Ethical investors can force change by selling shares, not just talking to management

A new economic theory shows that when a company's harm to society grows with its output, ethical investors who sell their shares have a bigger impact than previously understood. This means simply walking away from a polluting company can force changes across an entire industry, not just at the firm level.

For years, many believed that 'divestment' by ethical investors was mostly symbolic, with little real-world effect on company behavior. This paper suggests that when environmental or social harm is tied directly to how much a company produces, exiting can be a powerful tool. It means that firms cannot simply buy off 'profit-driven' employees or suppliers to avoid addressing harm, because the ethical pressure trickles down.