European banks factor ESG in remuneration packages

Ethics rather than profits may soon be the driving force behind a banker’s earnings 

August 27, 2021
 
The majority of Europe’s biggest financial institutions already have in place - or will have soon - remuneration packages linked to environmental, social and corporate governance (ESG) performance, a report has revealed. 
 
European Banking Authority (EBA) guidelines, published in July and set to come into force by the end of 2021, make it clear financial institutions will be expected to build ESG metrics into staff pay.  
 
The EBA is the regulatory agency of the European Union and its new transparency rules mean banks will have to publish information on their efforts in this area in annual reports.  
 
The Bloomberg report says: “The development opens another avenue through which policymakers in Europe are trying to redefine capitalism. The ultimate goal, ideally, is to make it financially attractive to be good.”  

The media company’s survey of 20 of the continent’s biggest banks - including HSBC and UniCredit - revealed three quarters have factored ESG into pay and most of the others are working on it.  
 
But the feedback highlighted that because “measuring sustainability is far from straightforward” a banker’s pay “will in future partly rely on a variable that’s harder to quantify than profit, which might make it easier to game.” 
 
Another finding was that banks generally do not intend to go on hiring sprees to add ESG talent, but will instead look to rearrange and retrain existing teams to dedicate more people to sustainability. 
 
The report also highlighted a Financial Stability Board workshop carried out in May 2021 which acknowledged that “while ESG criteria are likely to play a bigger role in the future, implementing a longer-term outlook is ‘challenging’ because some competitors may play by different rules and follow shorter-term incentive structures.”