Few FTSE All World companies link executive pay to ESG criteria, according to a report from Sustainalytics.
The report, "The State of Pay: Executive Remuneration and ESG Metrics," is aimed at helping global equity investors assess how ESG criteria are factored into executive compensation, as a topic for corporate engagement.
While climate-related risks get more attention, most ESG-related compensation links address occupational health and safety risks, according to the report. Only 9% of FTSE All World companies link executive pay to ESG criteria to begin with, and most of those address occupational health and safety risks in the materials, energy and utilities sectors.
Of the 9%, 3.4% address occupational health and safety risks only, 2.3% address occupational health and safety and environment-related risk, 0.9% are environment only, 1.4% are general, and 0.6% are miscellaneous.
Transparency is still an issue when evaluating how ESG-related pay might incentivize executives, the report said. Less than 40% of all ESG-related pay are transparent about how targets are factored into executive pay and only 0.03% of the sample of 2,684 companies met Sustainalytics criteria for "highly transparent," with wide variation by market. The portion of firms regarded as relatively transparent in disclosing ESG-related compensation was 20% in Australia, 16% in Canada and 10% in France.