ESRS Standard
ESRS Standard
Obligation to disclose the integration of sustainability into incentive systems
The company must provide information on the extent to which its sustainability-related performance is included in incentive systems.
Targets of this disclosure requirement
The aim of this disclosure requirement is to create a clear understanding of whether and how members of the Administrative, management and supervisory bodies are motivated by incentive systems that are linked to sustainability aspects.
Detailed disclosures
If the company has sustainability-related incentive systems and a sustainability-related remuneration policy for the members of its Administrative, management and supervisory bodies, it must disclose the following information:
(a) A description of the main features of the incentive schemes that relate to sustainability-related performance.
b) An indication of whether performance is assessed against specific sustainability-related Targets and/or Impacts and, if so, which specific Targets or Impacts are taken into account.
c) An explanation of whether and how sustainability-related performance metrics are considered benchmarks or incorporated into the remuneration policy.
d) The proportion of variable remuneration that is dependent on the achievement of Sustainability-related impacts and/or objectives.
e) The level of authority within the company responsible for approving and updating the terms of incentive schemes.
Application Requirements (AR)
Application Requirements (AR)
AR 7 For listed companies, this disclosure requirement should be consistent with the remuneration report required by Articles 9a and 9b of Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies. Subject to the provisions of paragraphs 119, 120 and 122 of ESRS 1, a listed company may refer to its remuneration report.
Example from previous practice
Example from previous practice
Examples are provided merely as an indication of how a disclosure requirement has been stated by other companies to date. Audited ESRS reports are not yet available. There is no guarantee of accuracy and completeness.
GOV-3 - Integration of sustainability performance into incentive systems
The company's remuneration policy links the performance-related remuneration of the members of the Management Board to both financial and non-financial sustainability Targets (ESG Targets). These incentive systems promote the long-term corporate strategy and support the sustainable development of the company.
Main features of the incentive systems
The variable remuneration of the Management Board consists of
Short-term incentive (STI): short-term variable remuneration with a one-year performance period based on financial and ESG Targets.
Long-term incentive (LTI): Long-term variable remuneration in the form of a performance share plan with a three-year performance period that takes financial and ESG Targets into account.
Sustainability targets in the short-term incentive (STI)
As part of the STI, the performance of the Management Board is assessed on the basis of specific financial and non-financial targets:
Financial Targets: Sales growth, EBITDA and capital expenditure ratios (CAPEX).
ESG Targets: Sustainability targets derived from the company's sustainability strategy. Examples of ESG Targets:
CO₂ reduction: Reduction of greenhouse gas emissions by 10% compared to the base year.
Energy efficiency: Increase energy efficiency in operating processes by 5%.
Supplier compliance: Increase audit coverage of critical suppliers by 20%.
The target achievement of the financial and non-financial criteria is influenced by a modifier. This can be between 0.8 and 1.2 and leads to an adjustment of the STI payout by up to +/- 20%, depending on how well the sustainability targets were achieved.
Sustainability targets in the long-term incentive (LTI)
The LTI is based on a performance share plan with a three-year performance period. The final virtual share awards are based on the achievement of selected financial and non-financial criteria. The criteria catalog for ESG Targets corresponds to that of the STI and may include the following:
CO₂ reduction: Reduction of total greenhouse gas emissions by 30% by 2026.
Waste management: Reduce production waste by 15%.
Diversity: Increase the proportion of women in management positions to 25% by 2025
Responsibility and control
The Remuneration Committee of the Supervisory Board is responsible for the design, approval and regular review of the remuneration systems. It ensures that the Targets are clearly defined, ambitious and aligned with the company's long-term strategy and ESG priorities.
The integration of ESG Targets into the remuneration policy promotes the link between economic success and sustainable development and thus supports the company's long-term value creation.
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