Surge In Biz Tying Pay To Social Goals In Wake Of COVID-19

By Lucia Osborne-Crowley
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Law360, London (August 13, 2020, 2:16 PM BST) -- Businesses in North America say they are planning to incorporate environmental and social targets into their executive pay packets in the wake of the global COVID-19 pandemic and the social unrest that has swept across the globe in 2020.

Insurer Willis Towers Watson said Wednesday that a survey survey shows that the percentage of companies that tie environmental and social goals — known in the finance world as ESG measures — to their managers' pay deals could jump by almost 30% in the next three years.

The survey, which studies only companies in the U.S, was published as businesses in the U.K. and Europe come under pressure to incorporate sustainability goals into their corporate strategies. The U.K.'s biggest pension fund, Nest Pensions, announced in July that it is divesting from fossil fuel companies as it seeks to make its fund carbon-neutral by 2050.

"Pressure has been mounting for companies to demonstrate a commitment to ESG," Heather Marshall, senior director of executive compensation at Willis Towers Watson, said. "Some investors are becoming increasingly vocal on environmental issues, while the pandemic and social unrest are accelerating the focus on social issues by many boards."

Marshall said that the mounting pressure to consider social and environmental factors has led companies to incorporate them into their performance incentives for senior managers.

Just over a quarter of respondents to Willis Towers' survey, 27%, said they include ESG factors in their executive pay packages. But an additional 2% said they plan to introduce such measures next year, and another 27% said they are considering adding them over the next three years.

A total of 164 employers with 2.6 million staff between them took part in the survey, Willis said.

But not many company chiefs said they plan to introduce longer-term changes to executive pay in the wake of the pandemic. Only 8% of respondents said they had already made long-term changes, and 21% said they were considering doing so.

"Companies may be shifting business strategies during the pandemic, but they are not taking aim at how they pay their executives over the long term," Don Delves, North America practice leader for executive compensation at Willis Towers Watson, said.

"Those few companies that are adjusting performance goals run the risk of inadvertently lowering the bar, which in turn could trigger some investor backlash—  especially given that the long-term impact of the pandemic is not yet fully known," Delves added.

Trade body Insurance Europe said in July that governments should take steps to improve access to green assets for institutional investors, warning that the industry is being held back by a lack of data despite a willingness to invest sustainably.

In Britain, the Financial Conduct Authority is weighing whether to compel financial services firms to report exposure to climate risks to improve information for investors interested in green finance.

The European Commission, the EU's executive arm, is also moving toward corporate sustainability. The commission is looking to encourage additional investment of €1 trillion ($1.2 trillion) over the next decade in environmental projects to help it meet its climate goals.

--Additional reporting by Joanne Faulkner and Martin Croucher. Editing by Ed Harris.

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