Only 10% of Firms Link CR Performance to Compensation

Even though 75 percent of the world’s 250 largest companies acknowledge that environmental and social “megaforces” such as resource scarcity and climate put their businesses at risk, only 10 percent link corporate responsibility performance to remuneration, according to a report by KPMG.

The findings from the KPMG Survey of Corporate Responsibility suggest that many companies are failing to provides incentives to their executives to manage these risks effectively.

Environmental and social risks such as climate change can impact supply, productivity, financial performance, reputation and brand value, the report says.

“It is disappointing to see that so many companies still shy away from quantifying these risk in financial terms and few factor in the management of these risks into executive remuneration,” says Yvo de Boer, KMPG’s global chairman of climate change and sustainability services.

The quality of corporate responsibility reports also shows room for improvement. The average quality score achieved by these global 250 companies for their CR reports is 59 out of a possible 100.

A key area for improvement is reporting on suppliers and the value, where average G250 reporting quality was 46 out of 100, followed by stakeholder engagement and governance, both with an average score of 53 out of 100.

A.P. Moller Maersk, a Denmark-based transport company, BMW, Cisco Systems, Ford, and Hewlett-Packard were among 10 companies that scored more than 90 out of 100 for CR reporting quality.The Netherlands-based finance, insurance and securities company ING, Nestle, Spanish oil and gas firm Repsol, Siemens and Total also scored more than 90 out of 100, the survey says.

Only 5 percent of these G250 companies reporting companies quantify and report the potential impact of environmental and social risk on financial performance.

A separate report released by Deloitte in December found that despite an increase in water security risks for US businesses, the majority of Standard & Poor’s 500 index companies lack strategic plans to address them.

Businesses are reporting more water-related risks, increasing 16 percent over 2012. And while 58 percent of reported risks are expected to affect businesses now or within the next five years, the number of risks with unknown timeframes have increased 23 percent since last year, according to the Deloitte report.