Sustainability Metrics in Executive Pay: Short term

Sustainability Metrics
in Executive Pay
Short Term Focus on a Long Term Issue
By Gary Hewitt, Managing Director, Head of Research
Greg Ruel, Senior Research Analyst
Executive Summary
Investors have increasingly focused their attention on how environmental and social issues affect the long-term sustainability
of a firm’s financial performance. Environmental, safety, product and labor concerns can and do pose significant potential
costs, such as multi-million dollar product costs in the case of General Motors, environmental cleanup liabilities such as at
Anadarko Petroleum, or worker safety concerns such as at Massey Energy or BP.
Some boards of directors have recognized these concerns as well, and have incorporated evaluations of sustainability
performance into their executive pay decisions. At the core of the U.S. executive compensation system is the notion that
incentives motivate executives. If not always achieved, the goal is to pay for performance. By paying, at least in part, based
on performance on achievement of goals such as worker safety, regulatory compliance, and environmental management,
boards of directors hope to focus their executives on managing these financial and reputational risks. GMI Ratings analyzed
the Compensation Discussion and Analysis sections of S&P 500 companies’ proxy filings for links between sustainability
and executive pay. We then categorized how rigorously the overall incentive program, both long-term and short-term, was
linked to sustainability. Additionally, we include summaries of practices across the sectors most commonly using these
sustainability factors in their incentive programs.
We found that for some companies, there may be only a small mention of a sustainability-compensation link in their proxy
statement or CSR reports with little to no detail. However, there are also companies that tie 30 to 40 percent of a CEO’s
annual bonus to sustainability targets. Finally, while a healthy minority (and in some industries, majority) of companies
incorporate sustainability factors into executive pay, far fewer disclose specific, quantifiable performance metrics and,
even after the fact, few disclose specific performance targets.
Key Findings
•
•
•
•
•
•
A bare majority of S&P 500 companies (53.8 percent) cited at least one sustainability “factor” as playing a role in
pay decisions.
While a majority of companies in the S&P 500 incorporate sustainability factors into executive compensation
decisions, only 16 percent name specific metrics used to measure performance
Fewer than one in ten (9.8%) of S&P 500 companies disclose specific performance targets along with sustainability
metrics.
More than 90 percent of companies in the Energy and Utilities sectors reported using sustainability metrics to
decide a portion of pay, with a primarily focus on health and safety.
Fewer than 40 percent of companies in the Telecommunications Services, Technology, and Cyclical
Consumer Goods / Services sectors cited a sustainability factor within the context of pay.
Despite the long-term nature of many sustainability-related issues, there are fewer than 10 companies
that incorporate these factors into their long-term incentives.
Sustainability Factors in Compensation
Introduction
For investors, the hallmark of a successful company is its ability to create lasting and sustainable value. However,
sustainable value creation cannot depend on exploiting environmental and social externalities, and cannot require
transferring the responsibility of environmental and social risk to the public and government. For all investors – especially
large ones that may own a broad swath of the market – these externalities and risks cannot be avoided, even if individual
companies may be able to do so for a time.
The bedrock assumption of the U.S. executive compensation system is that pay works as an incentive to encourage
stronger performance. Boards pay executives to achieve the company’s operational, financial, and strategic goals. While
the linkage between pay-for-performance is not always as effective as it should be – executives are too often paid despite
failing to achieve these goals – this notion of incentives remains a basic premise. However, just as linking company
financial performance to compensation makes sense to drive the performance of the company, linking sustainability
criteria to compensation can also promote strong sustainability.
www.gmiratings.com
2
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
For this report, GMI Ratings analysts examined the “Compensation Discussion & Analysis” sections of proxy filings for
each company listed in the S&P 500 as of July 2013. We also conducted a sector analysis, according to sectors designated
by the Thomson Reuters Business Classification (Basic Materials, Cyclical Consumer Goods / Services, Energy, Financials,
Healthcare, Industrials, Non-Cyclical Consumer Goods / Services, Technology, Telecommunications Services, Utilities).
