ESG remuneration in C25 companies: An Empirical Study of ESG Remuneration and Sustainability Performance

Abstract

Environmental, Social, and Governance considerations continue to influence the corporate agenda, with a growing number of companies integrating ESG metrics into executive compensation schemes. This paper investigates ESG remuneration practices among companies listed on the C25 index, focusing on their characteristics, level of transparency, and effectiveness. Despite growing international research on ESG remuneration, empirical insights into the Danish context are limited. This paper aims to address this gap by providing new insights into the role of ESG remuneration within Danish corporate governance. Based on existing literature and relevant corporate governance theories, two hypotheses are developed to examine the relationship between ESG remuneration and ESG performance. These are tested using a panel data analysis with a random effects model, drawing on data from 2022 to 2024. In addition, a descriptive analysis and a survey are employed to support the statistical findings and to explore the scope of the investigation. The descriptive analysis provides insights into ESG remuneration practices among the C25 index, with particular focus on the characteristics and prevalence of such practices. A notable shift in patterns emerges in 2024, potentially reflecting the influence of the Corporate Sustainability Reporting Directive. The regression analysis reveals no statistically significant relationship between ESG remuneration and ESG performance. Consequently, the findings provide no empirical support for the proposed hypothesis, thereby challenging the conventional assumption in classical principal-agent theory. The findings are discussed in relation to potential reverse causality, the role of the regulatory landscape, particularly the CSRD, in enhancing transparency, and the possible decoupling between disclosed ESG commitments and actual sustainability performance. Without well-defined metrics and transparent reporting, ESG remuneration risks serve a symbolic purpose rather than driving substantive change. In this context, the absence of concrete incentives may weaken the alignment between executives and stakeholders, potentially giving rise to concerns about greenwashing. Given the limited empirical insight, future research should expand the sample to include all CSRD-reporting Danish companies and investigate how regulation influences the relationship between ESG incentives and sustainability outcomes.