UBP: Voting for remuneration linked to non-financial KPIs

30 juni 2025

As impact investors, we want to see ambitious non-financial targets that underpin a company’s long-term sustainability strategy, with sufficient weight to influence behaviour, and transparent disclosure to ensure clarity and accountability.

By Crystal Wong, Impact Equity Analyst, UBP

Within our Positive Impact Equity Investment Team, we leverage our influence as institutional investors to promote sustainability by advocating for executive remuneration tied to non financial KPIs. We actively vote on all companies within our impact funds’ portfolios, and in particular we vote on remuneration policies at Annual General Meetings, opposing those without substantial links to sustainability. This reflects our commitment to fostering sustainable corporate behaviour among our investees and aligning their business practices with longterm value creation.

Insufficient linkage between remuneration and nonfinancial KPIs

The misalignment between executive remuneration and sustainabilityrelated non financial KPIs is a significant challenge. It often leads to missed opportunities in terms of fostering longterm sustainable and financial outcomes. Research confirms that companies that do not embed sustainability targets into executive remuneration strategies struggle to motivate executives to adopt sustainable practices, leading to misalignment with societal expectations and stakeholder interests.

Recognising this issue, an increasing number of companies are integrating sustainability into their commercial strategies to better align with longterm growth objectives. Recent trends show a positive shift towards incorporating nonfinancial metrics more extensively across industries.

The proportion of compa nies in the $ 5 billion to $ 9.9 billion revenue range that have adopted ESG metrics as modifiers in executive pay, rose from 10.9% in 2021 to 22.8% in 2023. Moreover, for companies with revenues over $ 50 billion, 19.6% had integra ted ESG modifiers by 2023. This reflects a broader movement towards sustain ability, with S&P 500 companies more than doubling the inclusion of environmental metrics, from 24.8% in 2021 to 53.6% in 2023, and the adoption of general ESG metrics surging from 25.4% to 44.5% in the same period.

While these trends indicate a growing awareness of sustainability, a more widespread and deeprooted commitment is essential for sustainability to become a cornerstone of business operations. Despite the progress made, challenges remain regarding the complexity and effectiveness of these nonfinancial KPIs. Critics argue that without clear guidelines, metrics may serve merely as super ficial nods to sustainability (greenwashing), failing to reflect truly material targets for the company and its stakeholders.

To address these concerns, our Impact team advocates for the implementation of transparent, robust, and strategically aligned non financial metrics. This approach ensures that sustainability initiatives are not only integrated into corporate strategies but are also measurable and impactful, enhancing corporate performance and accountability, and mitigating risks associated with greenwashing.

Why linkage to non financial KPIs is vital

Integrating nonfinancial KPIs into executive remuneration is key to driving sustainable leadership and ensuring longterm business success. How to ensure that remuneration targets are ambitious enough?

• Materiality assessment:
  we advise starting by assessing the nonfinancial factors most critical to the company and stakeholders. Remuneration should be linked to industryspecific areas where the company can make significant contributions. These factors should also underpin the company’s short , medium, and longterm strategies, such as the 2030 and 2050 targets.
  
• Beyond compliance:
  we advise against choosing nonfinancial metrics solely based on regulatory demands. Instead, companies should focus on a broader range of material factors that truly reflect the company’s impact potential.
  
• Meaningful weighting: 
  we recommend a minimum 20% weighting for nonfinancial KPIs in remuneration to significantly influence executive behaviour.
  
• Progressive integration:
  we advise starting with a lower weighting, and increasing it as the company develops more quantifiable and measurable nonfinancial metrics.
  
• Long-term and short term incentives (LTIs and STIs):
  LTIs encourage a longterm perspective, while STIs recognise annual progress. It is crucial that nonfinancial metrics are incorporated into both to ensure a comprehensive approach.
• Engagement and direction:
  looking beyond the percentages, we value a company’s response to engagement and the progress of their metrics. A clear pathway to increasing the weightings of non financial metrics is essential and well regarded.

Examples of best in class market practices

Schneider Electric1
Schneider Electric integrates sustainability directly into its incentive structures, with 20% of the annual variable compensation and 25% of the longterm incentive plan linked to its Sustainability Impact and External Relative Index.

Natura1
This firm dedicates 30% of short term incentives and longterm incentives to social engagement, sustainability, and net zero carbon objectives, showcasing a deep commitment to ESG commitments across its operations.

Through continuous engagement and active voting, we have observed a positive trend: an increasing number of companies in our funds are linking non financial KPIs with executive remuneration, reflecting a broader shift towards integrated sustainability practices.

Conclusion

As an institutional investor, we are dedicated to advancing sustainable corporate practices and acting as a catalyst for systemic change among listed companies through strategic voting and engagement. We recognise the transformative power of collaboration and actively seek to exchange innovative ideas and strategies with stakeholders committed to integrating nonfinancial KPIs into executive remuneration. By fostering these initiatives, we aim to drive substantial and measurable impact, contributing to a more sustainable and prosperous future.