By BW CFO World Online Bureau
Companies can use incentives to achieve ESG issues following the covid pandemic according to global advisory firm
Companies in India are increasingly focusing on the importance of environmental, social and Governance (ESG) issues following the coronavirus pandemic, and their compensation committees can play a crucial role in taking this agenda further, according to global advisory firm Willis Towers Watson.
Rewards and Incentives could be incorporated in a company’s ESG matrix to achieve the later agenda, the companies must come out with a plan that drives the right ESG behavior in the long term and reward the management for the same.
“Boards need to set the right expectations for the management and reward them for delivering the desired performance whilst demonstrating the right behaviours. One big lever that they must use to drive this agenda is through executive compensation,” the report said. For example, how significantly the management can reduce their carbon footprint (direct and indirect) in terms of tCO2e (or tonnes of CO2 equivalent) could be one of the parameters to drive incentivisation.
It was further noted, “But, this is not as simple as it might seem to appear. Designing the right LTI (Long-Term Incentive) plan with stretch but realisable targets is critical and dependent on a number of considerations — a plan that drives right ESG behaviour in the long term and rewards the management for the same.” According to Willis Towers Watson’s Global Executive Compensation Trends, ESG has become a critical business consideration, impacting companies’ cost of, and access to, capital. ESG goals and outcomes directly impact the company’s reputation with the public and employees, and often play a role in attracting and retaining a new generation of talent.
Companies with strong ESG practices have been found to deliver more sustainable returns, including higher levels of value creation and risk mitigation. Investors and stakeholders now believe that modern-day corporates should have a moral responsibility towards the environment and society at large, and are demanding greater accountability and transparency in this regard.
In India, ESG reporting was limited through BRR (Business Responsibility Reporting) and CSR (Corporate Social Responsibility) reporting. However, in 2021, the BRR committee took the next steps and recommended a Business Responsibility and Sustainability Report (BRSR).