This research analyses the ways in which ASX200 companies have integrated climate-related metrics within variable executive remuneration structures to identify market trends and the performance measures used.
Key findings:
- There has been a boom in the adoption of climate-related incentive metrics: 106 of 197 companies assessed, or 54% of companies in the ASX200, have factored climate change into either their short- or long-term executive incentive structures.[1] In March 2021, just 10% of ASX200 entities had a climate-related remuneration metric within executive incentive pay.
- Climate-related metrics are mostly short-term targets: Nearly half of the ASX200 (47%) has incorporated climate-related metrics in short-term incentives (STI), only 11% have included it within their long-term incentive (LTI) structure.
- Weightings to climate metrics are mixed: Most companies do not disclose the specific weighting associated with the individual climate metric in the STI or LTI, it is more common for companies to include climate metrics within broader strategic or non-financial measures.
- A wide range of targets have been adopted: There is a wide range of measures included, with detail varying from specific emission reduction targets to vague and opaque metrics like ‘targeting climate objectives’. This makes it difficult for investors to understand how performance would be assessed, meaning there is a risk of discretionary and questionable payouts.
- High risk sectors integrate climate metrics: Most companies in highly exposed sectors including energy, materials, industrials, real estate and utilities have adopted climate-related remuneration metrics within their STI, LTI or both to tie in with broader climate strategy.
1) Note: some companies, such as externally managed entities, in the ASX200 are not required to disclose executive remuneration practices. Companies that do not disclose their executive remuneration practices have been excluded.
