Analysis drives Performance
ESG can be confusing. Obermatt makes it simple and intuitive.

ESG Framework

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Companies are under increasing pressure to improve their ESG (environmental, social, governance) performance, but it’s not always clear what is needed. To help companies take the lead in this emerging area, Obermatt introduced its first ESG Framework and launched the ESG Panel.

The ESG Framework helps identify the relevant ESG metrics and consolidation methods to include in ESG reporting and compensation. Obermatt leads the ESG Panel, which consists of leading European companies that cooperate on sharing and shaping ESG best practices.

Four insights about corporate ESG performance

Together with nine Swiss industry leaders, we designed the Triple Bottom Line ESG Framework. In evaluating over 1,200 ESG metrics reviewed by rating agencies and other organizations, and in our discussions with participating companies in the project, we uncovered some key learnings.

  1. Most ESG metrics have an impact on a company’s long-term profit for shareholders. Having clearly defined ESG priorities that are also built into compensation plans can boost enterprise value.
  2. Many companies focus only on quantitative, numeric ESG metrics. There is potential to measure, report and reward a company’s “effort” that isn’t captured in numeric metrics. This has a positive impact on ESG ratings.
  3. Only very few metrics are included in compensation plans and reporting. Companies can reduce their reliance on only a few metrics by including more metrics that also better align with their company strategy.
  4. Transparency of ESG performance and any ties to compensation is key. Consolidation methods are needed which are intuitive and comprehensive.

Obermatt’s Triple Bottom Line ESG Framework addresses these issues and more with practical guidance to improve ESG performance.

Obermatt Triple Bottom Line: ESG in executive compensation made simple

Illustrating Triple Bottom Line ESG performance using the Obermatt Framework allows for an intuitive overview of a company’s financial and ESG performance, resulting in one combined value, which can also be used in executive compensation.

While the illustration looks simple, the weighting and scaling are important to get right. There are some potential pitfalls to avoid, but once these factors are considered, the single, final result can easily be used in reporting and executive compensation.

33 ESG categories for executive compensation and 170 metrics

Obermatt’s ESG Framework is designed to provide companies with a framework to define and report on their ESG priorities and to build them effectively into executive compensation plans.

The approach is to review the universe of metrics from all relevant rating agencies and organizations to derive a short list of metrics companies should choose from for their ESG performance reporting. The result is a structured list of metrics with attributes to ease the navigation, selection and reporting of the metrics. There are 33 thematic categories, classification according to the type of metric and an assignment of GRI codes to help optimize a company’s ESG reporting and include ESG into executive remuneration.

Obermatt Triple Bottom Line ESG Framework: Three key takeaways

As part of the Obermatt Triple Bottom Line ESG Framework, we learned that companies are under pressure to respond to shareholders, investors and other stakeholders about ESG performance. The focus is often on climate change and diversity and inclusion.

We encourage companies to go broader when talking about ESG. This starts with setting ESG priorities that include areas that engage more executives and employees. Emissions levels and diversity are often areas that most employees don’t influence.

Including more ESG aspects and metrics moreover leads to a broader story for shareholders and reduces the risk of reliance on only a few metrics.

Consolidating multiple metrics into a single value is possible, but there are some questions to be addressed and pitfalls to avoid. Obermatt outlines these issues in this video and is available to support companies in this process.

Obermatt Triple Bottom Line ESG Index

Contact Obermatt and hear about best practices in ESG reporting and compensation from finance, HR and sustainability peers. The following video gives an overview of the ESG Framework and its benefits for corporations.