Peter Reilly is Senior Director, Corporate Governance at FTI Consulting; and, Aniel Mahabier is CEO of CGLytics. This post is based on a joint FTI Consulting and CGLytics paper authored by Mr. Reilly based on data from CGLytics. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here) and Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).
In recent years, the level of capital flowing into funds that incorporate ESG criteria has grown considerably and what was once an issue on the fringes of investment is increasingly part of the material financial analysis of a company’s value.
Consequently, ESG rating agencies (who help investors identify ESG risk) have grown in prominence; regulators have commenced a clampdown on so-called “greenwashing”; and, investors continue to pressurise companies to provide greater details on ESG factors likely to affect their business—either through engagement or, less frequently, shareholder proposals. Indeed, a recent report found that, at least based on publicly disclosed documents, climate change was the number one issue for institutional investors in their stewardship of investee companies.
In this post, we have analysed whether the ratcheting up of pressure on companies to enhance their ESG frameworks has permeated another important area—executive remuneration at UK and Irish companies. For three decades, pay has been identified as a key driver of C-suite behaviour. Despite what appears to be a relentless focus on ESG, the incorporation of ESG measures into executive pay packages has lagged somewhat.