May 2022: Brian Bueno on ESG

On the Fast Track with Our ESG Leader Brian Bueno

Building on its unparalleled legacy to link pay to performance and strategy, Farient Advisors continues to invest in resources to serve clients. To that end, Brian Bueno rejoins Farient in the newly created position of environmental, social, and governance (ESG) leader. In this role, Bueno will direct the firm’s ESG alignment engagements. He returns to Farient after seven years at Institutional Shareholder Services (ISS) where he served as vice president and product manager. At Farient, Bueno will advise clients on the optimal ways to establish, implement, and communicate their ESG and stakeholder compensation strategies.

As part of his re-introduction to the firm, Bueno was recently interviewed for this newsletter revealing insights on ESG and what he likes to do when not steeped in ESG matters. What follows is an edited transcript of that Q&A.

Why did you decide to return to Farient after seven years with ISS?

I started at Farient as an analyst with a background in market research. Working directly with clients, I developed an expertise in the alignment between executive compensation and company performance. I continue to have a strong interest in how different constituencies influence the process—of how executives are paid. I also have an interest in the controls that exist to limit excessive CEO pay. I knew ISS was a dominant player, and I decided to join them to deepen my understanding of the role of investors and proxy advisors on executive compensation.

As ESG issues grew in prominence during my time at ISS, particularly as events in recent years created a greater focus on social and climate issues, I recognized a need from the corporate side to find ways to advance ESG strategies. From my history with Farient, it became even more clear that corporations have a critical role to play in shaping a sustainable future. Rejoining Farient provides an opportunity to advance sustainability solutions and capitalize on my ISS experience.

Do you see an opportunity to reshape the governance ecosystem through stakeholder incentives?

In essence, this is a systemic change. While I was at Farient, we had expanded the firm’s proprietary pay-for-performance model, including building a methodology to forecast realizable compensation. This was a unique offering for the compensation consulting industry. Our Performance Alignment Reports (PARs™) measure the long-term link between CEO pay and TSR performance relative to peers, helping to identify whether compensation programs and incentives are effectively designed. Several of the largest pension and mutual funds subscribed to our research each proxy season. Investors used these reports to determine Say-on-Pay votes for their portfolio companies. There were significant overlaps between my prior life at Farient and my work at ISS, which provided a solid foundation for anticipating the needs of investors and compensation committees.

Are companies on the path to an ESG reckoning?

Compensation plans are rooted in paying for the right performance. The definition of the right performance has shifted over time, especially with the growing investor focus on ESG and stakeholder issues. As such, how to think about paying executives has shifted, and they are increasingly expected to make and report measurable progress on their ESG strategies. In fact, a recent research initiative by Farient and our partners in the Global Governance and Executive Compensation (GECN) Group, 2022 and Beyond: Global Trends in Stakeholder Incentives, highlights how companies are moving to more quantitative measures on various ESG issues.  Clearly, there are companies not making great progress in areas such as diversity, equity, and inclusion (DE&I) or reducing greenhouse gas emissions. Investors and other stakeholders are paying close attention and continue to press companies and their boards to set measurable goals—that’s where pay incentives play a vital role. Compensation committees should build ESG/stakeholder measures into incentive plans to focus the attention of the executive team.

Farient is investing in ESG resources to help clients’ proactively link pay with results and to deliver on their ESG promises. Can this be fast tracked?
Our mission is to help companies achieve their strategic and business objectives. We’ve heard from our compensation committee and management clients that there’s a need for deep expertise on ESG measures and incentives. In recent years, the compensation committee’s charter has expanded to focus on additional talent issues beyond the executive level and include the emotional, financial, and physical well-being of employees. Companies can fast track their ESG initiatives by reviewing where they are in the process compared to their peers, the specific demands of their investors and other stakeholders as well as defining, measuring, and disclosing ESG initiatives in sustainability reports, proxies, and the company website.

With macro economic issues multiplying, will ESG withstand the next serious recession?

As market circumstances change, companies may reprioritize their ESG goals. Irrespective, ESG is here to stay. Many companies across industries have built and nurtured cultures committed to ESG efforts, including Aflac, Starbucks, and Xylem. Such companies have integrated sustainability into their corporate strategies, and have included ESG metrics in their incentive plans. ESG reporting is rapidly evolving. There are forces that will continue to propel ESG integration forward. For example, the pending US Securities and Exchange Commission (SEC) climate disclosure proposal will require companies to report on climate risks such as greenhouse gas (GHG) emissions. This disclosure arguably may improve accountability and serve as a catalyst toward including climate-related goals in incentive plans.

What do you like to do when not analyzing data?

I am a foodie and an enthusiastic traveler. I love experiencing different cuisines and new restaurants, whether it’s a new Mexican restaurant in my neighborhood or trekking across town for the hot new ramen spot. I also love traveling and exploring new places, both internationally and here in the states. The pandemic put a bit of a damper on traveling, in lieu of exotic trips, I took up cycling around New York City. It’s great to see the biking infrastructure around the city improve and also a great way to reduce my carbon footprint.

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