Insignia applauded for rare climate considerations

Previously IOOF, Insignia Financial, has been praised by KPMG for its incorporation of climate consideration into its financial year 2022 long-term equity plan.

Noting the relatively low use of “E” inventive measures in Australia, KPMG distinguished Insignia among only a handful of firms as examples of companies with climate-related incentive measures.

KPMG explained that it is more common in Australia for environmental metrics to be incorporated into short-term incentive plans, as is the case with lenders NAB and QBE, as against long-term incentive (LTI) plans that typically account for a larger portion of executive remuneration packages.

“In addition to Goodman Group and Insignia Financial, only a handful of companies have adopted climate-related metrics under their LTI plans, including AGL, Fortescue Metals, South32, Northern Star and Incitec Pivot, and not completely without scrutiny from proxy advisors,” KPMG said in a report penned by partner Tim Nice and senior manager Rachel Tucker.

KPMG explained that the UK market is “leaps and bounds ahead” of Australia, with FTSE 100 companies outside of traditionally high-emitting industries using climate-related measures either as stand-alone metrics or as part of an ESG component.

For example, 20 per cent of Barclays’ 2021 annual bonus was tied to strategic measures, which included targets relating to green financing. Additionally, 25 per cent of HSBC’s 2021 LTI is tested against an “environment and sustainability” component, which includes carbon reduction and sustainable finance and investment.

“We do expect to see more Australian companies in broader industries consider adopting environmental incentive measures where material to their long-term strategic priorities,” Mr Nice and Ms Tucker said.

“However, it is important for remuneration committees to avoid simply jumping on the bandwagon and adopting ‘E’ incentive measures to give external stakeholders a ‘bite’, without giving careful thought to some key considerations.”

The pair pinpointed choosing the right metrics, developing an effective external communication and engagement strategy, and materiality as key considerations for any firm embarking on the ESG journey.