While more than a majority of the S&P 500 mention sustainability factors in relation to pay, far fewer companies strictly
tie a portion of pay to measurable sustainability performance metrics.
Overall Findings
Increased investor attention to non-traditional drivers of value has led some companies to include sustainability metrics
in the design of their executive incentive programs. Tying pay outcomes to sustainability may help ensure that executives
focus on these goals, whether they are related to safety, environmental or enterprise risk management. GMI Ratings analyzed the Compensation Discussion and Analysis sections of companies’ proxy filings and categorized how rigorously the
incentive programs (long- and short-term programs were considered together) were linked to sustainability. The depth
was categorized as follows:
•
•
•
Factor – if the company cited a sustainability factor within the context of pay decision-making (such as safety or
environmental responsibility);
Metric – if the company cited a specific, measurable metric that would be assessed (such as Total Recordable
Incident Rate, or volume of spills);
Target – if a specific numeric target was reported in connection with a metric. The categories are inclusive – i.e.,
if a specific numeric target was identified, a specific metric and sustainability factor were also identified.
The prevalence of the three categories across the S&P 500 is indicated in the chart below:
Pay Links to Sustainability S&P 500 (Source: GMI Ratings)
A slight majority of S&P 500 companies (53.8 percent) cite some sustainability “factor” as playing a role in pay decisions.
However, just 81 companies in the index (16.3 percent) disclose a specific and measurable performance metric while only
49 firms (9.8 percent) disclose actual targets. Within sectors, companies citing pay factors related to sustainability were
most prevalent in the Utilities (74.2 percent) and Energy sectors (58.1 percent). Every company in the Energy and Basic
Materials sectors cited at least one Health & Safety factor, as did nearly all (95.7 percent) companies in the Utilities sector
and 42.9 percent of Industrials.
www.gmiratings.com
3
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
Twenty-five companies in the Energy sector (58 percent) used a specific factor to help determine executive pay but
just 28% of those companies cited an Environmental metric. A slightly higher percentage of Industrials (28.6%) tied
an Environmental metric to executive pay, for those companies in the sector citing a sustainability metrics, while
25% of Basic Materials companies with sustainability metrics included an Environmental measure. Employee Impact
& Engagement metrics were used at all Cyclical Consumer Goods/Services, Healthcare, and Non-Cyclical Consumer
Goods/Services companies that reported sustainability metrics while the metric was used at half of the Financials and
Telecommunications Services companies that cited metrics.
Sustainability Links by Sector: S&P 500 (Source: GMI Ratings)
Of companies with metrics, % reporting each type of metric
#
Total Companies in
Sector
# Companies
Citing Metrics
Health & Safety
Environment
Cyclical Consumer
Goods / Services
81
1 (1.2%)
0.0%
0.0%
100.0%
0.0%
0.0%
Energy
43
25 (58.1%)
100.0%
28.0%
8.0%
0.0%
4.0%
Sector
Employee
Impact & Customer
Engage- Satisfaction
ment
Other
Financials
78
8 (10.3%)
0.0%
0.0%
50.0%
62.5%
37.5%
Healthcare
50
2 (4.0%)
0.0%
0.0%
100.0%
0.0%
50.0%
Industrials
70
7 (10%)
42.9%
28.6%
71.4%
42.9%
14.3%
Non-Cyclical Consumer
Goods / Services
48
1 (2.1%)
0.0%
0.0%
100.0%
100.0%
0.0%
Technology
60
4 (6.7%)
0.0%
0.0%
25.0%
50.0%
25.0%
Telecommunications
Services
8
2 (25.0%)
0.0%
0.0%
50.0%
50.0%
0.0%
Utilities
31
23 (74.2%)
95.7%
13.0%
13.0%
39.1%
8.7%
Total
499
81 (16.2%)
71.6%
17.3%
25.9%
25.9%
11.1%
Apollo Group, Inc., the only Non-Cyclical Consumer Goods / Services in the S&P 500 to cite sustainability metrics,
includes Customer Satisfaction criteria in its assessment of executive pay. Five of the eight financials citing metrics
including some form of Customer Engagement/Satisfaction criteria while half of the Technology and Telecommunications
companies citing metrics included similar criteria. In total, nine companies used criteria we defined as “other”, including
metrics such as internal risk assessments and quality measurements.
