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The Increasing Relevance of ESG on Governance and Management of Companies Including on Compensation Matters

March 25, 2021

For many people around the world, 2021 has started in much the same way as 2020 ended—lockdowns, travel restriction and separation from those we care for. While the global pandemic continues to cast a long shadow, we have faith we are finally turning a corner, and, as we mourn those we have lost, and commiserate with and provide support to those who have suffered, we look forward to a brighter future with a renewed focus for much greater collective responsibility in rebuilding more sustainably. The pandemic seems to have served as a catalyst to managing businesses and our world more responsibly and sustainably.

Companies of all sizes are already expected to play an active role in securing a vision of greater sustainability for the future. For the mining sector, it is vital that we work to support this vision, and are seen to be doing so by governments, local communities, investors, other stakeholders, and society at-large. By and large, mining companies have adopted the mantra of sustainability for some time. We began to make fundamental changes to our operations and develop constructive channels of engagement with our stakeholders some time ago. This must and will continue. Of equal importance is our ability to detail our progress, particularly to stakeholders who more recently have begun to engage with us on sustainability matters. Of course, I am referring to investors and other capital market participants. Transparency puts a welcome focus on our activities and pushes us to consistently enhance the way we do business.

More so than at any other time, investors in particular are increasingly focused on environmental, social and governance (ESG) factors when making investment decisions. In response to this, greater transparency, through enhanced disclosure and open engagement with a more extended stakeholder community, will become more and more critical to accessing capital and achieving overall business success.

During 2020, ESG funds outperformed their broader counterparts. What’s more, the latest outlook indicates that global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected assets under management by that date.*

To match this growing appetite for ESG-focused investing, new regulation is driving a requirement for companies to disclose even more. What was once voluntary, is now becoming required. In the United Kingdom, for example, the Financial Conduct Authority has confirmed that reporting in accordance with the Task Force on Climate-related Financial Disclosure will become mandatory for premium listed companies from January 2021.

The winds of change are coming and while share price multiples of companies are not yet more closely linked to their ESG performance, it is only a matter of time. Investors will increasingly, and quite rightly, ascribe more weight to ESG related matters. This is a welcome development.


Global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected assets under management by that date.

A quantitative approach

We have for a number of years placed a relentless focus on ensuring our business has responded to critical sustainability imperatives. Holding ourselves to high ESG and sustainability standards underpins our social license to operate, creates positive social outcomes for the communities in which we serve, and is fully aligned with running a profitable business and attracting investment. For some, the idea of a social license to operate is a notional one. For us, it is quantified and integrated into our strategy and operations through our Social License to Operate Index. We are proud to have developed this approach of measuring how responsibly we are operating and will continue to tailor this to ensure it remains market leading. I believe I can speak for our broader industry brethren when I say that what has historically been notional is becoming imperative and immediate.

We are taking a similar quantitative approach to climate change, recently announcing a board-approved climate strategy that underscores our commitment to transition to a low-carbon future. While I will go into a deeper dive about our climate strategy in one of my upcoming blogs, I will say here that our strategy is underpinned by science-based targets and that we are already commencing foundational work on how we plan to achieve and measure those targets. Many companies set lofty greenhouse gas (GHG) reduction targets but these targets often prove ephemeral with little in the way of concrete details on how they will be met and measured. We don’t intend to follow this path. Aspirational goals are welcome so long as they are or will become part of achievable science-based goals and processes.

When it comes to our ESG reporting, we do so under the Global Reporting Initiative (GRI) standards. Reporting against GRI standards supports our transparency, reliability and accountability on critical ESG factors. We take a broad view on ESG and are truly committed to embedding this approach right across our organization—from our operational sites, right to the corporate boardroom. Our goal is to ensure that we not only remain accessible and accountable to our stakeholders, but that we build trusting and long-lasting relationships in the process.

Already we have taken some important steps towards reaching this goal. For key health, safety, environment and community (HSEC) performance metrics—identified at the start of each year—we’ve created our own HSEC Performance Index. This Index instils a sense of ownership and accountability for these key ESG metrics and is something that everyone has a responsibility for, no matter where they sit within our business.

Trust Chain

Strengthening the link between executive compensation and ESG

Aspiring to ESG goals and creating processes to achieve those goals should be undertaken because this is the right thing to do, but we asked a question, which is this: If compensation drives behaviour, what can we do on the executive compensation front to facilitate a culture of developing and nurturing ESG goals?

Yamana’s executive compensation is directly linked to our HSEC Performance Index, solidifying this sense of ownership and accountability amongst those right at the top of our organization. In the same way that other aspects of executive compensation are established, this link to ESG is held to the same level of scrutiny, with key performance indicators set in close partnership with the broad group of stakeholders with whom we deal, including our shareholders.

Our HSEC Performance Index currently makes up 15% of executive compensation and 20% of operational management compensation. Recognizing the increasing importance of these matters, that has changed this year, and the HSEC Performance Index will account for 20% of executive compensation, a more than 30% increase in the weighting of this area of corporate performance. As importantly, that additional 5% is focused on our efforts to mitigate GHG emissions. What is measured gets managed and we feel that greater integration of ESG across our corporate governance demonstrates that as a business we are shifting from “talking the talk” to “walking the walk”.

Aligning with shareholder interests

With the growing focus on the ‘E’ and ‘S’ factors of ESG, there is a risk that the ‘G’—the governance of businesses—may be overlooked. It should not be. Governance sets the tone and establishes culture. At Yamana, we adhere to the highest standards of corporate governance and a consultative approach to shareholder engagement is a cornerstone of that approach. Coming back to the theme of compensation, providing our shareholders with a “say on pay” is included in governance as it forms an important part of our incentive design and overall remuneration philosophy. In addition to transparently reporting to shareholders our plan for executing our strategy over the longer term, we believe those same investors have a right to opine on whether this is aligned with their expectations and whether our compensation levels are fair and reasonable.

As the topic of executive compensation continues to evolve, and given the complexities involved, we are working to ensure that executive pay is fully aligned with the long-term interests of our shareholders. To achieve this, consultation is critical and engaging in an open dialogue with our shareholders sits at the center of this. We are striving to maximize transparency relating to compensation in the same way that we have established—and continue to improve—transparency related to ESG. Looking forward, we must use this dialogue with shareholders to ask ourselves the important questions: what are the measures of value for our company, and how should we encourage a longer-term orientation among all employees?

While we are pleased with our progress so far, it will remain an iterative and longer-term journey, and we will constantly strive to improve our transparency practices. We have not always gotten it right and we may make mistakes into the future, but we will improve and on balance, we will be aligned.

On executive compensation, our ambition is clear—to create a clearly defined, rules-based approach that mitigates discretion and is regulated by shareholder returns so as to even more closely align with their interests. As a Board and management team, we are pleased to see that those efforts have been recognized and demonstrated by high levels of support via shareholders “say on pay” voting in recent years.

Some Final Thoughts

With the sustainability landscape undoubtedly shifting, we have managed to get a head-start— implementing a forward-thinking approach and embedding ESG throughout our business—and doing so before further momentum around this trend gathers. However, while we see great potential for our business to capitalize on our ESG commitments and strong track record in this space, we will continue to strive to do better—guarding against complacency and remaining at the forefront of industry best practice.

Our philosophy runs deeper than simply doing the “right” thing. Our transparency-led approach seeks to measure, integrate and report on ESG, giving Yamana that all-important competitive advantage within our sector. More work is needed, but with a solid foundation on which to build, we’re confident in our ability to support a more sustainable and equitable future for us all.

*ESG 2021 Outlook, Bloomberg Intelligence, January 2021.

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