Corporate responsibility risk ‘not sufficiently tied’ to remuneration

Just one in ten (10%) companies are linking their corporate responsibility (CR) performance to remuneration, suggesting that many are failing to incentivise executives to manage environmental and social risks effectively, according to a new report.

The findings from professional services firm KPMG’s eighth Survey of Corporate Responsibility Reporting published today also reveals that just 5% of the world’s 250 largest companies (G250) quantify and report the potential impact of environmental and social risks on financial performance.

“Environmental and social risks can impact the supply chain, productivity, financial performance, reputation and brand value. So it is disappointing to see that so many companies still shy away from quantifying these risks in financial terms and few factor in the management of these risks into executive remuneration,” said KPMG’s global chairman, climate change and sustainability Services Yvo de Boer.

“More and more investors accept that environmental and social megaforces put company value at stake. As their understanding grows, they will expect companies to be transparent about the risks they face, what the financial impacts of those risks could be and what the company is doing to mitigate them,” added de Boer.

More encouragingly, the report finds that corporate responsibility reporting is now mainstream global business practice, with 71% of companies’ worldwide publishing a corporate responsibility report.

Three quarters (75%) of the G250 acknowledge risks to their business from environmental and social “megaforces”, such as resource scarcity and climate change, in corporate responsibility reports.

According to the KPMG survey results, financial quantification of environmental and social risks is most prevalent in the financial and oil & gas sectors. Eight of the 11 G250 companies, that quantify at least some of their environmental and social risks in financial terms, are in these sectors.

CR reporting has increased by 59%, rising from 12% in 1993, with greatest growth in the Asia Pacific region where the average CR reporting rate has increased from 49% two years ago to 71% in the 2013 survey.

Ninety one of the UK’s largest 100 companies by revenue report on CR – the sixth highest CR reporting rate among the 41 countries studied. The top countries for CR reporting are France, Denmark and South Africa where reporting is driven by mandatory reporting legislation.

“Corporate responsibility is no longer simply a moral issue and companies recognise this. They increasingly view it as a critical lens on concrete business risks and opportunities. It is encouraging to see that large companies are now seeing environmental and social change as a source of opportunity as much as, or more than a source of risk, providing a more rounded view for stakeholders,” said de Boer.

Leigh Stringer

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