Sustainability, or environmental, social and governance (ESG) metrics are commonplace across executive incentive plans, as evidenced in WTW’s 2024 ESG Incentive Metrics Study. This is perhaps unsurprising, given many companies have incorporated sustainability into business strategy, therefore making it a key area on which to focus attention and drive performance via performance goals and incentives
Boards of directors believe a coherent sustainability strategy will contribute to sustainable organizational value and stronger financial returns, according to the results of our 2025 board stewardship research. However, the potential value of ESG metrics in incentive plans in driving company performance is contingent on these metrics being effectively designed.
With increased awareness of how sustainability factors interconnect with business strategy and resilience, boardroom (and investor) focus has shifted. To drive strategic and financial outcomes, priority is now placed on ensuring high quality metrics, including how metrics are selected and designed and how targets are set.
To better understand the role and efficacy of ESG metrics in executive incentive plans, WTW has conducted an analysis of the payouts of these types of metrics. Conducted in collaboration with Chapter Zero France, the analysis is based on 2024 disclosures (reflecting the 2023 financial year) from 871 companies across Europe and North America.
The findings of this analysis suggest that ESG metric payouts are broadly in line with those of financial metrics, suggesting a comparable level of goal-setting rigor. However, a more nuanced picture emerges when we look at different types of ESG metrics in more detail.
Interpreting the results: What lies beneath the averages
When looking at all ESG metrics, average payouts in short-term incentive (STI) and long-term incentive (LTI) plans for ESG metrics are broadly similar to that of financial metrics across both Europe and North America’s top-listed companies (Table 1).
Table 1. Average payouts in STIs and LTIs, based on 2024 disclosures
| Incentive type | Region | ESG metrics | Financial metrics |
|---|---|---|---|
| STI | Europe | 112% | 116% |
| North America | 123% | 113% | |
| LTI | Europe | 104% | 103% |
| North America | 119% | 121% |
On average, ESG payouts appear to be broadly aligned with financial metrics, except for STI plans in North America, where ESG metrics overall yield notably higher payouts than financial metrics. However, when we delve deeper into the data, there are important nuances to unpack.
So, why are payouts for climate metrics in North American LTI plans notably lower than other metric types, and lower than these metric types used by European companies?
We’ve explored the possibility that metrics — which are more quantifiable in nature — may show lower payout trends, as targets might be more stretching and performance assessments more rigorous. This may explain the difference in findings for payouts between STI and LTI plans in North America, given that LTIs generally have more robust and transparent targets than STIs. It also is possible that climate-related targets over a longer performance period, as is the case with LTIs vs. STIs, are more difficult to set due to the volatile and non-linear nature of carbon reduction strategies.
However, neither of these factors fully explain the difference in payout trends, with notably lower payouts in North American LTIs for these metrics as compared to Europe. This could raise the question of performance. It is plausible that North American companies have underperformed compared to European companies on climate metrics given the challenging and polarized sustainability landscape in North America.
Divergent and sometimes politicized views on sustainability matters and net zero may mean that North American companies and their executives are less clear about and committed to climate transition action than European companies, which have clearer policy and investment signals around which to ground their commitment.
Looking ahead
At first glance, when looking at ESG metrics overall, it seems that there is broad consistency in how ESG targets are set for incentive metrics frameworks, with outcomes aligning with financial performance. However, important nuances emerge when we dig a little deeper, suggesting some variation in how rigorously different types of goals are set and measured.
The real power of these metrics lies in their potential to serve as a robust governance mechanism — one that can drive accountability and accelerate progress on strategically material sustainability issues and, in doing so, build long-term resilience in the business. In light of this, some large investors are promoting the inclusion of material ESG performance metrics to align executive incentives with risk management and long-term sustainable value creation.
To unlock their potential, boards committed to their stewardship duties are taking particular care to ensure the effective design of incentives and transparent reporting of ESG metrics. The variation across metric types, particularly between those that are more qualitatively versus quantitatively assessed, highlights the need for clarity, measurability and a tight alignment with material strategic objectives — as explored in WTW’s recent assessment of top global companies’ ESG metrics. Without this rigor, ESG metrics are at risk of becoming merely symbolic.
About the analysis
This article is the result of a joint research initiative between WTW and Chapter Zero France. We examined the payouts of ESG metrics based on latest available company disclosures in 2025.
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