Risk management was commonly cited only on general terms, at the “factor” level, and no companies cited specific
measurable metrics or targets specifically related to enterprise risk – possible exceptions were a handful of companies
that cited regulatory compliance metrics. Only one company in the sample, ProLogis Inc., cited a metric possibly related
to overall risk (an internal risk score “PIRI”).
When comparing the application of sustainability metrics to short-term and long-term awards, for those companies
that cite a specific metric, 88.9% apply the use of sustainability metrics only to annual awards. Four Utility companies
(Pinnacle West Capital Corp, DTE Energy Company, FirstEnergy Corp. and Xcel Energy Inc.) and two Energy companies
(ConocoPhillips and CONSOL Energy Inc.) apply sustainability metrics to both long-term and annual awards. In the S&P
500, Exelon Corporation and Juniper Networks, Inc. are the only companies to specifically apply sustainability metrics
only to long-term awards.
www.gmiratings.com
4
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
Sector Summaries
While more than half of the S&P 500 currently incorporates a sustainability factor in compensation decisions, the
practice is not equally prevalent across all industries. For instance, fewer than 40 percent of companies in the
Telecommunications Services, Technology, and Cyclical Consumer Goods / Services sectors cited a sustainability factor
within the context of pay. However, more than 90 percent of companies in the Energy and Utilities sectors reported
using sustainability metrics to decide a portion of pay. The following summaries provide more detail on the five sectors
where the use of sustainability-related metrics was most prominent: Energy, Utilities, Financials, Basic Materials, and
Healthcare.
Energy Sector
Summary
Of the 43 companies in the study, 39, or about 91%, disclosed the use of at least one sustainability factor in determining
pay for at least one named executive officer (NEO). Fifty-eight percent (25 companies) name specific sustainability
measures they incorporate into pay plans and 26% disclose targets they set for performance against those metrics.
Despite this widespread use of sustainability factors, however, their impact on payouts to energy executives at many
firms remains low, since they often determine only a small part – ten percent or less in many cases – of the annual
bonus.
Moreover, companies rarely incorporate the metrics into long-term incentive plans, although many investors consider
sustainability issues inherently long-term. In addition, the effects of these pay plans on sustainability performance may
be limited because the metrics used often focus primarily on avoidance of errors, such as worker injuries and fatalities or
environmental spills. It is much less common for companies to tie pay to systematic improvements (e.g., a reduction in
greenhouse gas emissions or decreased water usage).
Findings
Safety was the most common sustainability factor used, with Total Recordable Incident Rate (TRIR) or a related metric
being most commonly named. Many companies also measure environmental spills or accidents, with metrics like
volumes of oil or chemicals released to the environment, number of Category 3 or 4 (e.g., severe) environmental
incidents, or number of regulatory violations. It was much less common for companies to include metrics related to
routine operational impacts on the environment, such as greenhouse gas emissions or water usage.
In terms of plan design, methods of incorporating sustainability factors vary. Some companies ascribe a set percentage
of the annual bonus – often a small one, such as 5 or 10 percent – to a sustainability factor (for which the metrics and
targets may or may not be disclosed). Some companies tie pay to performance on an internal scorecard of sustainability
factors, which may collectively account for as much as a quarter or a third of a company’s annual bonus. Alternatively,
it is also common for sustainability metrics to be included in the portion of the annual bonus that is based on individual
and/or subjective factors, while the rest of the bonus is tied to quantifiable financial metrics such as EPS or cash flow.
