What needs to change to make Responsible Reward your priority?

In my last newsletter, I sent you a survey to get an update on the progress you’ve made on the integration of remuneration and sustainability.

My questions covered the integration of ESG and:

  1. base pay
  2. benefits
  3. incentives
  4. pension contributions

(If you missed the survey, you can still take part until the end of July. If you wish to share your Responsible Reward successes and challenges with me, please:

Reported practices were mixed on base pay, benefits and pensions. Under question 3, all respondents – HR and investment professionals – agreed incentives should be linked to ESG. Clearly it’s important to incentivise and reward senior management for meeting sustainability targets. But some investors questioned the choice, stretch, and measurement of performance conditions.

I was surprised and disappointed to see that linking ESG and pensions was not a widespread practice among Reward professionals dealing with such large investments. Nor was it among investors when engaging with their portfolio companies.

In fact, one anonymous respondent said: “there were more urgent topics to attend to before considering ESG and pensions”.

I fully appreciate that the Reward agenda is stretched in the current economy and cost of living crisis.

But temperatures exceeded 40C in Europe this week. The heat has killed over 1,700 people in Spain and Portugal, sparked wildfires, and dealt the London Fire Brigade its busiest day since World War Two. Climate scientist Bill McGuire has said that in the decades ahead, this kind of heat in the UK “will be the default weather for July and August”. I’d like to understand why the integration of ESG and pensions is not a priority.

These long-term investments are one of our only hopes of finding, developing and implementing innovative solutions to the climate crisis.

The trillions of dollars and pounds sitting in pension pots have a greater impact on the global sustainability agenda than tweaking performance conditions in a few executives’ bonuses. So, I’m asking you to reconsider the importance you’re giving to the integration of ESG in your pension investments.

In the UK, we’re watching TV debates with bated breath to see who will become the next prime minister. Although ambitious net zero targets were announced by the current (soon to be ex) PM, none of the current candidates seem to have a new strategy on how to achieve them.

In fact, just this week, the High Court ruled that the government’s current net zero strategy breaches the Climate Change Act.

And Alok Sharma MP, President for COP26, has already said he may resign should the next PM not be committed to the net zero agenda.

Whoever is elected will have a huge job on their hands when it comes to the sustainability agenda. So, let’s not rely solely on government initiatives to find solutions. We all have a role to play and looking at where our pension contributions are invested is a vital step.

If your employees find it hard to cope with these extreme temperatures and the current crisis of living, think about how the next review of your or your portfolio companies’ Reward strategy could make a difference. Make Responsible Reward – the integration of ESG in base pay, benefits, incentives and pension investments – a priority. If you need help, feel free to drop me a quick line.

Remember that whatever sector you’re in and however big or small your organisation is, base pay, incentives, benefits and pensions are all part of your Responsible Reward offering. By linking your and your portfolio companies’ sustainability and remuneration strategies, you become an employer, an investment and an investor of choice.

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