Dive Brief:
- Over half of the top 30 fashion and apparel companies lacked a relationship between their sustainability practices and executive compensation, according to a new report from Planet Tracker, a nonprofit advocating for financial systems that align with climate goals.
- The report called out companies including Gap, Levi Strauss & Co., Nordstrom, Under Armour and Victoria’s Secret for not having a link between executive pay and environmental, social and governance initiatives.
- Of the remaining 13 companies that did have a sustainability compensation link, less than half had quantitative targets for their environmental goals or clearly reported annual objectives.
Dive Insight:
Fashion and apparel companies emit a sizable proportion of greenhouse gasses. Researchers have estimated that the industry contributes as much as 10% of the world’s annual carbon output. Moreover, the sector uses harmful chemicals to make clothing and generates vast amounts of water waste.
All 30 companies in the report, which represent the largest in the sector based on adjusted revenue, have publicly stated their commitment to sustainability initiatives. Yet Planet Tracker says that not enough executives leading these companies are being rewarded for spearheading these efforts.
Out of the 13 companies that do reward executives for climate initiatives, only six have adopted quantitative sustainability targets. Nearly all of these companies are headquartered in Europe: Adidas, Hermes, Kering, Puma and Zalando. The remaining company, Ralph Lauren, is based in the U.S.
Moreover, only two companies — Adidas and Puma — met all of Planet Tracker’s criteria, clearly disclosing environmental targets, as well as measuring and reporting on them annually.
Planet Tracker singled out Adidas as a “best in class example.” Along with clearly stated goals, the organization lauded Adidas for the weight it gives sustainability initiatives in performance-based compensation. If all of the company’s sustainability targets are met, the resulting compensation could account for about 9% of total executive pay, according to the report.
Meanwhile, Puma’s sustainability goals have much less potential to affect compensation levels, accounting for only 1.3% of pay if all targets are met.
The report also called out performance-based compensation policies that merely appear to support sustainability initiatives. That includes companies whose policies favor profitability over sustainability.
H&M Group, for instance, requires the company to meet a certain operating profit threshold before allowing executive payments linked to three other metrics, including one based on sustainability initiatives.
“Structures that incentivise profit over, and potentially in detriment to, sustainability actions are bad news,” the report argued. “Having a sustainability-linked compensation target and then rendering it irrelevant smacks of greenwashing.”
The report also calls out another problem: the potential for greencrowding, which refers to forming a large group and moving sustainability practices forward at the pace of the slowest member. That could happen if companies adopt compensation policies that mimic others within the industry.
“Why change if others don’t?” the report said.
Instead, Planet Tracker suggested that companies focus on rewarding executives with a blend of short and long-term sustainability goals leading to sizable cash payouts. In addition, the organization also recommends annual targets and clear disclosures of what goals haven’t been met.
