGs, which provide a comprehensive framework for addressing global challenges such as poverty, climate change, and inequality. By divesting from companies that contradict the principles and targets of the UN SDGs, investors can redirect their capital towards enterprises that actively contribute to sustainable development, thereby fostering positive social and environmental outcomes.

In recent years, student-led campaigns have put pressure on educational institutions to divest from companies or industries that conflict with their values and sustainability goals. The governance dimension of ESG comes into play as these protests call for greater transparency, accountability, and responsible and sustainable decision-making within the governance structures of universities and colleges. They call for the establishment of transparent governance frameworks that involve diverse stakeholders, including students, in investment decision-making and ensure that investments align with the institution’s sustainability objectives and the SDGs. Thus, governance considerations are vital to ensure that universities and colleges adhere to principles of ethical investment and responsible stewardship of endowment funds.
As a result of student pressure, educational institutions are increasingly adopting governance reforms to address these concerns. Some universities and colleges have established committees or advisory boards responsible for overseeing ESG considerations in investment decisions. They have enhanced transparency by publicly disclosing investment holdings and reporting on the progress made towards sustainable investment goals. These governance reforms aim to address the demands of student protesters and demonstrate a commitment to responsible investment practices that align with the SDGs.

Balancing Fiduciary Duty and Social Responsibility

The divestment protests on college campuses force institutions to grapple with the tension between their fiduciary duty and their social responsibility. Universities and other institutional investors face a dilemma when assessing their investments. On one hand, they have a fiduciary duty to generate returns. On the other hand, they must consider the social implications of their investments and align them with their institutional values. While divestment may be seen as a powerful tool for social change, some argue that it is not the most effective strategy. Critics of divestment argue that engagement and dialogue with companies can lead to more significant impacts, as investors can use their influence to push for positive change from within.

The Broader Implications

The student protests for divestment are part of a broader trend in socially conscious investing. Investors are increasingly recognizing the importance of incorporating social considerations into their decision-making processes. The protests serve as a reminder that ESG investing is not solely focused on environmental factors but also encompasses social issues that reflect the values and concerns of stakeholders achieved through more sustainable governance practices.

Conclusion

The recent student protests on college campuses calling for divestment from Israeli-related businesses shed light on the intersection between social activism and ESG considerations. They highlight the evolving landscape of responsible investing, where social factors play a crucial role in investment decision-making and governance factors are crucial to being conscious and sustainable investors. These protests serve as catalysts for discussions on the broader implications of ESG investing and the role of institutions in driving social change. Ultimately, they reinforce the need for investors to carefully consider the social pillar within the ESG framework and make informed decisions that align with their values and stakeholder expectations.
It remains to be seen whether such drives in social activism result in real sustainable action with longer term benefits or only short lived ones as an exchange to temporarily hold the freedom of expression at bay. As a business and investment manager, it is therefore important to take into account stakeholder demands and trends in order to protect interests and generate returns of value.

About the Authors

Celine Wang is a Summer Associate in HM.

Cora Ang is a Partner at HM, based in Hong Kong. She provides support to businesses on ESG consulting, regulatory guidance and outsourced legal advisory.

For further information, contact:
Cora Ang: Partner | [email protected] (https://hmstrategy.com/)

Disclaimer: The material in this post represents general information only and should not be relied upon as legal advice. Holland & Marie Pte. Ltd. is not a law firm and may not act as an advocate or solicitor for purposes of the Singapore Legal Profession Act.

¹ “Apartheid Divestment Campaigns“, Tufts University Prison Divestment.

² Aw, S. “Divestment 37 Years Later: A History of Stanford’s Divestment“, The Standford Review, November 6, 2014.