This first step is not part of the retirement account; it is about what we do not want to invest in. If we think of the investment account as something we are building, this first step can be thought of as clearing the ground before building.
Most environmental investors will agree that they don't want to build a comfortable retirement out of the actions of companies that are seriously damaging the climate, such as fossil fuel producers. Selling any shares in such companies puts an end to this. This is a one-time event, for an ethically compelling reason, and there is no real need to think about the effect of this divestment. The money will be put to work in the next steps, and that is where investors will try to maximize the long-term effect. Nevertheless, let us pause for a moment to consider the effects of divestment on the economy.
Direct Effect
The investor is paid for selling the shares, but where does this money come from? Not from the company — it comes from another investor, the buyer of the shares, and the money goes straight from the bank account of the buyer into the account of the seller. It never passes through the company's books, and so has no direct effect on the company's operations or profits and losses. In short, the company doesn't care if you sell your shares to someone else. Therefore, divestment has no direct effect on the state of the environment.
A company does not care which people own its stock.
Therefore, divestment has no direct effect on the state of the environment.
Indirect Effects
There can be slower, indirect effects, however. If the divestment is part of a well-publicized campaign, the campaign itself can raise the issue in public discourse, including considerations in finance, insurance, and political circles. See References 3-6 for citations on this topic based on past divestment campaigns. The general conclusion of those references regarding a divestment campaign is that "the direct impacts of divestment are small, but the indirect impacts, in terms of public discourse shift, are significant."
In any case, the company will not change practices that it considers essential or highly profitable. For example, as long as there is a demand for oil, oil companies will continue to provide it.
Indirect effects of divestment are relatively small.
However, well-publicized divestment campaigns can affect society's attitudes toward fossil fuel.
Back to Our Goal
After divestment, any resulting impact is a done deal. Now we must consider the real issue of concern: how to construct a retirement account to both grow and work in a transformative way.
More important for us is how to use a retirement account.