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esg: companies plan to tie investment in social good to CEO salary

A group of leading conglomerates and corporations in India are adding environment, social and governance (ESG) as a new metric in variable CEO compensation, as well as integrating it into key result areas (KRA) for senior management. .

The moves come amid growing pressure from investors to allocate capital into companies that not only generate financial returns but are also invested in social good, senior board members and promoters said. of the company.

The pandemic has pushed the discussion to a fever pitch, with many boards devoting significant time in their strategy meetings to discussing ESG issues, amid growing demand from all stakeholders, including investors, boards directors, employees and consumers, said the company’s top executives.

The increasing frequency of freak weather and climate emergencies is also forcing investors to use their capital to engineer social change, making senior management accountable for ESG goals and tying these non-financial metrics to CEO and CXO compensation.

Harsh Mariwala, president of consumer goods maker Marico, said ESG has been a priority area for the company for several years, but is now part of senior management KRAs. “This is a huge push area for us and growing demand from all stakeholders…” he added.

“A significant portion of the board’s time today is devoted to discussing ESG issues. Going forward, companies’ market capitalization will be judged on this basis, making it a key component of senior management performance metrics,” said Harsh Goenka, President of RPG Group.

Diversified miner Vedanta is currently participating in a transformation program to integrate ESG into all aspects of corporate decision-making and performance assessment, said group CEO Sunil Duggal.

“Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities,” Duggal said. “There are continuing parallels between the unforeseen risks of a pandemic and the climate crisis, both of which have a huge impact on the global economy. This has made many investors and policymakers aware of the need to accelerate investment and progress in companies that prioritize ESG,” Duggal said.

At Vedanta, a significant part of the KRA of all employees, including senior management, relates to safety and sustainability performance and the company has further expanded the scope to include performance against its decarbonization program.

Tata Group companies such as Tata Steel, Tata Motors, Tata Consumer, Tata Power and Tata Consultancy Services have made ESG part of the deliverables for the top echelon.

“Sustainability functionality is one of the four main business objectives of the organization…It is one of the most important topics for the management team and is part of their KRA as well as the people’s KRA below them,” said Sanjiv Paul, vice president. President (Safety, Health and Sustainability), Tata Steel.

Board members stress the urgent need to link CEO compensation to ESG goals.

“Conversations have started in boardrooms to tie non-financial metrics such as ESG to variable CEO pay,” said Arun Duggal, non-executive chairman of ratings firm Icra and an independent director.

Early-stage venture capitalists are also looking to bet on startups that actively engage in ESG, as this is seen not only as the right thing to do, but also provides a business case to be able to attract and retain. high quality talent that can make and break the business.

“Companies that lack a consistent ESG alignment may end up failing to attract investor interest, despite strong financial performance,” said Siddarth Pai, founding partner and chief financial officer of the early-stage venture capital fund. 3one4 Capital, which was recently appointed as its Head of ESG. “Asset allocators are also looking for fund managers who prioritize ESG as an investment objective and can help infuse these principles into the DNA of their portfolio companies,” Pai said. “We will continue to pioneer this early-stage thinking to create a portfolio with focused alignment to their stewardship responsibilities.”

Textile giant Welspun has embarked on a transformation journey to enable a sustainable approach across all of its operations, including raw material sourcing, manufacturing, supply chain and waste recycling.

“Environmental and social concerns are making modern consumers more cautious in their fashion and textile choices. It is the responsibility of conscious brands not only to ensure that ESG parameters are optimally respected, but also that all stakeholders, including investors, customers and end consumers, have visibility into the processes. along the value chain,” said Dipali Goenka, CEO and Co-MD, Welspun India.