(Credit: Canva)Environmental, social, and governance (ESG) factors are increasingly being used to determine executive compensation. According to a report by Fasken Martineau DuMoulin LLP, ESG is now incorporated into C-Suite contracts at a large number of companies across Canada.
The 2023 ESG Disclosure Study from Fasken can assist board members, and senior management teams by providing important information on how major Canadian corporations are managing board oversight, management, and disclosure of ESG-related issues within the current economy. The analysis examined public disclosures from over 80 TSX-listed companies, including those on the S&P TSX60 and 40 businesses that Climate Engagement Canada recognized as being among the biggest carbon emitters in the nation.
80% of CEC40 businesses and 67% of TSX60 companies incorporated one or more ESG factors in determining executive compensation, according to the study. In terms of these employers, 80% of CEC40 businesses and 67% of TSX60 companies reported that ESG metrics were most frequently associated with short-term incentives such annual bonuses.
Following the large majority of businesses in the oil and gas (93%), metals and minerals (92%), and financial services sectors, all conglomerates and businesses in the transportation and environmental services sectors reported utilizing ESG variables to calculate executive compensation (91%). Comparatively, just 20% of businesses in the industrial products sector disclosed utilizing ESG factors when structuring employee contracts.
The Study further examines a number of other key ESG governance issues, such as how a board and its committees are responsible for overseeing various ESG-related intitiatives. The research demonstrates that board committees today play a crucial role in the management of ESG, and specifically, environmental concerns.
According to research from Ceres in 2015, roughly 75 percent of large US companies didn't explicitly link executive compensation and sustainability. Over the past 5 years, this percentage has steadily decreased as more companies are incorporating ESG goals into employee, specifically, C-Suite, contracts. By 2030, Carrier intends hold executives accountable for performance on sustainability and ESG targets. Wendy’s will tie executive compensation to environmental, social, and governance performance and currently working to target reductions across Scope 1, 2, and 3 emissions, according to its 2021 corporate responsibility report. In 2022, Papa Johns became the first major US pizza delivery chain to announce that its ESG priorities will be linked with incentive compensation.
