Some 78% of publicly-listed firms link executive compensation to sustainability performance, a new report by KPMG International has found.
KPMG International examined 375 large, publicly listed companies across 15 countries for its report, Incentivizing long-term value creation: Linking sustainability metrics to board members’ pay, and found a growing link between sustainability and executive pay structures.
Sustainability targets
Some 88% of the companies analysed that specify sustainability targets in boardroom pay align them to topics that are material to their business, it noted.
The most common sustainability targets relate to climate change and a firm’s own workforce, often focusing on female leadership and injury rates, with regional differences noted in the adoption of sustainability-linked pay.
“Despite ongoing economic and geopolitical uncertainty, the findings make clear that linking executive compensation to sustainability performance is becoming increasingly widespread within the world’s largest companies,” commented Nadine-Lan Hönighaus, global ESG governance lead at KPMG International. “While there are some notable regional differences, there is a consistent global trend, that reflects the crucial role senior executives play in steering a company towards long-term value creation.”
EU and non-EU
Companies in the European Union, for example, are more likely to adopt sustainability-linked pay than non-EU companies. However, the UK and Australia – both non-EU markets – rank second and third in adoption rates.
‘This shows that even beyond the EU’s regulatory reporting requirements, companies are taking an ambitious approach to firmly anchoring sustainability in their organisation and the actions of their managers,’ KPMG International said.
In addition, companies outside the EU are typically less aligned to material sustainability topics than those within the EU – on average, 7.5 companies in non-EU countries fully align material sustainability topics and boardroom pay measures, compared with 8.7 companies in EU member states.
“For business leaders, transparency in linking sustainability performance to executive pay is key and for those companies at the start of the journey, now is the time to start thinking about incorporating sustainability targets into executive remuneration with a focus on relevant targets that are linked to material sustainability topics,” Hönighaus added. “The starting point should be a small number of performance indicators that are measurable, meaningful, and decisive in steering and improving a company’s sustainability performance.” Read more here.
