Study: Sustainability has reached the executive level - ESG factors in compensation arrangements encourage executives towards sustainable corporate management
- BDO and Kirchhoff Consult analyzed 160 companies in the DAX40, MDAX, and SDAX
- At least a female now sits on over half of all executive boards
- ESG ratings are communicated in almost 70% of all sustainability reports
- Only 4% of report-obligated companies already examine their taxonomy compliance
- The investor-driven framework SASB continues to gain relevance
October 19, 2022, Hamburg - The importance of sustainability has now reached the level of executive boards of listed companies in Germany. With concrete key performance indicators (KPIs) in the variable compensation of the executive board, as well as executive board departments related to corporate social responsibility (CSR), the incentive for executives to make their company more sustainable is increasing. This and other conclusions are drawn from this year's "Sustainability in Transition" study by BDO AG Wirtschaftsprüfungsgesellschaft and the consulting and communications agency Kirchhoff Consult AG. Together, for the ninth consecutive year, they have analyzed all sustainability reports and non-financial statements/reports of the 160 companies in the DAX40, MDAX, and SDAX that were published on June 30, 2022.
It is becoming increasingly clear that executives are being held accountable for achieving their self-set goals. More than 70% of the DAX 160 companies integrate such KPIs into executive compensation arrangements. Among the DAX40 companies, the proportion is even higher at 85%. "The ESG issue is increasingly establishing itself at the executive level. Through the design of executive compensation, the supervisory board assumes a targeted steering function - towards more sustainable corporate management," says Vincent Giesue Furnari, CEO at Kirchhoff Consult. Nils Borcherding, Partner Sustainability Services at BDO, adds, "The study results clearly show that sustainability is no longer just a 'nice to have' rhetoric but is increasingly becoming an essential part of corporate strategy." Almost half of the companies (41%) also assign the area of corporate social responsibility (CSR) to an executive board department. The function "Chief Sustainability Officer (CSO)" appears relatively frequently.
Increasing share of women in the board of directors: Just because it's required?
For the first time, the study by BDO and Kirchhoff Consult is able to draw a comparison with the previous year and track the progress of gender equality in German executive management. Compared to the previous year, the proportion of women in the board of directors has increased significantly: in more than half of the companies (53%), at least one woman sits on the board. This is an increase of 15 percentage points from the previous year. However, the proportion of women in executive positions overall remains low: only 14% of all board members are female. This development must also be viewed in conjunction with the so-called "Second Management Positions Act" (FüPoG II), which was introduced in 2022. This requires, for example, boards with more than three members to have at least one female member.
No ESG rating, no investors?
ESG ratings of publicly traded companies are becoming increasingly important for investors. They provide potential investors with guidance on evaluating sustainability performance in companies, including environmental (E), social (S), and governance (G) issues, which are becoming more prominent for many DAX 160 companies. While almost all the DAX 160 (96%) is represented in the Sustainalytics database, this rating is only communicated in about half (49%) of the reports. A comparison with the previous year shows a clear trend: in 2021, only 69% of the DAX 160 companies were found in the Sustainalytics database, and reporting was lower at 38% compared to this year's level. Although the Sustainalytics database is the most extensive, the MSCI ESG rating is the most reported.
EU taxonomy: There is still much to be done in implementation
For the 2021 financial year, the EU Taxonomy Regulation was applied for the first time to reporting companies. While many companies (88%) have been dealing with their taxonomy capability, only 4% have voluntarily reported on the taxonomy conformity of their business activities. Therefore, future implementation remains a challenge for most companies, as reporting on conformity will be mandatory from the next financial year.
Investor-driven framework SASB gains relevance
Both the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) are established frameworks for ESG reporting, with GRI Standards being used by 94% of companies using a framework in their sustainability reports. At the same time, the use of SASB's investor-driven standards is increasing. SASB is mainly used in addition to GRI. While only one company used SASB in 2019, there are already 36 companies using it now.
The study with all results is available here.
ABOUT BDO AG WIRTSCHAFTSPRÜFUNGSGESELLSCHAFT
With more than 2,100 employees at 27 offices, BDO is one of Germany's leading firms for auditing and audit-related services, tax consulting, business law consulting and advisory. In the area of sustainability services, BDO advises and supports clients with a high level of expertise, among other things, in the anchoring of sustainability aspects in the corporate business model and the preparation of sustainability reports and carries out audits of these reports. In the 2020/2021 reporting year, the BDO Group generated sales of 304 million euros. BDO AG Wirtschaftsprüfungsgesellschaft is a founding member of the international BDO network (1963), which is represented in 164 countries with over 95,000 employees and generated revenues of $11.8 billion in the reporting year 2021.
ABOUT KIRCHHOFF CONSULT AG
With around 60 employees, Kirchhoff Consult is a leading communications and strategy consultancy for financial communications and ESG in German-speaking countries. For over 25 years, Kirchhoff has been advising clients on all aspects of financial and corporate communications, annual and sustainability reports, IPOs, investor relations, ESG and sustainability communications. 'Designing Sustainable Value': Kirchhoff combines content expertise with excellent design to create sustainable value.
Kirchhoff Consult is a member of TEAM FARNER, a European alliance of partner-led agencies. Their common goal: Building the European management consultancy for integrated communication.
Learn more at: kirchhoff.de