Yet another frequently-used method is for the annual bonus to be calculated on the basis of financial metrics, but for
sustainability metrics to be used as a “modifier” that can adjust payouts up or down (usually only by a small percentage,
e.g., 5 percent in either direction) if sustainability performance was particularly good or bad that year.
Under all of these methods, the impact of sustainability on NEO pay often appears small. In many cases, sustainability
metrics affect less than 10 percent of an annual bonus (if any weighting is specified), and in the vast majority of cases,
sustainability factors are almost exclusively used for annual incentives, not for long-term incentives such as performance
share plans, which remain overwhelming based on financial metrics (most commonly TSR).
Nevertheless, some companies are giving sustainability a prominent role in their annual incentive plans, like those
mentioned below.
www.gmiratings.com
5
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
Policy Highlights
The following are some example of S&P 500 energy companies that are providing strong disclosure on the incorporation
of sustainability metrics into executive pay.
Devon Energy
•
35% of annual bonus related to sustainability
•
Measures include employee recordable incident rate, contractor recordable incident rate, preventable vehicle
incident rate, spill rate, and lost spill rate.
Hess Corp.
•
Annual bonus metrics include, process safety management, and management of corrective actions associated
with high potential severity incidents.
•
In 2012 payouts on some EHS metrics cancelled due to a contractor fatality, despite otherwise strong
performance.
Marathon Petroleum
•
Annual bonus metrics include process safety, accident rates, environmental releases
•
Disclosure includes threshold/target/maximum goals for each, along with actual performance
Utilities Sector
Summary
Just over 90% of S&P 500 Utilities factored sustainability metrics into compensation decisions. In fact, only PPL
Corporation, CMS Energy Corporation, and AGL Resources Inc. failed to mention any sustainability metrics in terms of
pay decision-making. Of the Utility companies mentioning sustainability factors, 74 percent specifically tied at least one
metric to compensation and 57% disclosed targets on sustainability factors. While most Utilities citing sustainability
metrics tied them only to annual awards, DTE Energy Company, Pinnacle West Capital Corporation, FirstEnergy Corp. and
Xcel Energy Inc. cited sustainability metrics in both short and long-term pay decisions.
Health and safety metrics were included for more than 95 percent of Utilities that incorporated specific sustainability
criteria. The most commonly used metrics include total incident case rate, OSHA reportable incidents, preventive vehicle
incident rate, and workplace safety incidents. Nearly 40% of companies citing metrics in the sector incorporate some
type of customer engagement/satisfaction measurement in pay determinations, primarily in the form of customer
satisfaction surveys.
Findings
The most frequent application of sustainability metrics for Utility companies is the inclusion of safety metrics in annual
bonus plans. Commonly, utility companies with incorporate a safety or lost workday cases metric to account for 10
percent of the weight in the annual bonus. At Duke Energy Corporation, 5 percent of the bonus is determined by Total
Incident Case Rate and 5 percent is based on a Fatality Rate. However, at Integrys Energy Group, Inc., non-financials such
as safety, customer satisfaction, and environmental impact account for 30 percent of the weight on annual bonus plans.
At PG&E Corporation, Lost Workday Case Rate; Preventable Motor Vehicle Incident (MVI) Rate, Customer Satisfaction
Score, and multiple other safety measures combine to account for 40 percent of annual incentive pay.
About one-third of utility companies incorporating sustainability metrics into pay plans included some type of OSHA
reportable. NRG Energy, Inc. for instance uses both Regional OSHA Recordables and OSHA Total Recordable Injury Rate
while Sempra Energy includes measurements for OSHA Recordable Injury Rate and OSHA Recordable Rate. About 13
percent of utility companies employ an environmental metric in pay decisions, including targets for number of notices of
violations, reportable spills, or non-compliance events or targets related to renewable energy, efficiency, and emissions
reduction. Another 13 percent of utilities with sustainability metrics include a measurement for employee engagement
in bonuses.
www.gmiratings.com
6
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
Policy Highlights
The following are some example of S&P 500 utility companies that are providing strong disclosure on the incorporation
of sustainability metrics into executive pay.
