The Advisors' Blog

Check out this post from Farient Advisors for a helpful table summarizing institutional investor policies on ESG in compensation plans. The policies are categorized by “No Policy,” “Policy Does Not Require ESG” and “Policy Expects/Requires ESG” as described further by this excerpt:

Large investors, in particular, are demanding that companies adopt sustainability strategies and targets, diversify their boards, and disclose ESG information. A more recent development, however, has been the investor’s role in driving the incorporation of stakeholder measures into incentive plans.

While many investors do not have a formal policy on incorporating ESG measures into compensation plans, some of the largest asset managers have released specific policies on their expectations. BlackRock and Vanguard, for example, are pushing companies that use stakeholder measures in incentive plans to prove that they have the same level of goal rigor as that used for other financial and non-financial metrics.

Meanwhile, other global investors such as AllianceBernstein, Legal and General, Allianz, Amundi, and UBS have engagement policies that encourage the adoption of stakeholder incentive measures, and particularly climate measures for companies in certain industries. It should be noted, however, that some of these investors are not asking for a pay connection to all ESG goals. In fact, some investors are making the linkage to only a part of the “E,” such as climate targets.

To stay up to date on constantly evolving expectations and practices, navigate to our “Sustainability Metrics” Practice Area, where we continue to post resources on the latest trends.

– Meredith Ervine