UK Accounting Glossary
Divestment (divestiture) is a term in finance and economics. It refers to the reduction of some kind of asset, for either financial or social goals. A divestment is the opposite of an investment.
Often the term is used as a corporate strategy, in which a company sells off a business unit in order to focus their resources on a market it judges to be more profitable, or promising. Sometimes, such an action can be a spin-off.
The term also refers to the reduction of investment in firms, industries or countries for reasons of political or social policy.
Examples of divestment for social reasons have included:
Discussion of divestment for social, environmental and political reasons has arisen frequently on college campuses. For example, taking into account faculty and student opinion, several university boards of trustees voted to divest from South Africa entirely during the 1980s, in some cases after widespread protests occurred.
In 2004, the Presbyterian USA church voted to selectively divest from companies with ties to the Israeli military in order to pressure Israel into ending the occupation of Palestinian land in the West Bank and Gaza. In 2005, the World Council of Churches followed suit.
Such divestment activities have brought the notion of “socially conscious investing” into the public eye. Under such a philosophy, investors intentionally invest in companies whose policies they believe to be specially aligned with their own interests, such as in environmental protection.
By divesting from certain sectors of the economy, and investing in others, such investors may intend to provide a market-based incentive for corporate social responsibility.
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This glossary post was last updated: 13th February 2020.