Many of Canada's largest companies make pains to brand themselves as sustainable and socially responsible. But most aren't putting their executives' money where their corporate mouth is.
Only a handful of Canadian companies consider sustainability related factors in their executive compensation package.
A study released in March by Vancouver-based Strandberg Consulting found that only 34 companies in the TSX 60 mentioned sustainability as a factor in their executive pay packages in 2011. Of those, 24 disclosed the use of pre-established sustainability metrics, targets or weightings tied to executives' incentive pay. The rest don't mention sustainability.
Some of the most common metrics related to employee engagement and safety, environmental protection, customer service and general corporate social responsibility.
Coro Strandberg, author of the study, said that many of the Canadian firms that incorporate sustainability metrics in executive pay were "on par" with global best practices incorporating environmental, social and governance (ESG) metrics. But only two B.C. companies are part of that group: Teck Resources Ltd. and Telus Corp.
"That said, I don't think global best practice is at a level of a model of what companies should aspire to. We have got a ways to go."
She noted that most of the ESG metrics used focus on mitigating risk and reducing their negative impacts. For example, while resource firms in the TSX 60 are relative leaders in incorporating ESG metrics in pay packages, environmental metrics were focused on things like limiting the number of leaks, spills and unintended releases of environmentally harmful chemicals.
Overall, relatively few ESG metrics were focused on creating long-term corporate value or new opportunities for growth.
Strandberg said Canadian firms, particularly in the consumer products and services sectors, could be doing more to expand their portfolio of environmentally friendly or ethically sourced products or services.
"A practice I see globally, but not so much in Canada, is compensation related to the degree to which a company is moving more of [its] products into a more sustainable suite of products. Also less in practice in Canada are metrics for executives on reducing the carbon intensity of the firm or increasing the energy efficiency of the firm. We see both energy efficiency and greenhouse-gas reduction targets globally, but not in Canada."
A growing number of institutional investors in Canada and globally are striving to apply socially responsible investing principles and practices. Over the past seven years, nearly $35 trillion of capital under management by some of the world's largest pension funds and asset managers have signed on to the UN's principles for responsible investment (PRI) initiative that's aimed at helping investors integrate ESG issues in their decisions.
But as Strandberg's study suggests, such a commitment has yet to realize significant results at the company level. That's likely because the vast majority of the world's institutional investors have yet to see the ESG issues as material to their investment returns.
"So, we haven't had the tipping point yet. But I'm more of a cup half full [person]. I think institutional investors, and long-term investors, are increasingly understanding the ESG business case and the value-add of the ESG perspective. There is continual progress in them understanding that. One could argue not fast enough, but I've been in the socially responsible investing industry for 25 years and with $35 trillion in capital under management [under UN PRI], that's mindblowing." •
