The Advisors' Blog

As most folks who work with compensation committees already know, many companies have changed their approach to ESG metrics over the past year or two. What tends to be more interesting than the existence of updated metrics is how changes are being communicated internally and externally – and how they’re being perceived. This “Sustainable Views” article (an offshoot of the Financial Times) has an interactive chart that parses proxy statement disclosures by 20 large companies from 2021 to 2026. Here are a few key takeaways:

– Sustainable Views’ analysis of the top 20 US companies by revenue finds large corporations are becoming vaguer about linking executive pay to sustainability goals, or dropping the linkage altogether

– While some companies continue to disclose specific sustainability-linked metrics or weightings in executive pay, most rely on broad qualitative assessments with limited transparency around targets or payout calculations

– Diversity, equity and inclusion goals saw the sharpest retreat over the period amid growing political backlash against corporate DEI programmes in the US

While it’s tempting to reduce the ESG shift to punchy graphics and sound bites, the truth is that compensation committees and advisors are facing a number of complexities and situations that are evolving in real time. The need to balance litigation risks, motivating executives, enhancing shareholder value, maintaining credibility with stakeholders, and other factors makes it unlikely that there will be easy answers, let alone a one-size-fits-all approach. Shareholder engagement with significant investors and robust internal discussion and alignment may not be super flashy, but they are usually good starting points.

– Liz Dunshee