APG wants company board members to consider integrating environmental, social and governance criteria into their corporate remuneration policies, according to the money manager's updated corporate governance and voting policy published earlier this month.
“Several Dutch companies have started linking a sustainability target to remuneration,” said Claudia Kruse, head of sustainability and governance at APG, which has about €275 billion ($375 billion) in assets under management, primarily for the €242 billion Stichting Pensioenfonds ABP, Heerlen, Netherlands.
For example, Royal Dutch Shell PLC has established a scorecard system to reward executive performance that includes environmental and social indicators specific to the business, according to Ms. Kruse. Within the appraisal, about 20% is based on sustainability and directly affects the level of annual bonuses.
“We would like more companies to consider whether it's appropriate to consider sustainability in the remuneration policy,” she added.
According to the updated policy, APG also expects board members to explain their decisions regarding whether ESG criteria should be integrated into the remuneration policy. The criteria should also be measurable, transparent and relevant to sustain and create value for the company.
“Remuneration is only one aspect of corporate governance,” Ms. Kruse said. “What's most important is how the board performs within a company's overall governance framework.”