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Three quarters of Iseq 20 companies link bonuses to ESG objectives

Three-quarters of the 20 largest companies in the Irish stock market now tie executive bonuses in some way to environmental, social and governance (ESG) objectives, as international investors increasingly demand that publicly traded groups adopt these non-financial targets as part of compensation packages.

The movement, from an almost stalled position two years ago, has accelerated in the latest round of annual reports in recent months, as companies prepare to hold in-person annual general meetings (AGMs) for the first time since the start of the Covid -19 pandemic. Yet variable executive compensation in Ireland and elsewhere remains primarily tied to financial measures such as earnings, return on equity for shareholders and cash flow.

Building materials giant CRH, whose chief executive Albert Manifold received record Iseq compensation of 13.9 million euros last year, said in its annual report that it is offering only 15% of awards in the framework of its executive performance share program for 2022 are linked to the ESG targets. These include measures to drive the company towards carbon neutrality, inclusion and diversity and revenue from products “with enhanced sustainable attributes”.

Paddy Power owner Flutter says it included “extremely difficult” safer play goals for two of its four divisions in its management bonus plans last year and expanded them to all divisions in 2022. company is also “actively considering” using compensation to “support and encourage our broader ESG agenda”.

A fifth of the Kerry Group’s long-term incentive plan since last year was tied to the company achieving milestones against its targets to cut carbon emissions by 55% and food waste by 50 % by the end of the decade.

Homebuilder Cairn Homes, which introduced a long-term incentive plan (LTIP) for chief executive Michael Stanley last year after a previous ‘founder’s stock’ incentive scheme proved less profitable than expected at the time of the group’s IPO in 2015, tied one-fifth of its short-term bonus and one-fifth of its LTIP to ESG issues.

Some companies, including Ryanair, in its latest annual report in March 2021, and ferry operator Irish Continental Group, failed to provide a breakdown of ESG weightings in variable compensation plans, even though their reports contain tons of environmental objectives.

Bank bonuses

State banks have remained subject to an effective ban on bonuses since the start of the financial crisis. Bank of Ireland, which is at the forefront of lobbying for a return to variable pay, said in its latest report that the ban means the group “clearly cannot link the group’s culture and values, risk culture, ESG objectives, client results and executive performance”. to remuneration”.

European companies are ahead of their American counterparts in terms of climate-related financial disclosures.

A quarter of U.S. companies included some form of ESG measurement as part of their leadership incentives last year, according to Glass Lewis, a proxy advisory firm that advises institutional investors on corporate governance issues. company and the votes of the general meetings.

Carlo Funk, head of ESG investment strategy for Europe, the Middle East and Africa at global investment management giant State Street Global Advisors, said the success of companies that incorporate ESG measures in compensation boils down to the disclosure of key performance indicators (KPIs)

“Companies need to set the right KPIs. If they don’t, it actually makes no sense,” Mr Funk told the Irish Times. “There must also be an establishment of key performance indicators that are agreed on a global scale.”

He said the work of the International Sustainability Standards Board, which was founded late last year and aims to establish disclosure standards that will enable reliable and comparable reporting by companies on ESG issues, would be “super important” for investors.