Climate-linked pay on the horizon for Australian banks, report claims

December 10, 2021

Australian bank leaders could see their pay linked in part to achieving climate goals as investors continue to increase the pressure on companies over environmental issues.

An analysis by investment bank Citi has found that 12 companies listed on the ASX200 announced in 2020 that executive pay would be linked to achieving climate goals, as reported by The Sydney Morning Herald.

Energy companies were leading the way on this move, Citi said, as investors – in particular, major pension funds – put pressure on them to make long-term carbon emission reductions.

The next target for investors could be the banking sector, Citi’s report suggested, as investors were likely to hold them to a higher standard than the minimum levels of reporting introduced by financial regulators.

“More sustainable financing is likely to remain a key issue for investors, and we expect that given global trends to link remuneration and sustainability, it could be linked into scorecards given the need to introduce more hard measures,” the Citi analysts wrote.

A separate analysis of ASX200 companies, conducted by PwC, argued that investors’ expectations of listed firms were developing faster than the actions taken by corporate leaders were being implemented.

Matthew Lunn, ESG assurance lead at PwC Australia, was quoted by Business Insider Australia as warning that some critical areas of sustainability were being ignored by listed companies.

He said that there was “enormous investor-driven demand” for ESG commitments and data, which presented companies with a chance to “impress capital markets and reap the rewards” of improved reporting and strong pledges.

Australian banks have been under intense scrutiny for several years. A Royal Commission inquiry into the sector’s behaviour and conduct in 2018 cited remuneration policies as a key contributor to misconduct by banks across multiple areas of operation.

Catch up on the latest in Australian ESG developments by reading Minerva’s latest briefings:

Minerva Briefing – Australia AGM Season 2021

Minerva Briefing – Australia ESG Update

Last Updated: 10 December 2021