The setting of social and environmental objectives, a pending issue

The report “The management of ESG aspects in listed companies” prepared by Transcendent, which analyzes 85 companies listed in the continuous market, including all the companies in the IBEX35, confirms that only 13% have evaluable social commitments.

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The urgency to incorporate Environmental, Social and Governance (ESG) aspects is setting the agenda of the main corporate governance bodies and has become part of their strategic priorities.

Business transformation towards sustainability involves a change of mentality, a real challenge from an organizational and operational point of view. Its transversality requires aligning all areas of the company.

To learn about the The degree of progress of this transformation in leading Spanish companiesYes, we have decided to carry out a report, which focuses mainly on three aspects:

• The evolution in the structure of governance of sustainability.
• How commitment to environmental and social issues translates into concrete and measurable objectives.
• The link between the achievement of these sustainability objectives and the remuneration of managers.

After the analysis carried out, we have found that the speed with which companies are progressing is not the same, and the difference between the IBEX 35 companies and the rest of the listed companies is very palpable.

We have also identified that companies focus mainly on environmental factors, while social aspects are much less present and, when they are, they focus mainly on issues of gender and the wage gap.

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Materiality as an axis for setting priorities

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Beyond its commitment to the environment and society in general, a key element that influences the sustainability strategy and that must mark the strategy when setting objectives is materiality. These sustainability priorities will vary significantly depending on the sector, the company's strategy and also the expectations of its stakeholders.

Both in defining the strategy and the objectives, companies can decide reduce its impact negative and/or generate benefit to their stakeholders. They can also plan their contribution to solving existing social and environmental problems. Those objectives aimed at benefiting stakeholders or contributing to solutions are those that will have the greatest impact and a competitive advantage for the company and, therefore, are where the company should focus.

Although currently, due to regulation and their tactical nature, companies are focusing on setting environmental objectives, they should not be forgotten. social aspects which they will undoubtedly mean The next big milestone in sustainability becoming, in some sectors, a truly differentiating factor.

The great difficulty in setting social objectives lies in their measurement, which must be based on international standards, many of them still under development, as is the case of the EU Social Taxonomy.

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Dashboards for sound decision-making

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For proper decision-making, directors and executive directors must have tools that allow them to monitor and “operationalize” sustainability within the company, providing a balance between strategic and tactical vision. A key tool is a dashboard in which the objectives that define the company's management are defined and that allows us to determine the degree of achievement of them.

Due to its nature transverse And to your markup strategic natureor, sustainability requires a governance structure that supports decision-making and takes responsibility for its management. That's why it's done The constitution of multidisciplinary governing bodies is necessarys that guarantee the integration of sustainability into the business and promote alignment between all areas, which implies, at a strategic level, ensuring the purpose and ESG performance of the company and, at a more operational level, facilitating coordination to achieve common objectives.

However, the level of reporting, functions and dedication (exclusive or not) of these governing bodies will depend to a large extent on the size of the company, the sector in which it operates and what its relevant sustainability issues are.

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ESG compensation and the integration of sustainability in the company

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In addition, another key element is the integrating sustainability into company culture. To do this, it will be important to provide both the board and the rest of the employees with the knowledge and capacities necessary for its implementation, which will involve the organization of activities of training and internal communication.

Last but not least important is the compensation linked to ESG performance than It is a strategic lever which encourages employee involvement in decision-making and their active participation in achieving common objectives.

According to the report, in IBEX companies, 54% of companies already have variable compensation linked to ESG aspects. However, of the companies analyzed outside the IBEX, only 18% have incorporated specific compensation packages linked to compliance with ESG performance.

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Senior management compensation packages linked to social and environmental objectives will accelerate their implementation as part of the remuneration policy of companies, both in the short and long term because there is a tendency on the part of all interest groups (consumers, companies, employees, investors, regulators and public institutions) to measure and assess the impact of companies.

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Main findings of the report

• In terms of sustainability, although all companies demonstrate their commitment to people and the planet, only 40% of the companies analyzed report concrete and measurable environmental objectives. This percentage drops to 13% in the case of social objectives.
• With regard to compensation linked to ESG performance, progress is notable in companies in the IBEX and 54% of companies already have variable compensation linked to ESG aspects.
• El 68% of IBEX 35 companies have a Sustainability Commission (either specific or shared with other functions), which reports directly to the Board of Directors, while in 2018 this figure was three times lower (20%). This evolution over the last 2 years is largely due to growing demand from investors and to increased regulation in these aspects, including the reform of the CNMV Code of Good Corporate Governance.

In short, companies that do not incorporate the sustainability at the heart of its activities they will compete in an inferior way with those that do. Statements of intent and commitments are of little use if there are no strategic plans with clear objectives and monitoring indicators to support them.

The new business paradigm requires courageous and bold leadership that knows how to manage this challenge as an immense opportunity, challenging existing models and evolving their companies from sustainability to impact generation.