FirstEnergy Corp.
•
Safety performance metrics are part of the STIP and LTIP
•
In the event of a fatality within the business unit of an NEO, no safety award will be paid to either the NEO or
CEO for the applicable year regardless of the OSHA incident rate.
PG&E Corporation
•
Safety measures weighted at a total of 40%
•
Measures include Lost Workday Case Rate; Preventable Motor Vehicle Incident (MVI) Rate; Customer Satisfaction
Score; multiple other safety measures including.
Integrys Energy Group, Inc.
•
30% of annual bonus related to sustainability, and Include non-financial metrics such as safety, customer
satisfaction, and environmental impact.
Financial Sector
Summary
While more than two thirds (68 percent)of financial sector companies in the S&P 500 tie some aspect of executive pay
to sustainability, only 15 percent name specific sustainability metrics they incorporate into pay plans, but most of these
(also disclose actual targets along with metrics. In addition, it is relatively unusual for companies to tie pay to issues such
as liquidity or asset quality, although many investors consider these issues to be of prime social importance given the
financial sector’s systemically important role in the economy.
Findings
Of the 78 firms in the study, 53 (68 percent) disclosed the use of a sustainability factor in their executive compensation
plans. However only 8 (15 percent) named specific metrics used or specified target levels for those metrics. When
metrics are disclosed, customer and employee satisfaction, diversity, ethics and regulatory compliance are among the
most frequently mentioned. A smaller number of firms include measures of capital adequacy and asset quality, which
many investors consider among the most crucial for the sector.
Policy Highlights
The following are some examples of S&P 500 financial services companies that are providing good disclosure on the
incorporation of sustainability metrics into executive pay.
Aetna
•
20% of annual bonus linked to stakeholder satisfaction
•
Metrics measured include employees, vendors, customers satisfaction
Ameriprise
•
Balance-sheet quality is 20% of corporate scorecard for determining the annual incentive.
Apartment Investment & Management Co.
•
Detailed disclosure on use of annual incentive metrics including balance sheet, weighted at 10%, and
compliance/employee engagement, weighted at 10%. Both are qualitative measures without specific targets.
Hudson City Bancorp
•
Maintenance of specific level of Tier I tangible capital ratio is a factor in determining the annual cash incentive,
which is subjectively determined.
www.gmiratings.com
7
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
PNC Financial Services
•
Long-term compensation vests only if a certain Tier I risk-based capital ratio is exceeded.
Basic Materials Sector
Summary
Sixty-three percent of Basic Materials companies in the S&P 500 use some sustainability factor in awarding executive
pay. However, only 27 percent name specific metrics they use to do so, and only 13 percent disclose preset targets
against which they measure sustainability performance. The most commonly used metrics include measures of safety
and environmental performance. Moreover, most focus on avoidance of error (e.g., accidents and spills) rather than
systematic improvements in operational performance (e.g., carbon emissions or water usage).
None of the Basic Materials companies surveyed incorporate any type of Customer engagement/ satisfaction criteria
into pay decisions and only Alcoa Inc. utilizes Employee engagement criteria into executive compensation criteria.
Alternatively, each company in the sector that displayed a specific target utilized a Health and Safety measure.
Findings
Interestingly, only Sealed Air Corporation qualifies as a Basic Materials company that incorporates any type of
sustainability metric into long-term awards, though not in order to vest. At Sealed Air, Total Recordable Incident Rate,
which is also a performance metric in the annual bonus, can modify Performance Stock Unit payouts up or down by 10
percent.. Most commonly, Basic Materials companies in the S&P 500 Index with sustainability metrics incorporate some
type of safety measurements into annual bonus plans. For environmental metrics, these companies are most likely to
include a reduction of carbon dioxide emissions or occurrences of noncompliant air and water emissions from the prior
performance period.
