Behind the ESG headlines – September 9, 2022

The SEC’s new pay for performance disclosure rules, which come into effect for the 2023 proxy season, are already causing ripples of consternation in boardrooms. The new rule will mean that companies must disclose the “compensation actually paid” to CEOs and senior executives. 

Companies must also provide data from their past five fiscal years and demonstrate how that executive pay aligns with financial performance metrics, such as shareholder returns. Critics are calling the rules outdated, damaging to company culture and could put performance itself at risk.

This disclosure dilemma is just one of the environmental, social and governance (ESG) risks and opportunities that board directors and senior business leaders face every day. Our education programs will help you make sense of the new regulatory landscape. Both our flagship Designation and Certificate programs, or our new condensed ESG Lite program, will give you the insight and confidence you need tomorrow.

1. Global danger. The corporate emissions reductions of the G7 countries are not getting us any closer to ending the climate crisis that is engulfing the planet. According to a new report by Oliver Wyman and CDP, the greenhouse-gas emissions from these G7 companies will have our world on track for a 2.7C rise in temperature, far above the 1.5C threshold established by the Paris Agreement in 2015. If Scope 3 emissions are removed from the calculations, then the figure drops to 2.4 C, but that is still not good news. Canada (3.1C) was the worst projected performer, with Germany and Italy (both 2.2C) the best of the bunch. The report looked at data from 4,000 companies around the world. CDP was one of the prime movers behind the establishment of the Science Based Targets initiative (SBTi), a keystone in corporate sustainability reporting.
   
2. ESG governance. The level of ESG awareness and education is rising in the UK and Europe. According to a new study from Mattison Public Relations, more than half (54%) of FTSE 100 companies have a board-level ESG committee. This is a big step for companies in boosting their knowledge of vital environmental, social and governance issues. In terms of sectors, 100% of oil, gas and mining companies have an ESG committee. However, only 13% of insurance companies and asset management firms have taken this vital step. Of those companies with an ESG committee, 56% are formed entirely by independent, non-executive directors, allowing for a greater degree of scrutiny.
   
3. Getting the green vote out. Seven major European countries saw the number of “Say on Climate” resolutions triple in this year’s AGM season compared with the previous year. According to Georgeson’s 2022 European AGM Season Review, there were 36 resolutions this year, with three quarters originating in the UK (16) and France (11). Georgeson’s report looked at the AGMs of companies in the UK, the Netherlands, France, Germany, Italy, Spain and Switzerland. German companies had to issue their first executive pay reports this year, which triggered the highest proportion of contested resolutions (54.1%) related to remuneration reports of all seven markets.
   
4. Setting disclosure standards. Getting clear and consistent sustainability－or ESG-related information － is one of the toughest challenges in the business world. To try to address that, 65 international companies, investors, and accountancy firms have united to call for better corporate reporting and unified standards. The group is concerned that the work of the SEC in the US, European Financial Reporting Advisory Group and International Sustainability Standards Board (ISSB) on sustainability disclosure requirements are “not technically compatible”. The main call to action: a coordinated approach is needed to provide the comprehensive global baseline of sustainability disclosures needed by capital markets. The World Business Council for Sustainable Development (WBCSD), the Principles for Responsible Investment (PRI), and the International Federation of Accountants (IFAC) assembled the joint statement.
   
5. Climate credibility. A new study by the University of California San Diego’s School of Global Policy and Strategy has taken a close look at how well countries are performing against the goals of the 2015 Paris Agreement. Europe’s climate-change goals came top as being the most ambitious and credible. It was followed by China, Australia, South Africa and India. Bottom of the table were the US and Brazil, with Saudi Arabia second to last. That matched the gloomy outlook of North American experts, who were the most pessimistic about their countries’ drive or ability to achieve the agreed climate goals. More than 800 diplomatic and scientific experts rated the member nations of the COP for the study. 

Mathew Loup is Competent Boards’ Director, Marketing & Communications. Follow Competent Boards on LinkedIn.

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