The corporate bonus culture hinders net pressure for zero

ESG Investment Updates

Governments around the world are calling on big investors to mobilize the global corporate sector to achieve climate change goals. An ever-increasing number of property owners and managers have taken the initiative and pledged to maintain a general balance between greenhouse gas emissions and greenhouse gas emissions – net zero.

However, It is astonishing how much has been accomplished so far at the November COP26 Glasgow meeting to accelerate action on the 2015 Paris Agreement on Sustainability. In the UK, non-profit clothing research by the Energy and Climate Intelligence Unit and the Oxford Net Zero research found that only one-fifth of the public-traded companies on the Forbes Global 2000 list were committed. To zero.

At the same time, the Climate-Related Financial Task Force, supported by the world’s leading central banks, is producing more information on climate change. Financial The impact on businesses and strategies – the test of corporate commitment – remains. The question is why.

There are good reasons to doubt the investment community’s commitment to sustainability. For many fund managers, the commitment to climate change is just a bargain to meet the needs of market development investors on a sustainable basis – a green wash, in a word.

Monitoring and engaging with companies: The so-called pastoral agenda is difficult and expensive. This makes a significant difference between the speeches of the major fund managers and their voting records on environmental, social and governance issues (ESG).

Note, too, the limitations on the voting power of institutional investors under the structure of world markets. A.D. In 2020, according to the National Bank BBVA. After the money is invested, the interest of bond investors on borrowers is negligent at all times.

The natural stewards of ESG are long-term property owners, such as pension funds. However, as the English proverb shows, they are often separated from the fair market. According to the National Bureau of Statistics, 83 per cent of all UK pension scheme assets hold 10 per cent of portfolio assets by the end of 2020. Most are investments in loans. Assets such as property, personal property and infrastructure funds.

This is not to underestimate the success of stock activists who have won significant battles on Exxon Mobile, Chevron and other boards to withstand the transition to low carbon. But they face serious obstacles in their quest to achieve the goals of an organization.

With less than seven years in the US average of 3,000 indicators in the United States, and five years and six months in the FTSE 100, the board’s horizon is erroneously in line with the 2050 timeline for the Paris Agreement. And the biggest hurdle is in the corporate bonus culture.

Performance-related payment metrics, such as stock price movements and revenues, rely heavily on such metrics on a single stock. The huge capital allocation needed to save energy-related capital stock to zero emissions will result in a reduction in the cost of fossil fuels. Low revenues can significantly reduce stock prices.

Video The net zero trend of the corporate world

One solution is to link ESG requirements to incentive structures. This already happens with annual bonuses. But consultants Willis Towers Watson estimates that only 4% of the S&P 500 companies are more relevant to the decommissioning period in draft incentive plans for ESG metrics. A higher percentage may encourage executives to load up on carbon offsets for private equity administrators who are easily misunderstood.

To address this problem, governments need to accelerate their own efforts to achieve equitable access to their current toxic reserves. However, the unfortunate fact is that the bonus culture improves the company’s revenue and supports the acquisition of stock capital needed to reach net renewable energy (zero).

Promoting these distorted private sector incentives on the COP26 agenda must be a priority.

john.plender@ft.com

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