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Sectors with high environmental risks should be tying executive compensation to mitigating risks


January 18, 2011   by Canadian Underwriter


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Sectors highly exposed to environmental risks, such as oil sands and gas companies, need to a better 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 Provincial Credit Union Centrals owns 50% of NEI Investments, while Desjardins Group owns the other 50%.
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.
“For example, oil sands production creates a range of social and environmental impacts that can generate long-term risk for investors,” says Robert Walker, vice president of ESG Services at NEI Investments. “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.”
The ESG Services analysis says 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.


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