ESG and Diversity Metrics: Try a Scorecard

Companies are homing in on plan metrics amid continued ESG backlash, but not dropping them, according to a Semler Brossy piece.  The article highlights how to assess whether selected metrics are “still right” and whether alternative scorecard designs can support change.

The Big Picture: For many companies, the path ahead is clear – continue the current strategy with no changes needed. For companies wanting to make a change but not sure how, Semler highlights two emerging paths: update the measures themselves, or restructure the plan design.

Option 1: Validate and update measures.

• Determine how each individual measurement fits into every strategic and operational objective to determine the key drivers of success.
  
  
• For the measures that survive, decide how to measure them in a way the board is comfortable with. For example, moving from quantitative representation goals to objectively measured outcome-based metrics (inclusion or engagement) or qualitative metrics that support DEI initiatives (culture, leadership development, succession).

Option 2: Restructure using scorecards.

• Scorecards combine financial and non-financial metrics into a single weighted plan component. This offers the flexibility to make annual adjustments without overhauling the entire design each time.
  
  
• Companies can decide on a discrete, weighted ESG metric or a modifier that influences final payout from the weighted financial metrics. Examples of these are included in the blog.

Either Way: Invest in the narrative. Articulating changes to ESG priorities with both internal and external stakeholders is paramount – especially when a metric is removed. Teneo’s “Five Considerations for Communicating Company’s ESG Strategies” is a useful resource to ensure all your bases are covered.