Ein Faultier nimmt Geld aus einem Behälter. Das steht für ESG Bonus Math für Manager.

Wrong ESG bonus math? Content-Post #188

Bonifications will rise

That sounds good. With an adoption of such proposals, I am sure that overall bonifications will increase. This is because I assume that no previously established goals will be substituted for ESG. Instead, ESG will likely be added as a goal (see ESG Boni abschaffen und mehr radikale Vorschläge – Responsible Investments (Blog) (prof-soehnholz.com)).

An increase in bonification payments for executives would be bad for the pay gap between low-wage employees and executives. I prefer to support a company which is lowering the pay gap than one which is increasing bonifications (compare Pay Gap, ESG-Boni und Engagement: Radikale Änderungen erforderlich – Responsible Investments (Blog) (prof-soehnholz.com)).

ESG bonus math: Behaviour will not change

I also doubt, that ESG bonifications will significantly change executive ESG behaviour. Here is why: Assume the base pay is 100% and bonifications can add another 100%. The bonifications are typically separated in long-term and short-term parts, e.g. 50/50, leaving 50% for the more relvant long-term part. They are also often separated in overall company and managerial unit bonifications, also assuming a half/half split, leaving 25% for the most relevant long-term manerial unit. Half of the bonifications may be tied to financial goals and the other half (12,5%) to non-financial goals. Assuming ESG-goals make up 50% of the nonfinancial goals (6,25%), the long term managerial unit specific ESG bonification share thus amounts to about 10% of the base pay, depending which term an unit are considered as relevant. Part of that may be related to governance issues which leaves 6 to 7% for ecological and social goals. That is not much and probably too little, to signficantly change managerial behavior.

ESG bonus math: Engagement is not efficient

Even if I am wrong on this point, there is still a “wrong” voting and engagement math. Many asset managers are invested in thousands of companies worldwide. Even with the help of the few international voting services, they most likely will not start many own shareholder proposals. Instead, they will vote on proposals having been brought forward by company management or other shareholders. And shareholder voting is limited to the few shareholder meetings.

Engagement assumes much more time and human resources and thus is typically limited to even fewer companies and often rather limited projects such as demanding climate reduction goals. Even cooperation of shareholders may not help much apart from generating anecdotal evidence and nice marketing stories.

Asset managers thus have only a very limited potential influence on a rather low number of publicly listed companies (compare Divestments bewirken mehr als Stimmrechtsausübungen oder Engagement | SpringerLink).

My lesson: I try only to invest in intrinsically sustainable companies (see Neues SDG Sozialportfolio und noch strengere ESG Anforderungen – Responsible Investments (Blog) (prof-soehnholz.com)). And I find enough of them: There are 500 overall out of 30 thousand, thereof about 100 with good SDG-alignment in addition to good E, S and G scores (best-in-Universe).