Oil sands companies are doing a poor job of disclosing to investors how they use executive compensation to mitigate the environmental, social and governance (ESG) risks that threaten long-term company value, according to a new report.
Oil Sands Update: Reducing Investor Risk Through Engagement
, from NEI Investments' ESG Services, looks at how Canadian companies link compensation to ESG risk management performance indicators.
"When it comes to risk mitigation, you get what you pay for," said Robert Walker, vice-president of ESG Services in Vancouver.
"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."
The best way to do so is to link executive compensation to the right ESG performance indicators, said Walker. But based on the companies' public disclosure to shareholders, that's not happening.
Most oil sands operators made only boilerplate reference to linking top executive pay to ESG risk indicators, or no reference at all, found the report.
And none of the companies tied long-term compensation to environmental and social performance.
While say on pay is an important policy, which more and more organizations are adopting, it's not a silver bullet, said Jennifer Coulson, manager of corporate engagement at 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," she said.
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