With our latest GECN Group report on global ESG incentives just around the corner, we can provide a temporal trends snapshot of ASX 100 CEO ESG incentive performance measures over the past 5 years.

Figure 1 below shows how the inclusion of specific ESG measures in incentive plans has changed over the period.

Figure 1: Prevalence of ESG measures in ASX 100

The inclusion of an ESG measure within incentives trended upwards from FY2019 to FY2022. FY2023, however, saw a drop back to FY2021 levels.

Breaking down the inclusion of specific of ESG measures reveals:

• Environmental measure inclusion is still trending upwards, with 10 more companies using these measures in FY2023 compared to the prior year.
• Social measure inclusion has remained at a similar level over the past 5 years, averaging 81%.
• Governance measures have dropped to 35% from a high of 64% in FY2020.

Comparing the measure breakdown with the overall level of inclusion reveals that while fewer companies overall are employing ESG measures, those that do are using more measures.

The incidence of ESG measures for an LTI has increased. Figure 2 below shows how the percentage of the ASX 100 companies with CEO ESG measures in the LTI has changed over the period.

Figure 2: Percentage of ASX 100 with ESG measures in CEO LTI

The increase of ESG measures in CEO LTIs suggests long-term company targets, such as net-zero greenhouse gas emissions by 2050. While some long-term sustainability targets can span decades, companies break them down into interim milestones within LTIs to capture ESG progress.

Figure 3 below shows the average percentage of target total remuneration (TTR) that is dependent on an ESG measure over the period. Target total remuneration is the sum of total fixed remuneration, short-term incentives at target, and long-term incentives at target. It reveals how much an executive’s remuneration is tied to an ESG measure.

Figure 3: Average percentage of ASX 100 CEO Target Total Remuneration dependent on ESG

A general upwards trend of TTR is seen from FY2019 to FY2022, before a drop off in FY2023.

Figure 4 below splits out the FY2023 data in Figure 3 into GICS sectors, showing which sector CEOs have the most remuneration tied to ESG measures.

Figure 4: Average percentage of TTR dependent on ESG measures by sector

The Energy sector has the highest target total remuneration tied to ESG, followed by the Financials sector whereas the sector with the lowest TTR tied to ESG is Information Technology.

Our 2024 GECN ESG Remuneration Trends Report will be released late October and will provide a global landscape of climate and environmental measures in incentives. Stay tuned to see how Australia compares on a global scale.

You can request an advance copy of the 2024 GECN Report HERE.

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