Businesses not linking corporate responsibility risk to remuneration

NEW RESEARCH has revealed that only one in ten of the world’s largest companies links corporate responsibility performance to renumeration, despite the fact that 75% of the top 250 International companies (G250) acknowledge risks to their business from environmental and social issues such as resource scarcity.


The report, created by reviewing the Corporate Responsibility Reports of some of the largest global companies, suggests that many companies are failing to incentivise their executives to manage these risks effectively.


The findings from the eighth KPMG Survey of Corporate Responsibility Reporting  published today also reveal that only 5% of G250 reporting companies quantify and report the potential impact of environmental and social risks on financial performance.


“Environmental and social risks can impact the supply chain, productivity, financial performance, reputation and brand value. So it is disappointing to see that so many companies still shy away from quantifying these risks in financial terms and few factor in the management of these risks into executive remuneration,” said Yvo de Boer, KPMG’s Global Chairman, Climate Change & Sustainability Services.


“More and more investors accept that environmental and social megaforces put company value at stake. As their understanding grows, they will expect companies to be transparent about the risks they face, what the financial impacts of those risks could be and what the company is doing to mitigate them. Our research suggests that many companies still have a long way to go on that front.”


According to the KPMG survey results, financial quantification of environmental and social risks is most prevalent in the financial and oil & gas sectors. Eight of the 11 G250 companies, that quantify at least some of their environmental and social risks in financial terms, are in these sectors.


The KPMG Survey of Corporate Responsibility Reporting 2013  also shows that CR reporting is now a mainstream business activity all over the world practiced by 71% of the 4100 companies studied across 41 countries. In 1993, when the KPMG survey was first published, the average global CR reporting rate was only 12%.


KPMG’s research suggests a shift in mindset from risk to opportunity occurring among many large companies. More G250 companies mentioned the opportunities of environmental and social megaforces in their CR reporting than mentioned risks (87% vs 81% of G250 companies reporting).


Of the potential opportunities, innovation and learning is the most commonly mentioned – identified in almost three quarters of G250 CR reports. Around half of reporting companies mention the opportunity to strengthen their brand and around one third report the opportunity to grow market share.


“Corporate responsibility is no longer simply a moral issue and companies recognise this. They increasingly view it as a critical lens on concrete business risks and opportunities. It is encouraging to see that large companies are now seeing environmental and social change as a source of opportunity as much as, or more than a source of risk, providing a more rounded view for stakeholders,” said de Boer.