Investors seek linkage of executive compensation to environmental,
social and governance performance indicators at Canadian oil sands
VANCOUVER, Jan. 18 /CNW/ - As some of Canada's biggest companies face a
'say on pay' advisory vote for the first time at their 2011 annual
general meetings, oil sands companies are doing a poor job of
disclosing to investors how they use executive compensation to
stimulate action on mitigating the environmental, social and governance
(ESG) risks that threaten long-term company value.
This is one of the conclusions reached by ESG Services, working on
behalf of Ethical Funds investors at NEI Investments. The team has been
researching how Canadian companies link compensation to ESG risk
management performance indicators in sectors that are highly-exposed to
such risks - especially oil and gas.
"When it comes to risk mitigation, you get what you pay for," says
Robert Walker, Vice President of ESG Services at NEI Investments. "For
example, oil sands production creates a range of social and
environmental impacts that can generate long-term risk for investors.
Companies need to address those impacts - and a sure-fire way to make
that happen is to ensure that executive compensation packages integrate
the right ESG performance indicators. Based on the companies' public
disclosure to shareholders, that's not happening right now," said
The ESG Services analysis found that most oil sands operators made only
boilerplate reference to linking top executive pay to ESG risk
indicators - or no reference at all. None of the companies tied
long-term compensation to environmental and social performance.
Highlights of this research appear in a new publication, Oil Sands Update: Reducing Investor Risk Through Engagement, which follows up on ESG Services' major oil sands benchmarking report Lines In The Sands, published in 2009.
"We welcome 'say on pay', but it's not a silver bullet," added Jennifer
Coulson, Manager of Corporate Engagement for ESG Services. "To make
informed use of the vote, shareholders should determine whether or not
a company's compensation framework is encouraging executives to build
long-term sustainable value."
Linkage of compensation to ESG risk mitigation is one of the priorities
for Ethical Funds' 2011 corporate engagement Focus List which targets
52 companies for intensive dialogue on ESG issues. ESG Services is
engaging the boards of nine oil and gas companies on executive
"Engaging individual companies is highly effective - but to change all
companies at once, you need to change the rules," said Michelle de
Cordova, Manager of Public Policy and Research for ESG Services.
"That's why we are also asking the Canadian Securities Administrators
(CSA) to highlight ESG performance indicators in compensation
disclosure requirements for public companies." When the CSA reviewed
executive compensation disclosure in 2009, it found significant issues
relating to performance goals, including the absence of objective
measures and the use of unspecified board "discretion" as justification
for compensation paid. The CSA is now conducting a consultation on
proposed amendments to compensation disclosure.
Walker adds: "We are working to ensure that the compensation regimes of
the companies in our funds are aligned with corporate strategy and risk
management priorities, using the different tools available to us as
responsible investors. The idea that the attitude of management and
employees to risk might be guided by the way that they are rewarded may
seem like a no-brainer - but experience shows that companies are still
not acting on it."
Download Oil Sands Update: Reducing Investor Risk Through Engagement from
About NEI Investments
NEI Investments is owned 50% by the Provincial Credit Union Centrals and
50% by Desjardins Group, and offers a wide range of conventional and
corporate class funds from Northwest Funds and the largest responsible
investing funds family in Canada from Ethical Funds. NEI Investments
currently has over $4.8 billion in assets under management. NEI
Investments' ESG Services advises Ethical Funds and other institutional
investors with regard to ESG risk mitigation.
NEI Investments has offices in Toronto, Vancouver and Montreal. ESG
Services is located in the Vancouver office.
Every year, ESG Services, on behalf of Ethical Funds, identifies a
corporate engagement Focus List of companies for intensive dialogue on
environmental, social and governance (ESG) issues. The companies on the
Focus List represent approximately 20% of the assets under management
within NEI Investments' Ethical Funds portfolios.
In 2009, ESG Services published Lines in the Sands, a comprehensive benchmarking report that analyzed environmental,
social and governance (ESG) policies and practices of 13
publicly-traded Canadian, American, and international companies with
commercial oil sands operations in Northern Alberta. The report
examined each company's exposure to risk on the themes of disclosure,
aboriginal engagement, climate change and air pollution, water, land
use and biodiversity, and corporate strategy for change.
The Canadian Securities Administrators (CSA) are seeking comments on
proposed amendments to Form 51- 102F6, Statement of Executive Compensation, which sets out disclosure requirements on executive compensation
policy and practice at Canadian public companies.
For further information:
Vice President, ESG Services