Incentives and ESG Performance: Linking Investment Professional Compensation with ESG KPIs

As firms increasingly embrace ESG parameters as part of investment considerations, the importance of investment professional alignment with ESG objectives is featuring prominently in ESG conversations. One of the ways to ensure alignment is by linking compensation to ESG KPIs. Based on our survey findings, only 14% of the funds surveyed tied investment team compensation to ESG performance and 12% tied executive compensation to ESG performance. Incentives are one of the many ways to signal a firm commitment to ESG alignment across the investment lifecycle, and tying compensation to performance on ESG goals is a proven incentive that has bolstered alignment and performance across investment lifecycles. In this podcast, we explore the importance of tying executive compensation to ESG performance, as well as some innovative strategies and models for achieving this. We explore goal setting, ESG focus areas, and the levels of compensation that should be tied to ESG performance.