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Divestment is the process of successfully completing the sale of an asset, often used to dispose of corporate or government holdings for various reasons such as generating cash or responding to social/environmental factors. It can also occur when a company’s officers choose to restructure their financial portfolio. The funds generated from divestment activities are often used to invest in other companies that promote ideals that are in harmony with the investor’s social and environmental mindset.
Also known as an assignment, an assignment is the process of successfully completing the sale of an asset. This makes divestment the opposite of investing, a process that involves the successful acquisition of some type of asset. Individuals may engage in divestment for a variety of different reasons, including the need to generate cash to settle outstanding debt or to finance a new project. Companies may choose to dispose of certain assets for the same reasons, as well as in response to the company’s social or environmental policies. Governments may also choose to release some resources from time to time, often in response to social or environmental factors.
While divestment is simply the act of selling an asset, the term is generally used to refer to the disposal of corporate assets or government holdings rather than assets owned by an individual. Sometimes, the sale of assets is prompted by a change of direction within the company. For example, if a company plans to slowly transition to a business model based more on Internet sales and less on maintaining traditional retail outlets, the company could start divesting from specific real estate holdings.
Divestment can also occur when a company’s officers choose to restructure a financial portfolio in response to changes in its social or environmental standings. This may involve selling stock and other investments in companies that don’t support the same positions. Instead, proceeds from divestment activities are used to buy stakes in different companies that are in line with the company’s social and environmental ethics.
Corporate and government divestment sometimes occurs when a given investment is found to be tied to a business that promotes social ills such as racism, gender inequality, or operates in a manner that has a pronounced negative impact on the environment. This sends a clear message that the company does not support this type of activity and does not want to be connected in any way to their dissemination. Often, the funds generated from the sale of such assets are used to invest in other companies that promote ideals that are in harmony with the investor’s social and environmental mindset, while still allowing the company to enjoy some type of return on those funds.
In some cases, divestment occurs on an as-needed basis, such as in the generation of capital to handle a short-term cash flow issue. Other times, the divestiture is a structured action plan designed to help move the individual or business in a specific direction. For example, a company that is in the process of migrating from manufacturing one type of product to another may systematically sell assets associated with the old business model as it phase out production of the now obsolete assets. At the same time, funds generated from those sales can be used to set up new manufacturing facilities and equipment for use in manufacturing the company’s new product line.
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