ESG Performance and Remuneration

I’m a member of a remuneration project with a company from the United Kingdom. Following up on the progress from last month, we have made additional progress, ran into some roadblocks, and responded well to them. 

Our project involves analyzing remuneration and ESG performance for companies in the United Kingdom. We look at the remuneration structure, which is essentially executive compensation, and focus on remuneration incentives for ESG performance. We then identify company ESG performance and a variety of other metrics to determine if ESG remuneration incentives drive ESG performance. 

Since the last blog post, our group has conducted a lot of work analyzing various companies and we’ve run into some roadblock with respect to tracking our data and finding information. We are required to dive into company annual reports which, ideally, will have all the information we need. As we’ve conducted more research, we’ve found this isn’t the case. Companies report many different facets of their data through either reports that are specifically focused on diversity, ESG, environment and sustainability, financial performance, or a variety of other metrics. As a result, our data acquisition process has taken longer than expected. 

Secondly, tracking our data has been more complex than originally anticipated. We have a primary spreadsheet to track each year of performance for companies. Ideally, companies report their remuneration data with their specific metric and percentage weighting, which is how much of the executive bonus or pay is made up of this specific metric. Those metrics include specific accomplishment criteria and their percentage weighting. For example, reducing carbon emissions can have a 50% accomplishment of reducing emissions by 20% and a 100% accomplishment of reducing emissions by 25%. If only 50% of the accomplishment is met, the executives would only receive 50% of the “reducing carbon emissions” financial bonus. 

However, not all company reports are designed this way - some reports simply indicate the metric exists without any accomplishment ratings, some state the metric was fully accomplished with no other information, and some don’t specify any ESG related information pertaining to remuneration. This has resulted in our team having to input whatever data is there and meet together to determine if we have enough information to make a rational conclusion regarding the remuneration and ESG links for specific companies. 

Currently, we’re at a crossroads where we need to meet with the client to understand if our analysis on remuneration is adequate. The client has numerous years of experience with remuneration in the United Kingdom and will be able to gear us towards the right direction if we’re mistaken. For ESG, we’re confident in our research. We run into similar data issues to the remuneration section, but we’ve been able to find accurate information and sizable data to provide a cogent snapshot of company ESG performance. 

We’re meeting with the client within the next week and look forward to the next steps. We remain confident in our ability and strongly believe the client will have positive feedback for us and guide us in the right direction for whatever work is missing.