esg: companies plan to tie investment in social good to CEO salary
These initiatives come against a backdrop of growing incentives for investors to allocate capital to companies that not only generate financial returns, but are also invested in social good, said key board members and promoters of the company.
The pandemic has taken the discussion to a climax, with many boards devoting a great deal of time to their strategic meetings to discuss ESG issues, amid growing demand from stakeholders including investors, boards of directors, employees and consumers, said key executives at the company.
The increasing frequency of extreme weather events and climate emergencies is also forcing investors to use their capital to craft social change, holding senior management accountable on ESG goals and tying these non-financial metrics to CEO and CXO compensation.
Harsh Mariwala, president of consumer goods maker Marico, said ESG has been an area of focus for the company for several years, but is now part of senior management KRAs. “This is a huge area of intervention for us and a growing demand from all stakeholders …” he added.
“A significant portion of the board’s time today is spent discussing ESG issues. Going forward, the market capitalization of companies will be judged on this basis, which will make it a key component of senior management performance indicators, ”said Harsh Goenka, President of RPG Group.
Diverse miner Vedanta is currently participating in a transformational program to embed ESG into all aspects of decision-making and business performance evaluation, Group CEO Sunil Duggal said.
“Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities,” said Duggal. “Continuing parallels are drawn between the unforeseen risks of a pandemic and the climate crisis, both of which have a huge impact on the global economy. This has made many investors and policymakers aware of an increased need to accelerate investments and progress in companies that prioritize ESG. said Duggal.
At Vedanta, a significant part of the KRA of all employees, including senior management, is related to safety and sustainability performance and the company has further broadened the scope to include performance against its decarbonization program.
Tata group companies such as Tata Steel, Tata Motors, Tata Consumer, Tata Power and Tata Consultancy Services have integrated ESG into the top echelon deliverables.
“Sustainability functionality is one of the organization’s four main business goals… It is one of the most important topics for the management team and is part of their KRA as well as that of the people in charge. below them, ”said Sanjiv Paul, vice president (safety, health and sustainability), Tata Steel.
Board members insist on the urgent need to link CEO compensation to ESG objectives.
“Conversations have started in boardrooms to tie non-financial parameters such as ESG to CEO variable compensation,” said Arun Duggal, non-executive chairman of rating firm Icra and independent director.
Early-stage venture capitalists are also looking to bet on startups that actively participate in ESG as this is seen not only as the right thing to do, but also brings a business case to be able to attract and retain talent. high quality talent that can make and break the deal.
“Companies that lack a coherent ESG alignment may start to fail to attract investor interest, despite strong financial performance,” said Siddarth Pai, founding partner and CFO of the early stage venture capital fund. 3one4 Capital, who has been appointed ESG manager.