Investment company Cevian is calling for top managers' bonuses to be directly linked to ESG targets. Otherwise, sustainability would remain an empty promise.
Hardly a day goes by without talk of sustainability in the corporate world. But words are not always followed by enough action, as Lars Foerberg explains in an interview with Swiss business newspaper «Finanz und Wirtschaft» (behind paywall) on Wednesday.
The Swede is co-founder of activist investment firm Cevian Capital together with Christer Gardell, as well as an ABB board member. Cevian is currently invested in 15 European companies and manages the equivalent of about 14.3 billion Swiss francs ($15.6 billion).
Much Too Slow
«Progress is very slow. There is too much greenwashing in ESG,» Foerberg explains in the interview. This refers to image or PR measures that are intended to make a company look as good as possible in ecological terms. Often, companies are simply checking off criteria in order to meet external standards, says the investor.
Foerberg considers the fact that targets are not set until 2040 or 2050 to be particularly problematic. ESG targets should affect the remuneration of those managers who are responsible now, he says. Targets would only be set so far into the future that current management would no longer have to achieve them.
Linking Pay Incentives to ESG Targets
Against this backdrop, Foerberg concludes that it's time to correlate pay incentives with ESG targets. To accelerate implementation, Cevian calls for a direct link to top managers' bonuses: ESG targets should become an integral part of their compensation criteria.
To this end, boards of directors should develop corresponding targets and present them to shareholders at the 2022 annual general meeting. «If a company moves too little in implementing ESG targets, we will vote against the relevant boards and compensation plans at the AGM,» Foerberg warns.
