The Role of the Remuneration Committee: Defining KPIs for the ‘E’ in ESG

Governments and companies are increasingly setting decarbonisation goals.

But stakeholders and many shareholders remain impatient. For ambitious targets – often several years away – to be achieved, milestones need to be in place; the performance of those in office today needs to align with both short-term milestones and with medium to long-term goals.

Increasingly institutional investors are seeking (i) climate change competent Boards and (ii) remuneration KPIs for the top team that underpin Net Zero objectives.

Through the pandemic Fidelio has seen this challenge remain firmly on the Agenda of Remuneration Committee Chairs and we were therefore delighted to collaborate with Chapter Zero on a webinar exploring ‘The Role of the Remuneration Committee Chair: Defining KPIs for the ‘E’ in ESG’.

To guide through the challenges and set out a pathway and approach we welcomed:

  • Julie Baddeley, Chair, Chapter Zero; Director, Hughes Hall Centre for Climate Change Engagement; Senior Independent Director & Remuneration Committee Chair, Marshall of Cambridge (Holdings) Ltd; Remuneration Committee Chair, Ebiquity plc; Non-Executive Director, Chrysalis VCT plc
  • Richard Gillingwater, Chair, SSE plc; Chair, Janus Henderson Group plc; Senior Independent Director, Whitbread plc
  • Susan Hooper, Board Member, Chapter Zero; Chair, Care Sourcer; Non-Executive Director, Uber; Non-Executive Director & Remuneration Committee Chair, Affinity Water; Non-Executive Director & Safer Gambling Committee Chair, The Rank Group
  • Gillian Karran-Cumberlege (panel chair), Co-Founder, Fidelio Partners; Board Member, German British Forum; Board Member, Chapter Zero

Fidelio shared insights into the rapid increase in listed companies that are adopting Environmental, Social and Governance (ESG) linked KPIs. However, in many instances the KPIs relate to the ‘S’ rather than the ‘E’ of ESG; nor are these KPIs comparable and so frequently cannot easily be linked to existing remuneration frameworks.

Richard Gillingwater set out the pathway that SSE had followed, with decarbonisation representing a key pillar of the company’s strategy underpinned by KPIs linking 20% of the executive Annual Incentive Plan to SSE’s contribution to the UN Sustainable Development Goals.  As recommended by the Paris Accord, SSE had adopted science-based targets in establishing its decarbonisation strategy and Richard shared the Chair’s perspective on leading a company through this process.

Our panel emphasised that while the Remuneration Committee Chair was tasked with establishing KPIs this was unlikely to succeed unless the heavy lifting has been done by the Board on committing to a compelling and coherent strategy towards carbon reduction. This Board accountability is clearly at the heart of the mission of Chapter Zero and Fidelio has underscored the importance of aligning and embedding ESG initiatives with core strategy.

To view the charts from the webinar, please click here. For the webinar recording, click here.

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