LONDON, January 24, 2024 — There is continued increase in the adoption of Environmental, Social and Governance (ESG) measures in executive incentive plans across markets including Europe, according to a new global study by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company. The share of European public companies doing so continues to grow and similar trends are occurring among North American and Asia Pacific companies, the study found.
Across Europe, almost all main index constituent companies (93%) reported in this year’s disclosures they incorporated at least one ESG metric in their executive incentive plans, an increase from 90% the previous year and just 75% three years ago. In Europe, the most rapid area of growth relates to long-term incentive (LTI) plans, where the majority of European countries now include at least one ESG metric. This trend is mainly driven by the adoption of environmental and climate metrics, the prevalence of which has risen from 21% in 2020 to 56% in 2023. According to the study, 88% of companies tie their short-term incentive (STI) plans to at least one ESG measure, up from the 85% they reported last year.
The most prevalent ESG measure European companies are using in incentives plans are social metrics (87%), which incorporates multiple sub-categories including human capital and customer service. 80% incorporate environmental measures that address areas such as climate change, carbon emission reduction, and responsible use of natural resources. Nearly two-thirds of companies (62%) use governance measures that focus on areas including risk management and corporate social responsibility.
“Companies’ interest in tying executive incentive plans to ESG measures is showing no signs of abating,” said Richard Belfield, Executive Compensation & Board Advisory Practice leader, WTW. “In fact, companies in some industries such as IT and consumer goods that have previously shied away from using ESG measures are now joining in with the wider trend and have narrowed the gap with other industries. The ongoing growth we are seeing reflects the continued focus from companies across markets and countries to articulate to stakeholders how ESG priorities are embedded in their business strategy and how they are used as a key measure of non-financial performance.”
A total of 500 companies in the United States, 60 in Canada and 352, across seven major markets in the Asia Pacific region were also included in the study. The key findings from those companies include:
This research study reviews public disclosures from 1146 companies listed in nine major European indices including the FTSE 100, the U.S. S&P 500, and the TSX 60 in Canada and the largest companies across seven markets in the Asia Pacific region.
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