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Eurosif (European Sustainable Investment Forum) today publishes a report highlighting critical challenges and opportunities for companies in relation to remuneration, incentives and long-term sustainability. Research for this theme report was compiled by responsible investment research specialists EIRIS.
Research highlights and recommendations for shareholders and regulators include:- 29% of FTSE Eurofirst300 listed companies have some commitment to linking remuneration to ESG performance – although concerns exists around the extent to which performance targets are set as ‘soft targets’ thereby guaranteeing a minimum level of bonus.
- Financial institutions account for 23% of the FTSE Eurofirst300 index but only 16% of financial institutions have an ESG-linked remuneration system.
- Shareholders should engage with companies by voting against unacceptable remuneration packages and calling for and taking part in shareholder dialogue in determining remuneration policy.
- Regulators should promote active dialogue between companies and shareholders by legislating for a binding “say on pay” vote and setting appropriate guidelines to promote good remuneration practices and disclosure.
In the aftermath of the global financial crisis, remuneration policies and specifically the level of bonuses of senior executives of companies and traders continue to hit the headlines. Investors and regulators have expressed concern that remuneration structures may have contributed to excessive risk-taking and are asking for a stronger focus to be placed on long-term reward schemes and sustainable growth.
Matt Christensen, Executive Director of Eurosif, says “ESG issues are increasingly recognised as being linked to a company’s’ long-term financial stability. It is therefore critical that ESG concerns be integrated into a company’s business strategy, including directly in their remuneration guidelines.”
The report was presided over by a steering committee of financial analysts and foundations to debate the issues and develop concrete ideas for recommendations going forward. The steering committee included representatives from CM-CIC Asset Management, Ethos Foundation, Groupama Asset Management, Henderson Global Investors, MACIF Gestion, PhiTrust Active Investors, Robeco and Société Générale Gestion.
Stephanie Maier, Head of Research at EIRIS states, “As calls from investors, regulators and NGOs to link extra financial ESG issues to executive remuneration increase, our research shows that relatively few European companies are currently doing so. Furthermore, approximately half of the companies that link remuneration to ESG issues do not clarify which ESG areas are linked to the remuneration. ESG targets should be quantified, time-bounded, verifiable and stretching.”
These Eurosif briefings aim to guide policy makers, mainstream and specialist SRI investors, pension fund trustees, and companies towards understanding risks that are not consistently integrated into traditional financial analysis, but which have the potential to influence companies’ shareholder value and fund managers’ investment decisions.
Stay tuned for four more reports of this type from Eurosif in 2010. The list of confirmed topics will be published in Eurosif’s next newsletter, due out at the start of February.
To view the remuneration report please go to: http://www.eurosif.org/publications/sector_theme_reports/remuneration
