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Diligent Report: 79% of Directors in Ireland Do Not Integrate ESG Metrics into Executive Directors’ Compensation

Diligent Report: 79% of Directors in Ireland Do Not Integrate ESG Metrics into Executive Directors’ Compensation

Diligent and IoD Ireland research finds Irish boards are making environmental, social and governance issues (ESG) a priority but issues remain around measuring progress

Seventy-nine percent of Directors in Ireland do not integrate ESG metrics into the compensation of their executive directors, according to a new report released by Diligent, the global leader in modern governance providing SaaS solutions across governance, risk, compliance, audit and ESG, and the Institute of Directors (IoD) in Ireland, the leading voice in the debate on improving corporate standards in Ireland.

The State of ESG Strategy in Irish Boardrooms report finds that ESG has become increasingly important for Irish boards, with 58% indicating that oversight sits at the board level — an increase from 46% in 2021. Twenty-three percent of Irish boards also indicate that they discuss ESG at every meeting. However, despite ESG being a clear item on the boardroom agenda, 47% do not have KPIs in place to measure progress. Of the organisations that have implemented KPIs around ESG, the majority indicated that it was challenging to implement these measures.

“It is positive to see that ESG is becoming increasingly important to Irish boards, but more support is needed to ensure directors are better equipped with the skills and knowledge to oversee an ESG function,” said Dottie Schindlinger, Executive Director of Diligent Institute. “With mounting pressure from regulators, investors and shareholders, directors and corporate leaders need access to information that is tailored specifically for them, to help focus on what is important for corporate strategy.”

Caroline Spillane CDir, Chief Executive Officer, Institute of Directors in Ireland, commented:

“Embracing ESG is not just about targets and legislation requirements, but also values. It is crucial that all directors get up to speed on the essentials of ESG and what this means for their business, their sector and, indeed, wider society. This new research reveals the importance with which ESG is being regarded in boardrooms. Setting realistic and accurate KPIs to measure ESG successes or failures will be crucial in leading to real traction and change in reaching ESG targets. IoD Ireland will support its members on this journey, and engage with the government on further supports to help business leaders on a sustainable path.”

See related article: Ireland sets targets to halve greenhouse emissions

Among the top report findings:

  • There is a desire for education around ESG – One-third (34%) of respondents say they have undertaken ESG director training in the last 12 months, while 63% have not. However, 50% indicate they plan to undertake ESG Director training in the next 12 months. A majority (75%) say the ESG skill set should be shared by all board members.
  • Full board oversight of ESG has increased – 58% of respondents indicate that their full board has primary responsibility for ESG oversight, compared to just 46% in 2021. This figure increases for the financial services sector, with 78% noting board oversight. By comparison, 32% of respondents indicate their CEO oversees ESG.
  • ESG is being discussed frequently – Nearly one-third (31%) of respondents indicate that their board discusses ESG quarterly, while 23% say ESG is discussed at every board meeting.
  • Boards find it challenging to implement KPIs around ESG – There is an equal split (47%) between boards that have ESG KPIs in place and those that do not. Of those with KPIs in place, six out of 10 find it difficult to apply ESG-related KPIs, which may in part be due to the level of awareness and understanding of current and upcoming legislation.
  • Many boards are not integrating ESG KPIs into compensation – 79% of respondents have not integrated ESG metrics into the compensation of their executive directors, while 81% have not done so in relation to senior management compensation. Despite this, 52% and 56% believe that compensation for executive directors and senior directors, respectively, should be linked to ESG-related metrics.
  • Most boards do not incorporate ESG experience into their organisations’ skills matrix to identify new board candidates – 29% indicate their organisation includes ESG expertise when identifying new board members, with 33% noting they currently do not. This increases among public sector organisations, with 38% flagging ESG skills sets when finding new directors.
  • More government support is needed – There is almost an even split between respondents who are aware (49%) of Ireland’s Circular Economy Act (passed in August 2022) and those who are not (51%). Of those who are aware, 75% say that the Irish government should provide more support to businesses to encourage the adoption of the Act.
  • Some feel European Union legislation around ESG lacks clarity – Only 21% of respondents rate their understanding of the EU Corporate Sustainability Due Diligence Directive as good/excellent, with 24% rating the same for their understanding of the EU Corporate Sustainability Reporting Directive, and 20% of the EU Taxonomy for Sustainable Activities.

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