European companies fail to link executive pay to environmental, social, and governance (ESG) performance according to new research published by Eurosif (European Sustainable Investment Forum).
The report, produced in association with an investor-led steering committee including Groupama Asset Management, Henderson Global Investors, MACIF Gestion, PhiTrust Active Investors, Robeco and Société Générale Gestion, highlights what EUROSIF sees as “critical challenges and opportunities for companies in relation to remuneration, incentives and long-term sustainability.”
Research highlights and recommendations for shareholders and regulators include:
- 29% of FTSE Eurofirst300 listed companies have some commitment to linking remuneration to ESG performance – although concerns exists around the extent to which performance targets are set as ‘soft targets’ thereby guaranteeing a minimum level of bonus.
- Financial institutions account for 23% of the FTSE Eurofirst300 index but only 16% of financial institutions have an ESG-linked remuneration system.
- Shareholders should engage with companies by voting against unacceptable remuneration packages and calling for and taking part in shareholder dialogue in determining remuneration policy.
- Regulators should promote active dialogue between companies and shareholders by legislating for a binding “say on pay” vote and setting appropriate guidelines to promote good remuneration practices and disclosure.
Commenting on the publication of the research, Matt Christensen, Executive Director of Eurosif pointed out that investors and regulators have expressed concern that remuneration structures may have contributed to excessive risk-taking and are asking for a stronger focus to be placed on long-term reward schemes and sustainable growth. “ESG issues are increasingly recognised as being linked to a company’s’ long-term financial stability. It is therefore critical that ESG concerns be integrated into a company’s business strategy, including directly in their remuneration guidelines.”