Previously IOOF, Insignia Financial, has been praised by KPMG for its incorporation of climate consideration into its FY22 long-term equity plan.
Noting the relatively low use of “E” inventive measures in Australia, KPMG distinguished Insignia among only a handful of firms as examples of companies with climate-related incentive measures.
KPMG explained that it is more common in Australia for environmental metrics to be incorporated into short-term incentive plans, as is the case with lenders NAB and QBE, as against long-term incentive (LTI) plans which typically account for a larger portion of executive remuneration packages.
“In addition to Goodman Group and Insignia Financial, only a handful of companies have adopted climate-related metrics under their LTI plans, including AGL, Fortescue Metals, South32, Northern Star and Incitec Pivot, and not completely without scrutiny from proxy advisors,” KPMG said in a report penned by partner Tim Nice and senior manager Rachel Tucker.
KPMG explained that the UK market is “leaps and bounds ahead” of Australia, with FTSE100 companies outside of traditionally high-emitting industries using climate-related measures either as stand-alone metrics or as part of an ESG component.
For example, 20 percent of Barclays’ 2021 annual bonus was tied to strategic measures, which included targets relating to green financing. Additionally, 25 percent of HSBC’s 2021 LTI is tested against an “environment and sustainability” component, which includes carbon reduction and sustainable finance and investment.
“We do expect to see more Australian companies in broader industries consider adopting environmental incentive measures where material to their long-term strategic priorities,” Mr Nice and Ms Tucker said.
“However, it is important for remuneration committees to avoid simply jumping on the bandwagon and adopting ‘E’ incentive measures to give external stakeholders a ‘bite’, without giving careful thought to some key considerations,” they cautioned.
The pair pinpointed choosing the right metrics, developing an effective external communication and engagement strategy, and materiality as key considerations for any firm embarking on the ESG journey.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
