ESG has long been a priority for CEOs, to gain the backing of investors and customers alike. It’s no secret that ESG and business performance are intrinsically linked – according to Moore Global, businesses who have shown an ‘express commitment to ESG’ compliance saw a 9.1% increase in profits over the last three years. 

But whilst many business leaders are motivated to drive ESG policies in order to increase profits, it seems that they also have other, more personal, motivations too. 

Remuneration experts, Alvarez & Marsal, state that a majority of FTSE350 companies use ESG criteria, as well as profits growth, to help determine annual bonuses and long-term incentive plans. And according to PwC, the proportion of FTSE100 companies including some sort of ESG measure in their executive incentive pay plans rose from 45% in 2020 to 58% in 2021.

By directly linking remuneration and ESG, both the business and the employee see the benefits. The employee drives the ESG policies forward to increase their pay packet, and by achieving KPIs the business improves its ESG rating – something that is extremely beneficial with 77% of British investors being likely to consider investing ethically. 

Whilst this model is generally seen to benefit senior leadership teams, some ESG experts argue that, one day, the pay of all workers will be determined by how much they have taken action to push forward ESG policies – supporting their employer to mitigate the effects of climate change and achieve social justice. 

It’s clear that one CEO or business leader is unable to single-handedly achieve all of a business’ ESG goals. To successfully deliver an ESG strategy, and communicate its successes to the people that matter, you need the engagement and support of the whole workforce. With this in mind, it makes sense to offer incentives at all levels of the business when ESG metrics are met – not only are employees motivated by money to achieve ESG goals, but it will also show investors and stakeholders that pay is aligned to company values. 

However, one of the most challenging aspects of linking remuneration and ESG objectives is setting clear, precise, and measurable objectives, and these differ from sector to sector. For example, hospitality companies might focus on reducing food waste, whereas recruitment firms might focus on equality and diversity in the hiring process.

It’s also important to make sure that targets affecting remuneration consider all elements of ESG. For environmental, these could focus on reducing carbon emissions or increasing renewable energy use, for social it could be increasing charity work or implementing mental health services for employees, and for governance you could look at increasing board diversity or ways to prevent corruption.

Whatever targets are set, objectives need to be measurable, transparent and closely linked to business strategy – not only will this make it easier for them to be achieved, but it will also ensure that no corners are cut, and that bonuses and incentives are legitimately earnt. 

If you’re an employer that links remuneration and ESG, and you want to communicate your achievements to stakeholders and investors, our expert team of communicators can help. We have a wealth of experience in helping businesses develop their communications around ESG efficiently, so we’d love to hear from you – you can contact us on esg@weareliquid.com