Building ESG metrics into executive remuneration

THE rapidly burgeoning level of interest in environmental, social and governance (ESG) matters among companies, investors and regulators has led to increasing calls for ESG metrics to be incorporated into executive remuneration. But scepticism remains about how this should be done, even among investors who rate ESG issues highly.

Among the concerns are the subjectivity of ESG metrics and their possible abuse. Using quantifiable ESG metrics may reduce the possibility of abuse, but may not necessarily capture the most critical ESG factors for a company.

A report launched on Monday (May 23) — Integrating ESG Factors Into Executive Remuneration, led by corporate governance advocate Mak Yuen Teen — attempts a deep-dive into the issue and some of its concerns.