What’s the Story?

The Schroders paper “Free Cash for CEOs? Sustainability metrics in executive pay.” was issued on 20 November 2025. It called for sustainability incentives to be business material, measurable and supportive of long term value creation.

It referenced a 2024 study showing 77% S&P 500 companies included ESG in incentives, but that ESG paid 10% more than the financial goals, with environmental goals paying out c. 60-90% of maximum.

 Schroders named three companies for sub-optimal ESG incentives:

• Exnor NV

  • CSDR and audit opinion compliance attracting incentive pay;

• BP

  • strategy and incentive misalignment (with climate bonus being some 50% of maximum when financials paid zero); and

• Shell

  • contradictory incentives (mis-match of profit and ESG and LNG growth at odds with CO2 reduction).

But the Haleon use of LTIP ESG underpins attracted praise.

Why Does it Matter?

While ESG has seen strong pushback recently, ESG factors remain highly important to the long term success of many companies.  

Investment theory explains “quality of earnings”. Will profits seen now be repeated securely for years ahead? That has been in focus for many decades, yet no one accuses major institutional investors of “woke capitalism”.

Schroders comments show that ESG selection and management matter to investors, as does how ESG is baked into the incentive structure.

The same criticisms of ESG in incentives was noted by Harvard Law School in 2022. Metrics poorly defined with built- in over payment and poor links between ESG and company strategy.

The investor position is well known, the IA PoR 2025 requires ESG pay factors to be material to the company, well defined and measured, and used with pay calibration no less difficult than the financial metrics. Which is easy to say but hard to do.

CORPGRO predicted a while back that ESG in incentives would continue to evolve for the better.

Newspoint view

ESG remains of strong importance to delivery of long term shareholder value. But not all ESG factors matter in the same way to all companies. Detailed examination of risk profile and growth drivers is vital.

Yet ESG is a slippery fish. It is hard to define and measure; and harder still to calibrate against money results. “Dark Matter” paper explains how both are important - it is not one at the expense of the other.

Investors want ESG issues focused on the business issues of each company. And they want to see this managed and rewarded correctly too. This is not going away anytime soon, because it matters - a lot.

ESG incentive underpins remains rare and may soon be used more widely. Although ESG as an incentive driver is important as well. 

The “Look Through Value” tool shows comparative metrics equivalence. While its use is in its infancy, that may soon change as the concept gains traction.

Connecting ESG to incentives is difficult, but good incentive design has never been easy. Companies and investors are running up the learning curve, and both are running fast. On ESG and incentives, many companies need to try again.

After watching a spider fail then succeed in spinning its web, famously Robert the Bruce, King of the Scots in hiding said:

 “If at first you don’t succeed, try, try and try again.”.

Executive Compensation and Incentive Design

Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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