Policy Highlights
The following are some examples of S&P 500 materials companies that are providing good disclosure on the incorporation
of sustainability metrics into executive pay.
Alcoa
•
20% of the annual bonus is related to sustainability-related metrics.
•
Performance relative to safety, carbon emissions reductions, and employee diversity factors make up 20% of the
annual bonus.
Mosaic Co
•
Safety, as measured by OSHA recordable and lost-time injury frequency rates, makes up 12.5% of the targeted
annual bonus.
Praxair
•
Safety, environmental responsibility, regulatory issues, diversity part of subjective evaluation for annual bonus,
with payments varying up to 35 percent up or down based on non-financial performance.
Weyerhaeuser
•
20% of annual bonus based on business unit scorecard, which includes safety; safety performance can also
modify funding of entire annual bonus pool. The specific weighting of safety within the scorecard is not provided.
Health Care Sector
Summary
More than half (58 percent) of health care companies in the S&P 500 indicate they use some sustainability factor in
awarding executive pay, 27 companies in total. However, only four percent of companies name specific performance
metrics, and only one company discloses preset targets against which it measures sustainability performance. The most
www.gmiratings.com
8
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
commonly mentioned sustainability factors include various aspects of stakeholder satisfaction and governance. None of
the health care companies surveyed incorporate sustainability metrics into long-term compensation decisions.
Findings
A small number of healthcare companies mention ethics and regulatory compliance—issues of major concern to
investors following recent controversies, notably around product safety, that have plagued the pharmaceutical industry
and at other healthcare firms. When metrics are disclosed, common items include employee and customer satisfaction,
as well as risk management and succession planning. Some firms also include ethics or regulatory compliance as pay
plan metrics; however, the number of companies doing this is smaller than one might expect, given the many recent
regulatory concerns in pharmaceuticals and other healthcare firms.
Policy Highlights
The following are some examples of S&P 500 healthcare companies that are providing good disclosure on the
incorporation of sustainability metrics into executive pay.
Amerisource Bergen
•
Bonus goals for executives include “leadership goals” such as succession planning, diversity, “avoiding material
regulatory or legal failure,” and 2013 bonuses were reduced for several executives on this basis. Baxter
International
•
Quality, regulatory matters, stakeholder relations on sustainability matters constitute part of the individual
performance assessment for CEO
Tenet Healthcare
•
Annual incentive amount metrics include physician satisfaction, employee turnover, and regulatory compliance
(based on internal and external audits); detailed goals and performance results are disclosed.
Thermo Fisher Scientific
•
30% of annual bonus based on company-wide non-financial performance factors, including metrics related to
diversity and customer allegiance
Conclusion
More than half of the S&P 500 now cites some sustainability factor as playing a role in pay decisions, suggesting that
boards are taking seriously the importance of incentivizing and managing sustainability performance. However, there
remains much room for improvement in the manner companies are incorporating sustainability factors into executive
compensation.
At present, only about 10 percent of company boards require the CEO to satisfy a sustainability target in order to earn
a portion of a bonus, and just a handful of companies assess sustainability performance in conjunction with long-term
awards. Yet as shareholders continue to insist that companies be held accountability for their impact on the environment
and the safety of their employees, it’s reasonable to ascertain that boards will push for an increase in the application of
sustainable metrics in determining executive pay.
