In many parts of the world, the importance of ESG factors for listed companies continues to grow. According to a Harvard Law School Forum article, 60% of companies report that ESG has a very important position. 81% of S&P 500 companies report on ESG issues. ESG reporting is also becoming increasingly important in other regions and countries such as Europe and Japan.
Central elements of such reporting by many companies are aspects that have already been part of their corporate activities for many years: diversity, ecological aspects, health and safety of employees. Other aspects include energy consumption and the conservation of natural resources.
The author of the article believes that it makes sense to link management remuneration to the achievement of ESG targets. To achieve this, the following steps are proposed:
• Make yourself clear: Which ESG components of the company have a clear relation to the business strategy?
• Perform an analysis of your value drivers: Understand which of the ESG factors have the greatest impact on the company’s short-term and long-term results.
• Identify Key Performance Indicators to achieve your ESG goals
• Develop a charging system that is aligned to the achievement of your ESG value drivers.
One of the central advantages of such a charging system is seen in the shifting of priorities among the central actors. According to the author, such a “tool” increases the incentive to integrate ESG factors into the company and the corporate culture.