Apac catching up on incorporating ESG measures in executive compensation

WTW study finds 63% of companies in the region use at least one ESG metric

Listed companies in Asia Pacific are fast gaining ground on their global counterparts in incorporating ESG measures into executive compensation programmes, according to a study from WTW.

Based on companies that disclose information on the use of incentive metrics, European companies continue to rank first with 91% using at least one ESG metric in their incentive plans followed by US companies at 69% and Apac companies at 63%.

The study is based on the 188 companies out of the top 300 companies in the region that disclose the metrics they use in incentive plans.

Overall, short-term incentive plans are significantly more commonplace than long-term incentive plans when it comes to using ESG metrics. For Apac, those figures are 51% and 28% respectively.

The most widely used measures Apac companies use in incentive plans are social metrics at 47%, which include sub-categories such as people and HR, diversity and inclusion as well as health and safety.

Some 31% incorporate governance measures such as risk management and corporate social responsibility, while 28% of companies incorporate environmental measures such as climate change, carbon emissions reduction and responsible use of natural resources.

When breaking down the results by country, Australia is head and shoulders above the rest when it comes to incorporating ESG measures into compensation plans with 100% of those companies that disclose reporting doing so. This was followed by Singapore at 65% and Japan at 62%.

“While APAC had a delayed start, we are seeing companies in the region pick up the pace in their ESG commitments, particularly in areas such as climate, human capital and DEI (diversity, equity and inclusion), as well as broader corporate governance measures,” said Shai Ganu, managing director and global practice leader, executive compensation and board advisory, WTW.

“The APAC region has seen an exponential surge in ESG integration and commitment in recent years, driven by tightening disclosure requirements from regulators. Pressure is clearly mounting for companies to establish an ESG agenda to remain competitive, relevant and aligned with the priorities of their stakeholders,” said Xujing Zhu, Asia and Australasia leader, executive compensation and board advisory, WTW.

“This makes the disclosure and incorporation of ESG metrics into executive incentive plans ever more important. Not only will it help to respond to the changing priorities of investors and create more accountability for executives towards the company’s ESG commitments, but in the long term, it can also be an effective way to impact business priorities and influence decision-making to take ESG into greater consideration.”