Sustainability
Sustainability
Our approach to sustainability is driven by and fully integrated into our investment strategy. We see a clear and direct relationship between sustainability and long-term value. Driving governance changes (such as improving boards and management incentive structures) has been at the heart of our work since we started Cevian more than 20 years ago.
Today, governance and other sustainability considerations impact companies comprehensively, including their opportunities, revenues, costs, risks, employee engagement and retention, stakeholder sentiment, and valuations. Thus, when we do our deep analysis of the long-term fundamentals of investment candidates, we naturally assess their sustainability opportunities and risks.
We also benchmark our companies’ sustainability positioning and performance vs leading peers to find improvement areas. When we develop and advance value-creation plans for our companies, sustainability is a core part of our value-creation toolkit, alongside improvements to operations, corporate strategy, organizational structure and financial management. For these reasons, our sustainability analysis and value-creation work is led by our investment case teams, not a separate team or outsourced function.
Sustainability in remuneration
Our work to advance sustainability-linked value-creation at companies led us to identify two critical issues that can hamper sustainability progress. First, important goals often extend years or decades beyond the horizon of management teams in place today (such as “reduce carbon intensity by 30% by 2035”). Yet, companies will not achieve these long-term goals without making near-term progress. Second, many management teams do not believe that improvements in certain sustainability factors will have an impact on corporate financial performance during their tenures.
Based on our more than 20-years of experience of working to improve companies, we know that appropriate management incentives can be used to bridge horizon gaps and create accountability for unfulfilled ambitions. While we recognize that companies may choose to incorporate a variety of sustainability factors into their incentive plans, we generally consider climate- and decarbonisation-related metrics as most financially material (especially in high-emitting industries) and objectively defined.
Thus, we encourage relevant portfolio companies to integrate emissions-linked metrics into their management incentives that are 1. Tied to the strategy of the company, 2. Measurable (because what is measured gets done), 3. Transparent, so we and other stakeholders can see that the ambition level is high enough, and 4. Aligned with any important pledges that companies have made.
For companies that fall under the purview of the US Securities and Exchange Commission or with otherwise significant US operations, business activities, or other material exposure to the United States, we acknowledge that integrating sustainability-linked metrics into executive incentive plans may not be practical or appropriate in all circumstances.
In addition, where companies are demonstrably delivering against ambitious decarbonisation targets, or where their core business activities are not materially exposed to high-emitting sectors, we recognize that the need for such incentive structures may be reduced.
Our approach remains grounded in the principle that incentives should support long-term value creation through meaningful sustainability progress on financially material topics. We therefore assess the relevance and appropriateness of such metrics on a case-by-case basis, informed by the company’s unique needs.