Executive Summaries

• Published date: 01 March 2023
• Date: 01 March 2023
• DOI: http://doi.org/10.1111/jacf.12563

DOI: 10.1111/jacf.12563

EXECUTIVE SUMMARIES

LESSONS FOR ESG ACTIVISTS: THE CASE OF

SAINSBURY’S AND THE LIVING WAGE

by TomGosling

Activists and NGOs are using shareholder proposals as a way of

catalyzing corporate action on issues as diverse as climate change,

biodiversity loss, human rights in supply chains, and employee

welfare. This paper sheds light on the factors that investors should

consider when deciding their stance on such shareholder proposals

through the lens of a detailed case study: the shareholder proposal

coordinated by the UK NGO Share Action, urging the super-

market group Sainsbury’s to become an accredited Living Wage

Employer.

This case is analyzed using a framework designed to help

investors analyze ESG issues, which was developed during 2021 by

academics at London Business School in collaboration with The

Investor Forum, a UK body that promotes and enables collabo-

rative investor engagement. The three-part framework encourages

investors to consider whether the ESG issue is material either to

the company or the stakeholder, whether the company has effi-

cacy, meaning that it can address the issue in a way that creates

stakeholder value that exceeds the cost, and whether the investor

has comparative advantage in addressing the issue compared with

other actors.

Applied to the Sainsbury’s resolution, the analysis shows the

case for materiality is not compelling. It is not obvious that raising

employee wages will create long-term value at Sainsbury’s. Nor

can raising the wages of a single supermarket effectively address

the “systemic risk” of inequality highlighted by ShareAction. Nor

do shareholders have great efficacy in addressing income inequal-

ity across society, and indeed increasing wages for one group of

employees at Sainsbury’s is likely to be at best a transfer between

different groups of stakeholders, including the company’s cus-

tomers, potential future employees, and shareholders. Finally, the

role of setting minimum wages is most effectively fulfilled by gov-

ernments, so investors do not have comparative advantage. The

strongest case for supporting the resolution is a moral case, but

forinvestorstopursuethisrequiresthemtohaveaclearmandate

from clients.

This case provides lessons for ESG activism and illustrates how

the LBS-Investor Forum framework is not a free pass for investors

to reject environmental or social resolutions, by showing how

the framework would have endorsed support for a shareholder

proposal on deforestation tabled at P&G’s annual meeting in

2020.

STAKEHOLDER CAPITALISM: WHAT IT IS,

WHAT IT ISN’T, AND A NEW MODEL FOR

MEASURING STAKEHOLDER TRADE-OFFS

by Gregory W. Brown and Gerald D. Cohen

The broadening of a business’s mandate beyond maximizing

profits to “stakeholder capitalism” is exceedingly complex. Public

and private sector leaders alike need guidance. Simply jettisoning

profit maximization is not a sustainable solution.

The authors’ find that investor preferences toward ESG factors

that are reflected in corporate actions will lead to better societal

outcomes. Their approach provides a framework allowing for a

clear understanding of the optimization problem facing corporate

decision-makers in an economy with investors who value more

than just financial returns.

The model has specific implications for management decision

making. Most importantly, profit maximization is not the same

as maximizing shareholder welfare or even wealth when investors

value nonpecuniary company characteristics. Certain actions that

do not improve cash flows can still positively affect stock valu-

ations if investors value these actions for other reasons such as

preferences for environmentally sustainable operations.

Substantial clarity about the returns from ESG investing can

be achieved by considering a simple two-by-two framework where

one considers pecuniary and nonpecuniary factors versus invest-

ment horizon. In the short run, appreciation of ESG benefits

for both pecuniary and nonpecuniary considerations will generate

above-average investment returns. When no clear win-win solu-

tions exist, the only sustainable model still examines trade-offs

through the lens of shareholders’ preferences for societal benefits.

In the long run, however, investors seeking nonpecuniary

ESG benefits should expect to earn below-average investment

returns because they are paying a premium for such companies

(a “greenium”), which must then be reflected in lower expected

returns.

BEHIND SCHEDULE: THE CORPORATE

EFFORT TO FULFILL CLIMATE

OBLIGATIONS

Joseph E. Aldy, Patrick Bolton, Marcin Kacperczyk, and Zachery

M. Halem

The authors look back to the 2015 Paris Agreement to cut

greenhouse gas emissions to see what progress has—or has

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