Sixfold leap in firms planning to tie executive pay to climate, says survey

More than half the 450 companies said they would issue a social bond in the next year

There has been a six-fold increase in the number of companies planning to link executive pay with environmental targets, according to a report from ING. 

Of the 450 firms surveyed for Now or never: A new bar for sustainability, more than 60% said they are considering tying compensation packages with green goals in 2021. Currently, less than 10% of companies have such rules. 

Similar but smaller increases are expected for social and governance objectives.

Shell, BP and BMW are among the major companies who already link targets in this way, and Apple recently agreed to introduce an ‘ESG modifier’ to its annual bonus plan after shareholder pressure.

The study, which also includes responses from 100 institutional investors, found that the Covid-19 pandemic had served as a “wake-up call” on climate change and sustainability topics. 

More than half of the corporates surveyed (57%) say the crisis has spurred them to speed up sustainability action, while 72% of investors said they were increasing their ESG “outcome ambitions” in their portfolios, citing climate change as a key concern.

The banking giant also found that firms were incentivised by access to capital linked to sustainability. Of the companies surveyed that had issued a sustainably-labelled financial instrument, 73% said it had helped them raise their ESG ambitions. Nearly half of investors agreed sustainability-linked financing will help companies cut emissions.

More than half of the companies assessed said they were likely to issue a social bond in the next 12 months. This figure was highest among Asia Pacific (53%) and North American (51%) firms, falling to 44% in Europe. 

However, investor appetite remains focused on green, with just 17% of those surveyed saying they want companies to prioritise “externally focused” social targets. Climate change was a top ESG priority for investors, with 52% ranking it most urgent, compared to just 30% of corporates. A majority of investors (72%) are putting more emphasis on sustainability targets and 74% are aligning their portfolios with the Paris Agreement.

Other notable findings include that employee wellbeing is corporate’s top ESG priority for the next year (33%), ahead of reducing emissions and green innovation, and 49% of companies said lack of common industry standards is making integrating ESG issues with financial targets more difficult. Over 80% of companies in all regions expect increased government pressure to drive action on healthcare access.