SINGAPORE, March 21, 2023 — Public companies in Asia-Pacific (APAC) are catching up with their global counterparts in incorporating Environmental, Social and Governance (ESG) measures in their executive compensation programmes, according to a new study by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.
Based on the companies that disclose information on the use of incentive metrics, European companies continue to lead the pack with 91% using at least one ESG metric in their incentive plans, exceeding the global average of 75%. This was followed by U.S. companies at 69%, with APAC closely behind at 63%. The study also shows that whilst most European and North American companies disclose information about metrics used in incentive plans, only 62% of APAC companies did so.
| Regions/markets | Percentage of companies that incorporate ESG metrics in their incentive plans |
|---|---|
| Global average | 75% |
| Asia Pacific (n= 188) |
63% |
| United States (n = 500) |
69% |
| Canada (n = 60) |
80% |
| Europe (n = 233) |
91% |
| United Kingdoms (n = 100) |
89% |
Overall, the prevalence of ESG metrics in short-term incentive plans is significantly higher than long-term incentive plans across all regions. More than 50% of companies in APAC incorporate ESG metrics in their short-term plans, behind Europe (85%) and U.S. (67%) companies. For long-term incentive plans, the number of APAC companies (28%) that incorporate ESG metrics remains behind Europe (46%).
The most prevalent measures that APAC companies use in incentives plans are social metrics (47%), which include sub-categories such as People and HR, Diversity and Inclusion, as well as Health and Safety. Three in 10 companies (31%) incorporate governance measures in areas such as risk management and corporate social responsibility. Only 28% of companies incorporate environmental measures, including climate change, carbon emissions reduction, and responsible use of natural resources.
“WTW’s latest research highlights growing prominence within companies globally in aligning ESG priorities to executive incentive programmes. 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. This underscores a growing ethos of aligning business strategies with sustainability priorities, and companies serving the best interests of all stakeholders,” said Shai Ganu, Managing Director and Global Practice Leader, Executive Compensation and Board Advisory, WTW.
Of the top 300 leading companies in APAC, 188 companies disclosed the metrics they use in incentive plans. Among these 188 companies that were included in the study were public companies in Australia, China, Hong Kong, India, Japan, Malaysia and Singapore.
In the region, Australia, Japan, and Singapore have emerged as market leaders in the disclosure of metrics used and the integration of ESG measures into executive incentives. Among those that disclose, all companies in Australia (100%) incorporate at least one ESG measure in their compensation plans, followed by Singapore at 65% and Japan at 62%.
People and HR measures are the most commonly used metrics in the short-term incentive plans, with 89% of companies in Australia, 60% in Singapore and 19% in Japan incorporating them in their executive compensations.
As for long-term incentives, companies in Japan lead in prevalence with the incorporation of at least one ESG metric into the incentive plans (39%), followed by Australia (19%) and Singapore (10%). Environmental and Sustainability measures are the most prominent metrics, used by 22% of companies in Japan, 14% in Australia and 10% in Singapore.
“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.”
This research study reviews public disclosures from 1,081 companies listed in S&P 500, TSX 60, FTSE 100, nine major European indices and seven major APAC indices. This is the inaugural study that includes data from public companies across seven markets in the APAC region. Of the 302 companies in APAC analysed, 188 companies disclose information about the use of metrics in their incentive plans.
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