Sustainability brings a new perspective for boards and shareholders’ meetings

Sustainability, in the form of ESG criteria, has long been knocking on company’s doors. But requirements are steadily growing. After a brief review of how these requirements have increased from a regulatory standpoint, from the 2006 Unified Code to the 2018 legal obligation to publish a non-financial information statement (NFIS), the debate began by focusing on how sustainability has had a growing impact on directors’ remuneration.

“The crisis triggered by the COVID-19 pandemic has marked a new chapter for businesses and, specifically, for shareholders’ meetings, where remuneration matters have taken on greater significance than in previous years, with notably greater market scrutiny not only of executive remuneration but also of the alignment of remuneration with other measures adopted by companies that impact all stakeholders. A new focus on social aspects has emerged and it is here to stay,” affirmed Sáez.

According to data gathered by Georgeson during the last shareholder meeting season, 70% of IBEX-35 companies include ESG metrics in their annual variable remuneration, 38% do so with respect to long-term variable remuneration and almost 25% have yet to employ these metrics.

Sáez categorically stated that there is growing pressure to make it the norm for shareholders’ meetings to approve remuneration systems that are linked to sustainability factors included in companies’ strategic plans. “Some of the most exacting investors in this regard are Blackrock, Vanguard, State Street and Legal & General, as well as major US pension funds, to name a few.”

With respect to the main difficulties faced by Spanish listed companies in including sustainability indicators in the metrics of medium- and long-term remuneration systems, Sáez considers that “the main obstacle is that you have to have a strategy in order to be able to include this kind of metrics. Without a sustainability strategy, it is impossible to include this type of indicators when defining the medium- and long-term remuneration of your executives.” In his opinion, the second hurdle is the need to use specific indicators that can be measured. “Many companies make the mistake of using overly generic indicators (employee engagement, presence in sustainability indicators, etc.),” he explained.

Other sustainability and ESG matters which, in the opinion of the three experts, will take on increasing relevance in the short term, also emerged during the debate. These include climate change, non-financial reporting, the creation of sustainability committees, employee health, talent management, teleworking and data privacy, as well as aspects relating to tax evasion and taxation in tax havens.