UK asset management body wants disclosure of link between ESG issues and pay

Companies in the UK’s blue-chip FTSE 100 index should disclose how ESG issues are factored into executive pay, according to new guidance from fund management trade body the Investment Association, which represents firms with £5.7trn (€6.7trn) under management.

The IA wants companies to state in their remuneration reports whether their remuneration committees are “able to consider corporate performance on ESG issues when setting remuneration of executive directors”. And if a committee has no such discretion, “then a reason should be provided for its absence”.

And the fund managers want to know whether remuneration committees have “ensured that the incentive structure for senior management does not raise ESG risks by inadvertently motivating irresponsible behavior”.

The guidance – The Investment Association Long Term Reporting Guidance – is aimed at, in the IA’s words, “driving change in FSTE listed companies, which will help to boost investor confidence and address falling UK productivity levels”.It follows the IA’s call in October 2016 to abolish quarterly reporting in favour of “meaningful long-term reporting”. It sets out a detailed set of recommendations to help listed companies report more transparently and effectively on the long-term drivers of productivity, capital allocation, human capital, and company culture.

“The best way to boost productivity and long term returns in the UK is to shift the way many big companies operate away from a short term focus, to more long-term decision-making,” said the IA’s Director of Stewardship and Corporate Governance.

“This will ultimately benefit the economy as a whole by creating more jobs, higher levels of growth and stronger returns for savers.” The guidance would help “responsible companies get noticed by investors”.

The IA’s governance research arm Institutional Voting Information Service (IVIS) will monitor the implementation of the long-term reporting guidance. Link