When it comes to running a sustainable business, companies worldwide are increasingly linking executive pay to environmental, social, and governance (ESG) metrics.
More than four of five companies (83%) across Europe, the US, and Canada included in an annual Willis Towers Watson report featured at least one ESG-related incentive in their executive compensation plans in 2023. That’s an increase from 78% last year and 68% two years ago.
Among the 1,152 companies researched for the 2023 Global Report on ESG Metrics in Executive Incentive Plans, those in Europe set the pace, with 93% setting at least one ESG goal for executives. In both Europe and the US — where 76% of companies reported at least one ESG executive incentive — the median value of the ESG metrics was 20% of total incentive-based compensation.
The companies studied in the report are listed on the world’s premier indexes, including the FTSE 100 and the S&P 500.
The presence of climate-related metrics specifically rose sharply in Europe and the US over the past year. Eighty per cent of European companies had at least one environmental/climate metric in 2023, up from 65% the previous year. Just 44% of US companies had the same, although that was up from 25% the previous year and 12% in 2020 — the first year of the study.
Executive incentives aimed at sustainable business practices weren’t limited to environmental metrics. Combining Europe and US companies, 75% featured at least one human capital metric (83% of European companies and 70% of US companies). That’s even greater than the percentage of European and US companies with at least one environmental metric (58%). The types of incentives tracked in the report also included metrics such as risk management and workplace injury/incidence rates.
For the second year, the report researched executive incentive packages in Asia Pacific, focusing on Australia and Japan. Seventy-seven per cent had at least one ESG-related incentive in 2023 (up from 63% in 2022). Thirty-nine per cent had at least one environmental incentive (up from 28%), and 57% had at least one human capital incentive (up from 45%).
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.
