Corporate plastic purchasers failing to link sustainability targets to executive pay

The analysis suggests that at least 10% of compensation should tied to sustainability measures

A new analysis published today (20 September) from Planet Tracker found that 39 leading producers and purchasers of plastics are not sufficiently aligning ESG performance across their organisations.

The research found that only 23 of the 39 companies analysed have aligned executive pay and compensation with ESG performance. However, most of these approaches are deemed “insufficient”, lacking quantitative links, or only tie a minimal proportion of compensation to sustainability performance.

Companies analysed include the likes of ExxonMobil, Saudi Aramco, Costco and Mars. Of the 39 firms, more than half do not currently have science-based targets in place. Mars was one of the few commended for its clear sustainability targets and for linking emissions reductions to executive pay.

Almost half (41%) do not have any links between ESG targets and pay. Planet Tracker also found that all companies have pay-performance policies in place but many are ignoring sustainability strategies and targets.

Planet Tracker’s senior investment analyst Thalia Bofiliou said: “It’s a positive sign that all plastic companies we analysed are committed to wider sustainability goals. However, without meaningfully tying executive pay with sustainability metrics, this is all wrapping and no substance.

“To reduce the significant risks the plastic industry faces, from CO2 emissions and microplastics to new regulations, investors can no longer afford to wave pay packages through that aren’t linked to sustainability-related elements. It’s also imperative that these are material and quantifiable, rather than minimal percentages of compensation or vague goals for the future”.

Planet Tracker recommends that firms ensure that remuneration programmes are set up clearly with quantitative annual targets linked to sustainability improvement. The analysis also suggests that at least 10% of compensation should tied to sustainability measures – currently only Ahold Delhaize and Danone meet this requirement of the companies analysed.

The analysis also notes that shareholders, including Vanguard and BlackRock, hold a combined $1.1trn in the analysed companies and should push for better sustainability links with performance.

Planet Tracker suggests that targets should be independently verified, such as through the Science Based Targets initiative and quantitative in a similar way to profit targets. However, sustainability targets should be independent of profit targets and have long-term goals in place.

Bucking the trend

It seems that these plastic purchasers are bucking the trend when it comes to sustainability-linked performance.

Analysis of 50 major companies earlier this year, found that more than three-quarters have now linked executive pay outcomes to climate targets, up from less than 50% in 2020.

The 50 companies were split into two sub-categories, the ‘Climate Action 100+’ (CA100+), which accounts for 14 of the 50 companies and the ‘non-Climate Action 100+’ (non-CA100+) which covers the remaining 36 companies.

The analysis found that 78% of these companies have now introduced some sort of carbon target in executive pay, with payouts averaging 86% for disclosed targets last year.

Similar research published by PwC in November 2021 found that almost two-thirds of FTSE 100 now include some sort of ESG measure as part of executive incentive pay plans, which is up from less than half in 2020.