The Advisors' Blog

When it comes to ESG metrics, European investors have so far been more likely to take a stance in favor of the practice. Big global asset managers like BlackRock have disavowed having a strong view on whether executive pay plans incorporate ESG metrics and instead focus on transparent disclosure and structuring compensation programs in a way that incentivizes long-term performance.

Columbia Threadneedle – which still has a large focus on European-based companies, but also holds North American companies and is the asset management business of Ameriprise – is getting more specific. In a 9-page guidance document issued last week, the asset manager gives market stats and examples of companies employing ESG metrics in incentive plans, and lays out its expectations in a more detailed way than many other institutions. While most of the guidance defers to company judgment on how to use ESG metrics, it does take a stance on how important they should be:

We advocate that the total percentage of variable remuneration based on ESG metrics should be no less than 10%, regardless of whether one or a variety of metrics are selected. We believe weighting within a range of 10-20% is sufficient to incentivise executives while not overshadowing other strategic goals. Nevertheless, we believe there are circumstances where remuneration committees in their discretion may appropriately wish to increase that proportion where the business strategy allows or encourages.

And auditing:

In the UK and Europe, metrics must be audited as part of information disclosed in annual reports. In markets where this is not required, we expect metrics to be externally audited or verified. For example, Shell’s climate metric, which part of its executive remuneration is based upon, is audited, while Danone’s climate metric is based on its CDP climate score.

Columbia Threadneedle – which has “responsible investment” ethos – expects to see a growing number of companies adopt ESG-linked executive incentives. It cites statistics that more than half of S&P 500 companies and nearly half of FTSE 100 companies included at least one ESG metric in incentive plans last year.

Visit our “Sustainability Metrics” Practice Area for checklists and other resources that will help you stay on top of this rapidly shifting area.

We’ll also be sharing practical guidance about ESG Metrics at our virtual “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – coming up in only two weeks, October 12th – 14th. There is still time to register! Here’s the agenda – 18 essential sessions over the course of three days. Sign up online (with the “Conference” drop-down, and the “PDEC” options), email sales@ccrcorp.com, or call 1-800-737-1271. Bundle your registration with our “1st Annual Practical ESG Conference” and get a discounted rate!

– Liz Dunshee