Utility companies in particular are leading the way towards a meaningful incorporation of sustainability metrics into
executive pay. With three-fourths of companies in this sector utilizing sustainability metrics and 57 percent setting
specific targets to achieve for bonus payouts, it’s clear that boards of utility companies recognize that the health and
safety of its employees are meaningful drivers of performance and underline this to management through these pay
programs. It stands to reason that as boards continue to put a greater emphasis on sustainability metrics with regards to
executive payouts, senior company leaders will be forced to improve rates of workplace safety, reduced emissions, and
increased customer satisfaction.
www.gmiratings.com
9
+1 877-479-7500
[email protected]
© 2014 GMI Ratings
Methodology
Source Data
For purposes of this report, GMI Ratings examined the most recent annual proxy statements for companies indexed
in the S&P 500. Each company’s “Compensation Discussion & Analysis” section was reviewed for all mentions of
sustainability metrics and any ties to executive pay. Further analysis includes a comparison of S&P 500 constituents
within each sector. Sector analysis includes the frequency of factors, metrics, and targets mentioned for companies
within the sector as well as the type of targets used.
Factors:
•
Does the company report that in the most recent compensation year, it used any ESG factor in any element of
comp for any NEO? This was marked “yes” even if the factor was described in general terms, (e.g., as “safety,” or
“environmental responsibility”); if it was said to form part of a holistic evaluation, without specific weightings; if
it was incorporated in only the personal portion of a single NEO’s award, and not the company-wide portion of
performance assessment; and if it was part of a retrospective evaluation of performance, without mention of
preset targets.
•
This data point was marked “no”, however, if the only mention of an ESG factor was in a statement that
described the company’s general approach to compensation but not what was actually done this year for anyone
in particular (e.g., “our compensation plan is structured to reward the promotion of shareholder value while
preserving the environment” did not qualify, if the account of how compensation awards for the most recent
fiscal year were determined mentioned only financial metrics).
Metrics:
•
Does the company name a specific ESG metric that it uses to measure ESG performance? To receive a “yes” for
this data point, the company needed to name a metric rather than a general topic—e.g., -accident rates per
hours worked rather than merely “safety”, or volume of spills released rather than simply “environmental
responsibility.”
Targets:
•
Does the company disclose specific ESG targets that it set for executives before the compensation year began,
and tell how performance measured up to them? To receive a “yes” here, the company needed to disclose
preset targets, not merely report performance without specifying what its goals were. It was considered
acceptable if a company disclosed directional goals without absolute numbers (e.g., “the goal was to improve
safety performance compared to last year”, or “to rank in the top ten percent of the peer group”) as long as the
goals were set ahead of time and the goals were understandable.
•
Targets expressed in terms of the company’s proprietary calculations (e.g., “we exceeded the target level of .365
on our Sustainability Index”) did not qualify for a “yes” on this data point (unless those calculations were clearly
explained), since although they suggest the company has given some thought to tracking sustainability
performance, they do not help investors understand what it is, exactly, that companies are managing in this area.
About GMI Ratings
GMI Ratings is the leading provider of research and ratings on environmental, social, governance (ESG) and accounting-related risks affecting the performance of
public companies. The firm’s ESG ratings on 6,300 companies worldwide incorporate 150 ESG KeyMetrics® to help investors assess the sustainable investment value
of corporations. The firm also provides Accounting and Governance Risk (AGR®) ratings on more than 20,000 public companies worldwide. Clients of GMI Ratings
include leading institutional investors, banks, insurers, auditors, regulators and corporations seeking to incorporate accounting and ESG factors into risk assessment
and decision-making. A signatory to the Principles for Responsible Investment (PRI), GMI Ratings was formed in 2010 through the merger of GovernanceMetrics
International, The Corporate Library and Audit Integrity. In the 2012 Independent Research in Responsible Investment (IRRI) Survey conducted by Thomson Reuters
Extel and SRI-CONNECT.com, GMI Ratings was named “The Best Independent Corporate Governance Research Provider.”
These rankings are intended to provide investors with an effective summary of environmental, social and corporate governance factors that can and do impact investment value. They are not, however, intended for stand-alone
use and should not be considered as simple Buy, Sell or Hold recommendations. Most investment professionals regard these ratings as a specialized, proprietary input to be used for ESG benchmarking in combination with
existing fundamental analysis or other approaches and to help ensure compliance with the UN-PRI (United Nations Principles of Responsible Investing) and other similar standards.