Companies in Energy, Real Estate and Industrials see the highest increased use of ESG measures
SINGAPORE, January 24, 2024 – There is continued increase in the adoption of Environmental, Social and Governance (ESG) measures in executive incentive plans across markets, including Asia Pacific (APAC), according to a new global study by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company. Overall, the number of leading companies in APAC incorporating ESG metrics increased by 14 percentage points in 2023 over the previous year (from 63% in 2022 to 77% in 2023).
Of the top 352 companies in APAC, 264 companies disclosed the metrics they use in executive incentive plans. While all European and North American companies disclose some information about the metrics used in incentive plans, only three-quarters of the APAC companies did.
WTW’s analysis of companies in Australia, China, Hong Kong, India, Japan, Malaysia and Singapore shows a large disparity in the use of ESG metrics across the region, with the highest prevalence observed in Australia, Japan and Singapore. In these three countries, the use of ESG metrics is comparable to Europe and North America. In other parts of APAC, disclosures on executive incentive design and use of ESG metrics is often inconsistent.
| Markets | Percentage of companies that incorporate ESG metrics in their incentive plans |
|---|---|
| APAC average (n = 264) |
77% |
| Australia (n= 100) |
86% |
| China (n = 7) |
29% |
| Hong Kong (n = 11) |
55% |
| India (n = 9) |
56% |
| Japan (n = 100) |
72% |
| Malaysia (n = 8) |
63% |
| Singapore (n = 30) |
93% |
“Australia, Japan and Singapore continue to emerge as market leaders in the disclosure of metrics used and the integration of ESG measures into executive incentives.”
Zhu Xujing | Asia Pacific Leader, Executive Compensation and Board Advisory, WTW
“The use of ESG measures in executive incentive plans in APAC are considerably influenced by the level of disclosure requirements in each country. In the region, Australia, Japan and Singapore continue to emerge as market leaders in the disclosure of metrics used and the integration of ESG measures into executive incentives.
“Although disclosures are not as strong in markets China, Hong Kong, India and Malaysia, we see leading companies picking up pace in their ESG commitments and aligning business practices with ESG priorities,” said Zhu Xujing, Asia Pacific Leader, Executive Compensation and Board Advisory, WTW.
While growth is occurring in both short-term and long-term incentive plans (STI and LTI), most of that is happening in short-term incentive plans. In APAC, two-thirds of the companies reported using at least one ESG metric in their STI plans, an increase of 15% from previous year. On the other hand, about one-third (30%) of all top APAC companies included ESG metrics in their LTI plans.
“Companies in consumer staples, energy, financials and utilities were more likely to adopt ESG metrics than other industries in past year. This year, we see a marked increase in the use of ESG metrics in both real-estate and communication services, in addition to companies in energy and the industrial sectors in APAC,” added Xujing.
Metrics in the Social category saw the most significant increase in APAC, and human capital-related measures remain the most popular with 57% of the companies including that in their incentive plans. Compared to previous year, the use of Environmental metric rose from 28% to 39%, Social metric rose from 47% to 60%, and Governance metric rose from 31% to 36%.
People and HR measures, such as employee engagement, continue to be the most commonly used in the Social category, followed by safety-related measures tied to minimising incidents. Measures related to carbon or CHG emissions are the most used Environmental metrics according to the disclosures by companies.
“More and more companies are incorporating executive incentives with ESG measures, and Remuneration Committees see this as an important tool to ensure alignment with interests of all stakeholders.”
Shai Ganu | Managing Director and Global Practice Leader, Executive Compensation and Board Advisory, WTW
“We continue to observe keen interest from institutional investors to articulate how ESG and sustainability priorities drive long-term sustainable value creation. Increasingly, there is more pressure on ESG-related disclosures and progressive sustainability practices across markets in APAC. More and more companies are incorporating executive incentives with ESG measures, and Remuneration Committees see this as an important tool to ensure alignment with interests of all stakeholders, including long-term interests of shareholders,” said Shai Ganu, Managing Director and Global Practice Leader, Executive Compensation and Board Advisory, WTW.
This research study reviews public disclosures from 1146 companies listed in the S&P 500, TSX 60 in Canada, nine major European indices including the FTSE 100, and 352 of the largest companies across seven markets in the Asia Pacific region. These include companies in communication services, consumer discretionary, consumer staples, energy, financials, healthcare, industrials, IT, materials, real-estate and utilities industries.
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