Divestment is the process of selling an asset, often used in reference to companies or governments selling assets for various reasons, such as generating cash or responding to social or environmental policies. Divestment can also occur when restructuring a financial portfolio or to distance from businesses promoting social ills.
Also known as divestment, divestment 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. People may divest for a number of different reasons, including the need to generate cash to pay off outstanding debt or to finance a new project. Companies may choose to divest certain assets for the same reasons, as well as in response to social or environmental policies adopted by the business operation. Governments may also choose to divest certain assets 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 in reference to the divestment of company assets or government holdings rather than assets owned by an individual. Sometimes the sale of assets is triggered by a change of direction within the company. For example, if a company plans to slowly move to a business model that relies more on Internet sales and less on maintaining traditional brick-and-mortar outlets, the company may begin to divest specific real estate.
Divestment can also take place when company officers choose to restructure a financial portfolio in response to changes in their social or environmental stances. This may involve selling shares and other investments in companies that do not support those same positions. Instead, proceeds from divestment activities are used to purchase interests in different companies that are in line with the corporation’s social and environmental ethics.
Corporate and government divestment sometimes occurs when a given investment is found to be linked to a business that promotes social ills such as racism, gender inequality, or operates in a way that has a pronounced negative impact on the environment. Doing so sends a clear message that the company does not support such activities and does not wish to be connected with their propagation in any way. Often, the funds generated from the sale of those assets are used to invest in other companies that promote ideals that are in harmony with the investor’s social and environmental mindset, allowing the company to still enjoy some form of return on those assets. money.
In some cases, divestment occurs on an as-needed basis, such as raising capital to handle a short-term cash flow problem. At other times, the divestment is a structured action plan designed to help the individual or business move in a specific direction. For example, a company that is in the process of migrating production of one type of product to another may systematically sell off assets associated with the previous business model as it phases out production of now-obsolete goods. At the same time, the funds generated from those sales can be used to establish new production facilities and equipment for use in manufacturing the company’s new product line.
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