What does 'divestment' refer to in sustainable investing?

Divestment in the context of sustainable investing specifically refers to the strategy of selling off investments associated with companies or sectors that do not align with environmental, social, and governance (ESG) criteria. This approach is often adopted by investors who wish to minimize their financial exposure to industries that contribute negatively to society or the environment, such as fossil fuels, tobacco, or companies with poor labor practices.

By opting for divestment, investors send a clear signal about their values and priorities, potentially encouraging companies to adopt more sustainable practices. This action can lead to a reallocation of capital towards businesses that are committed to ESG standards, ultimately promoting a more sustainable economy.

The other options do not accurately reflect the concept of divestment. Investing more into profitable companies might align with some investment strategies, but it doesn't align with the intent of divestment. Reducing carbon emissions in investment portfolios focuses on improving portfolio sustainability but does not inherently involve selling off non-ESG aligned investments. Increasing stakes in environmentally harmful sectors contradicts the goals of sustainable investing and divestment, as it would imply a reinforcement of practices that many investors are seeking to eliminate.