For the third consecutive year, Guerdon Associates and sister firms in the GECN Group undertook research on the use of environmental, social and governance plus other non-financial (ESG Plus) metrics used in executive incentive plans across global markets.
This year’s research builds on previous years, looking at ESG measures in incentive plans and trends given the pressure from institutional investors, anti-greenwashing regulators and shareholder activists.
The scope of the research covers the USA’s S&P 100, Canada’s TSX 60, France’s CAC 40, Germany’s DAX 40 (previously the DAX 30), Switzerland’s SMI 20, the United Kingdom’s FTSE 100, Australia’s ASX 100, South Africa’s JSE Top 40 and Singapore’s STI 30.
The research shows that continental Europe and the United Kingdom have overtaken Australia as leaders in terms of the proportion of companies that have adopted ESG measures in their incentive plans. Companies in North America and Singapore continue to be the slowest in adopting ESG measures.
Figure 1: Proportion of companies with ESG measures by region
The big change has been towards environment and climate change. Half of the companies with ESG measures in incentive plans incorporate an environmental measure.
Figure 2: Proportion of companies with ESG measures by type of measure
Our full report to be published later this year and upcoming articles will dive deeper into the details of the ESG measures, breaking it down further and examining the following trends:
- What is the relationship between TSR and ESG measures?
- Are ESG measures still predominantly incorporated in short-term incentive plans? Are companies starting to introduce ESG measures into long-term incentive plans?
- How much weight is given to ESG measures in an executive’s total remuneration package? Does it have a significant impact on their remuneration outcomes and in turn their actions?
- Are ESG targets for STI scorecards being calibrated appropriately? Was vesting of STI ESG metrics above or below target hurdles?
- Was vesting of ESG metrics in STI scorecards above or below the overall vesting of STIs for each company?
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