Linking remuneration to ESG outcomes can avoid greenwashing

Linking remuneration to ESG outcomes can avoid greenwashing, according to Maple-Brown Abbott Global Listed Infrastructure

30 June 2022

Asset managers investing in infrastructure companies have a role in managing the risk of greenwashing by continually engaging with company management and using their voting rights as shareholders, according to Andrew Maple-Brown, Co-Founder and Managing Director, Maple-Brown Abbott Global Listed Infrastructure.

Encouraging company leaders to show their commitment to environmental, governance and social (ESG) outcomes by linking remuneration to those outcomes is an effective way to do this, Mr Maple-Brown says.

“Infrastructure plays a critical role in the sustainable future of the planet, and as an asset manager investing in these essential service assets, we believe we have a responsibility to ensure companies are taking action on their statements and plans around ESG.

“In the past 12 months as part of our engagement and proxy voting activities with companies, we have put increased emphasis on the alignment of short and long-term executive remuneration with their sustainability commitments and decarbonisation targets.

“We have seen meaningful improvements on the previous year, with a notable shift in the level of detail and weights attributed to non-financial key performance indicators for some major infrastructure companies,” Mr Maple-Brown said.

In Q2 2022 alone, Maple-Brown Abbott Global Listed Infrastructure voted against 31% of executive remuneration reports and/or policies proposed by companies,* namely:

• where there was a lack of proper alignment and accountability for environmental and social (E&S) performance relevant to the company’s business strategy and operations
• where there was a lack of proper disclosure of the E&S component in executive remuneration, for example, where key performance indicators were not laid out and/or weightings were not sufficiently detailed
• where there were discrepancies between the company's key performance indicators and potential executive pay-outs (that is, there was a risk of ‘pay for failure’).

Maple-Brown Abbott Global Listed Infrastructure is a signatory to the Net Zero Asset Managers Initiative, affirming its commitment to align its strategy with net zero emission by 2050 and has set an interim emissions target of a 50% reduction in emission intensity (relative to 2020 levels) by 2030 for the strategy. Out of concern around the lack of consistent and reliable climate change and emissions data, the GLI team recently made a formal comment to the Securities Exchange Commission (SEC) in the US to voice support for the proposed rule change on mandatory climate-related financial disclosures.

On 29 June 2022, the Maple-Brown Abbott Global Infrastructure Fund (UCITS), which has investors based in Europe, North America and Africa, won the ‘Infrastructure Fund of the Year’ category in Environmental Finance’s Sustainable Investment Awards 2022. This category is open to all infrastructure funds – both listed and unlisted in both the debt and equity spaces – that have a focus on ESG and sustainability factors. The award reflects the efforts of the Global Listed Infrastructure team, based in Sydney, in ESG and sustainability research, reporting engagement and proxy voting initiatives, which it applies across the GLI strategy.

* A representative Maple-Brown Abbott Global Listed Infrastructure fund has been used as a proxy for shareholder voting numbers and company engagements