Some of the world’s biggest textile companies are failing to tie executive pay to environmental, social and governance (ESG) performance, an analysis by financial think-tank Planet Tracker has revealed.
- Planet Tracker’s Textiles Compensation report has found that over half of companies (17), including Anta Sports, Gap, Levi Strauss, Nordstrom, Under Armour and Victoria’s Secret, lack any link whatsoever between pay and ESG metrics.
- The study examined 30 companies.
The Backdrop: About 70% of S&P 500 companies now factor sustainability metrics into executive pay programmes.
The textiles industry has been a laggard in incentivising better sustainability performance, despite, for example, accounting for c.10% of global emissions.
- Based on data as of 20 February 2023 combined, the top 20 independent shareholders have $278 billion invested in these 30 companies. Of the 20, nine investors own all 20 companies.
The Findings: The research found that the approaches of the majority of companies (13) that do align compensation with ESG performance are insufficient.
- Only two companies—Adidas and Puma—have clear annual sustainability-linked objectives and reporting for executive pay programmes.
- All 13 have adopted sustainability goals linked to Science Based Targets. This openness to be externally evaluated and scored points to a performance-based mind-set and provides a back-drop of verified data on which to base remuneration decisions.
- Europe leads the way, with all the European companies in the sample having a link between sustainability and performance-based pay.
- Founder/family-owned companies are more likely to have an element of performance-based pay linked to sustainability. Eight out of the 11 founder/family-owned companies have sustainability-linked performance pay.
The Recommendations: The report has urged investors to uphold effective sustainability-linked performance pay, by ensuring:
- Performance-linked pay is material: companies should set a meaningful (10%+) percentage of compensation at risk based on sustainability performance;
- Targets and results are independently verified: companies should align with initiatives such as SBTi, which requires companies to set and disclose specific targets;
- Targets are quantitative: sustainability targets should be clear and quantitative, similar to profit targets;
- Targets are annual as well as long-term: targets should be annual, rather than vague indications of direction of travel;
- Sustainability targets are independent from financial targets: targets should be independent of rather than subordinate to profitability targets;
- Achievements are clearly disclosed: companies should disclose what has and has not been delivered, rather than reporting on direction of travel only.
What They Said:
Every textile player we analysed is publicly committed to embedding sustainability into their operations and growth, yet these pledges are mere window dressing if the leaders of these companies are not held accountable for delivering sustainability goals. Given that the top 20 equity investors in these companies hold a combined USD 278 billion of private finance is invested in the industry, shareholders have the power to incentivise management beyond purely financial performance, helping companies move towards more sustainable practices.
— Richard Wielechowski
Head, Textiles Programme
Planet Tracker
