How solid are your ESG targets?

Once a company has identified its material ESG issues and formulated a strategy to address them, it has to consider how to measure its success in doing so.

This involves choosing performance indicators, presenting them in the Annual Report and deciding whether or not to include them in executive remuneration. This can range from grouping material issues into focus areas and reporting on its initiatives in each area, all the way to including delivery against specific targets in the remuneration of its executive directors.

Our latest issue of ‘Reporting Matters’ reveals the findings of our research in the FTSE 100 on how successful leading companies are adopting such approaches.

Our findings

In the context of our ‘Reporting Matters 7’ study, our key findings are as follows:

  • Most companies in our sample had defined focus areas for their ESG strategy and developed initiatives or objectives associated with them, but only about one-third had actually set targets.
  • Only about half of the companies included timeframes against which progress could be measured.
  • Only one-third of the sample had timeframes for all their ESG objectives or targets.
  • The overwhelming majority of companies that had set timeframes had at least one target based on timeframes of five years or more, but this was often not more than a generic commitment to net zero by 2050.
  • 13% of our sample had no timeframes at all for their targets.
  • One-third of companies in our sample did not include any non-financial performance indicators in their remuneration policy.

Our recommendations

  • Define focus areas for your ESG strategy by grouping your material issues into focus areas, as identified by your materiality assessment.
  • Set performance indicators for each focus area, giving appropriate short- and long-term goals across the value chain, and report year-on-year progress against them.
  • Set timeframes for each performance indicator to show if you are on track to achieve your goals.
  • If possible, pull together all focus areas, goals and performance indicators in one dashboard to give a clear overview of the components of your ESG strategy, how its success is measured and your progress towards this.
  • If any of the performance indicators contribute to executive remuneration, show this clearly and prominently in the dashboard and also in the Remuneration Report as an important indicator of ESG commitment and integration.
  • Do the same for non-financial KPIs of the corporate strategy.

At our launch event on 13 July, Luminous’ Stephen Butler, Investor Engagement & ESG Disclosure Director, Rachel Madan, Sustainability & Impact Director, and Nina Kefer, Consultant, along with Richard Davies, Managing Director of RD:IR, shared the outcomes of our proprietary research. They also offered practical advice on defining, reporting and engaging around ESG strategy, as well as how to optimise your ESG in your Annual Report and investor days.

If you would like to access the recording and slides from our event, please get in touch.

Find out more about our Reporting Matters research on ESG integration and disclosure here: 

Download a copy here: