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ESG not (yet) often embedded in corporate strategy and remuneration packages

ESG objectives are not yet as well represented in the strategy of companies as objectives that are closer to day-to-day operations. The same applies to performance targets in CEO remuneration packages.

Most Dutch CEOs who participated in the 25th CEO Survey have goals related to customer satisfaction, employee engagement and digitalization included in their long-term strategy. These are goals that are linked to day-to-day business performance. It is notable that goals related to environmental, social and governance (ESG) are less well included in long-term strategy and also less included in compensation packages. ‘The reason for this may lie in the timing that ESG first needs to be better anchored and translated into both corporate strategy and the daily operations’, PwC-expert Janet Visbeen says.

Striving to reduce emissions

When it comes to striving to reduce emissions, the Dutch results compare favorably with the global average. Worldwide, 37 percent of CEOs have included these objectives in their long-term strategy. This is a little over half in the Netherlands. When it comes to objectives in the area of representation of ethnic groups within companies, the Netherlands lags behind somewhat: fifteen percent compared to 23 percent worldwide.

Remuneration packages of executives 

It is striking that non-financial indicators are reflected in executive remuneration packages only to a very limited extent. This applies even more strongly to the specific ESG indicators.

Nevertheless, PwC expert Janet Visbeen sees that environmental, social and governance performance is weighing more heavily in the executive remuneration of an increasing number of companies. ‘This is in line with the Dutch code for corporate governance, which states that executive pay must focus on the long-term value creation of the company. Moreover, stakeholders - investors, regulators and more generally society - are asking for it.'

The risk of boilerplate indicators

According to Visbeen, however, it is not so easy to formulate good remuneration criteria. 'If such ESG indicators are not well aligned with the real value a company creates in the long term, the risk of boilerplate indicators arises.'

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Janet Visbeen

Janet Visbeen

Partner, lid Raad van bestuur, voorzitter Tax & Legal board, PwC Netherlands

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