In today’s world, strong sustainability principles and performance are fundamental to sustainable and long-term value creation for all stakeholders, including shareholders.
Most companies are making at least some progress in various areas of sustainability, thanks in part to their own initiatives and pressure from investors, asset owners and other stakeholders.
However, such progress is commonly piecemeal, uneven, or half-hearted. In many cases, box checking is used to give the perception of progress when real advances are not being made. In other cases, laudable statements are made about long-term intentions, such as on carbon emissions, but are not supported by tangible shorter-term measures.
In order to accelerate and secure meaningful sustainability progress, there must be strengthened alignment between the desired outcomes and the companies and individuals we expect to produce them.
Significant, measurable and transparent sustainability targets should form part of senior management compensation plans for all European public companies. Therefore, Cevian Capital has called upon European public companies to start, or accelerate, the development of such sustainability targets for integration into compensation plans to be put to shareholder vote at their AGMs.
“Improving the ESG performance of companies is not only the right thing to do for society, it is the right thing to do to create sustainable value for shareholders and other stakeholders. There is no conflict between “values” and ”value” – in fact in today’s world, they are fully symbiotic.”
Cevian Capital Managing Partner and Co-founder
“Asset owners, investors, management teams and board directors all look to management incentive plans to drive and direct performance - and yet today, only a tiny share of companies meaningfully incorporate ESG targets into their incentive plans. That makes no sense. To get away from ESG box checking and ensure that ESG considerations are truly embedded in corporate strategies, we need to incentivise management teams to embrace them.”
Cevian Capital Managing Partner and Co-founder
Just as for current non-sustainability metrics in executive compensation plans, each company should develop and propose to shareholders sustainability targets and incentives that it considers most relevant for its businesses and stakeholders. These should be significant, measurable and transparent, enabling meaningful assessment and engagement by shareholders.
To advance this, Cevian will hold companies and their directors to account through its engagement, and, if necessary, a combination of voting on director elections and compensation plans, as well as advancing shareholder motions on this issue, as appropriate.
Including robust and relevant sustainability targets into compensation plans will not only create clear alignment with management teams, but will also ensure that the boards that have to stand behind those plans have studied and fully come to grips with their company’s sustainability situation in a meaningful and comprehensive way.
Today, only a small minority of companies have a link between sustainability and management compensation that is fit for purpose. Some companies have inserted sustainability into a long list of items in opaque “individual performance” categories. Others have “sustainability targets” that are focused specifically on important but narrow metrics such as employee health and safety. This is insufficient to meaningfully drive companies to capture the opportunities and address the challenges of sustainability.
We believe it is in the interests of all stakeholders, including asset owners and other long-term investors, for companies to create this alignment and transparency, and invite others to adopt this stance.
Background
As a hands-on and long-term owner, Cevian creates value by driving improvements at its portfolio companies designed to increase long-term competitiveness and profitability in a sustainable way.
Cevian’s conviction is that there is no conflict between “values” and “value” – in fact in today’s world, they are fully symbiotic. Sustainability considerations impact companies’ business opportunities, revenues, costs, risks, employee engagement, societal attitudes and corporate valuations. The extent of this impact will increase over time.
Thus, Cevian advances sustainability initiatives at its companies for two reasons:
- Improving companies’ sustainability performance and situation is a clear and important source of long-term value creation; and
- It is the right thing to do, and fully aligned with our world-view and priorities as a team of individuals.
Sustainability considerations are integrated into Cevian’s fundamental analyses to identify investment opportunities, value-creation potential and possible risks.
Cevian advances sustainability initiatives to increase the long-term and sustainable value of its companies. Sustainability is a core part of Cevian’s value-creation toolkit (alongside its other value-creation tools, e.g. improvements to operations, corporate strategy, organizational structure and financial management).
Cevian is a member of Jersey Finance and pays a membership fee, but no compensation was paid for the publication of this press release on the website.