Good practice in remuneration ad sustainability reportingBy The Chartered Governance Institute UK & Ireland
Remuneration reporting and sustainability reporting are sometimes seen as discrete elements of the annual report and, all too often, have little in common with or linkage to the rest of the report. But good reporting will close those gaps and integrate these sections of the report with the whole.
A good remuneration report will explain how the company’s remuneration policy is explicitly linked to strategy, why particular targets have been chosen (or not) and why they are appropriate and/or commercially confidential. It will also look at how the external environment is factored into the policy and how it has been taken into account as well as alignment with culture. This will also take into account how the board seeks to mitigate any negative behaviours which may be encouraged by the chosen targets and how, if at all, the remuneration committee has exercised discretion.
Good sustainability reporting increasingly requires that the board looks beyond corporate social responsibility – reporting philanthropy – and focusses on what is necessary to keep the company viable in the future, with a recognition that long-term stakeholder interests and non-financial factors are critical and inextricably linked to a company’s strategy, objectives and ultimately, its sustainability. It will identify the value chain and value drivers and how the company positions itself on all the relevant ESG issues, including demonstrating the directors’ compliance with their obligations under s172 of the Companies Act 2006 and the company's compliance with TCFD guidelines. It will also discuss the choice of effective non-financial KPIs and the company’s performance against them.