Firms Fail to Disclose Sustainability Metrics in Executive Pay

Only 10 percent of S&P 500 companies disclose specific sustainability targets in executive compensation plans, according to a GMI Ratings’ study.

Sustainability Metrics in Executive Pay examines how sustainability metrics, such as environmental, health, safety, product and labor concerns, are being integrated into executive compensation practices.

Key findings include:

• A slim majority of S&P 500 companies (53.8 percent) cited at least one sustainability factor in shaping pay decisions;
• While a majority of companies in the S&P 500 incorporate sustainability factors into executive compensation decisions, only 16 percent name specific metrics used to measure performance; and
• More than 90 percent of energy and utility companies use sustainability metrics to determine a portion of pay, compared to less than 40 percent of telecommunications, technology, and cyclical consumer goods and services companies.

Institutional investors are increasingly integrating ESG factors into their investment decision-making, driven in part by the UN Principles for Responsible Investment, which has more than 1,200 signatories worldwide representing over $34 trillion in assets under management. Additionally, investors are placing greater importance on sustainability factors, including the linkage of sustainability performance metrics and executive compensation, GMI says.

Simultaneously, companies are focusing more on sustainability issues, stemming in part from concerns expressed by investors, regulators and other stakeholders.