Performance Management
ESG and Non-financial Performance Measures
This will be the third session in our “Performance Trilogy” which examines the broad area of corporate performance and how it should be rewarded.
- Our first event focused on how investors and other external bodies define financial performance.
- The second explored the use (and abuse) of financial performance measures in annual and longer-term incentive plans.
In this session, we turn our attention to non-financial performance measures – and in particular, the extent to which Environmental Social and Governance (ESG) criteria should be used to create focus on and reward a company’s social impact and environmental sustainability. The FT has commented: “Today’s corporate zeitgeist looks notably different versus two years ago, never mind a decade back.” As climate change and Carbon Net Zero move up the agenda over the coming decade, the pressure to incorporate non-financial performance measures into incentive plans will only increase.
It is clear that investors need common benchmarks with which to measure companies, to allow employees and customers to rank companies more consistently and judge their protest accordingly. New metrics combined with rising digital transparency will subject companies to a new level of oversight. And yet the focus on reporting may actually be an obstacle to progress – consuming bandwidth, exaggerating gains, and distracting from the very real need for changes in mindsets, regulation, and corporate behaviour. It may lead to risk aversion in allocating capital when innovation is the most important tool to address many of the challenges of climate change and inequality. If done poorly, not only does ESG miss its sustainability goals, but it could also make things worse and let down the very stakeholders it should help.
We will therefore examine such issues as:
- Whether ESG objectives should link to the long-term vision and strategy of the company – or create focus on more immediate shorter-term milestones – and the balance?
- How the outturn of ESG objectives affects a company’s strategic objectives and aligns with the KPI’s that are highlighted in the Annual Report?
- What are the criteria against which the quality of an ESG objective should be assessed?
- The extent to which targets should be hard and more easily measured.
To help us gain greater clarity around these issues, Professor Alex Edmans will re-join us, together with Matthew Roberts, a senior institutional investor from Fidelity International. Completing our trilogy on performance measurement, this session will provide essential guidance for building ESG measures into future reward policy.
Speakers
Alex Edmans
Professor of Finance at London Business School
Alex Edmans is Professor of Finance at London Business School. Alex has a PhD from MIT as a Fulbright Scholar, and was previously a tenured professor at Wharton and an investment banker at Morgan Stanley. Alex has spoken at the World Economic Forum in Davos and given the TED talk “What to Trust in a Post-Truth World” and the TEDx talk “The Social Responsibility of Business”. Alex’s book, “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”, was a Financial Times Book of the Year for 2020.
Maureen O’Shea
Management Consultant Partner in Supply Chain and Sustainability, Baringa
Maureen O’Shea is a Management Consultant Partner in Supply Chain and Sustainability at Baringa. With 20 years industrial experience in Supply Chain, at local, regional, and global level. Across these 20 years, it became increasingly clear that the role supply chain needed to play in the sustainability transition was critical, hence she used four years in consultancy to build out the Sustainable Supply Chain Team for a Big 4 Consultancy and has come to Baringa for their deeper climate change mastery. Her areas of focus are around sustainable procurement and supply chain, supply chain operating model design, logistics with a focus on Scope 3 Emissions, and supplier transformation programs.
Matthew Roberts
Stewardship Analyst, Fidelity International
Matthew Roberts is a Stewardship Analyst at Fidelity International specialising in corporate governance and proxy voting matters. Prior to joining Fidelity, he was Vice President and Senior Corporate Governance Analyst in the governance research team at the proxy advisor Institutional Shareholder Services, Inc. (“ISS”), where he was primarily responsible for coverage of the Swiss, German, and Austrian markets (Oct. 2007 – Jan. 2018). He was also co-chairman of the ISS European Voting Policy subcommittee, responsible for development of the Continental European and UK/Ireland benchmark voting policies (2012-2018). From Aug. 2007 – Oct 207, he was a corporate governance analyst at Institutional Shareholder Services GRS (previously known as the Investor Responsibility Research Center).
