Global review of ESG incentives indicates more maturity, relevance, and quantification

The 4th annual ESG research report, by Guerdon Associates’ Global Governance and Executive Compensation Group (GECN Group) has been released, titled: 2023 Global Trends in ESG Incentives: Entering the Next Phase of Maturity.

While prevalence has increased globally, we are seeing the rate of adoption slow down as companies focus on and refine the ESG issues that are material to them.

We have analysed environmental, social, governance and other non-financial (ESG Plus) performance metrics linked to executive variable remuneration in Financial Year 2022 (FY2022) disclosures for:

  • Australia (ASX 100)
  • Canada (TSX 60)
  • Continental Europe
    • France (CAC 40)
    • Germany (DAX 30)
    • Switzerland (SMI 20)
  • Singapore (STI 30)
  • South Africa (JSE Top 40)
  • United Kingdom (FTSE 100)
  • United States (S&P 100)

It was found that the prevalence of ESG metrics in executive variable remuneration has steadily increased amongst ASX 100 companies.

Figure 1: Prevalence of ASX 100 ESG Incentive Measures

Other significant findings amongst the report include:

  • The sectors with the greatest uptake of ESG incentive measures globally are the Materials and Utilities sector at 98% and 95% respectively.
  • ASX 100 companies, in comparison to other regions studied, has been relatively slow on the uptake of environmental metrics. Continental Europe, United Kingdom, and South Africa lead the market with over 70% of large companies incorporating environmental targets in executive incentive measures.
  • Social measures remain the most prevalent amongst ASX 100 ESG incentive measures increasing 4 percentage points, from 72% to 76%.
  • The use of diversity, equity and inclusion targets across companies that disclose social metrics has increased 5 percentage points, from 60% to 65%. This is the most prevalent social measure, with employee engagement and workplace safety targets also having notable increases.
  • Environment measures are the second-most prevalent amongst ESG incentive measures, increasing 11 percentage points, from 50% to 61%.
  • Global data shows that amongst environmental metrics, GHG emissions targets remains the most common metric.

To read the full report, which describes the details of ESG measures used in executive incentives, see HERE.

You can read previous years’ GECN ESG reports HERE.

© Guerdon Associates 2024
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