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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board's Accountability on ESG

The board of Sahyadri Foods Ltd wants to strengthen its accountability for ESG outcomes. It considers linking part of the variable pay of senior management to ESG targets such as emissions reduction. Which statement best reflects sound governance practice?

The nomination and remuneration committee should set and review measurable ESG metrics for management pay, under board oversight. This links accountability to outcomes. ESG-linked pay is not prohibited, independent directors should not get performance-linked incentives, and unmeasurable targets provide no real accountability.

  1. AESG-linked pay is prohibited for listed companies
  2. BThe nomination and remuneration committee should set measurable ESG metrics and review them, with board oversightCorrect
  3. COnly independent directors should receive ESG-linked pay
  4. DESG metrics should remain unmeasured to keep flexibility

Explanation

Good practice has the nomination and remuneration committee design measurable, disclosed ESG metrics for management pay, with board oversight. There is no prohibition. Independent directors should not receive performance-linked incentives that could impair independence, and unmeasured targets give no accountability.

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