The vast majority (92 per cent) of Australia’s top 50 companies incorporate environmental, social and governance (ESG) metrics into their executive pay programs, new data from WTW has revealed.
This took a notable lead over the Asia-Pacific (APAC) average.
Namely, of the 400 companies analysed across the region, 193 disclosed the metrics they use in executive incentive plans, of which almost three quarters (74 per cent) incorporated ESG metrics.
Breaking this down by country, WTW said that Australia’s lead was followed by Singapore’s 82 per cent and Japan’s 74 per cent.
At the bottom of the table were shares of Chinese mainland companies that are listed on the Hong Kong Stock Exchange, with only a quarter of these companies including ESG metrics in their executive pay programs.
However, the global average for this figure was 81 per cent, with Europe leading with 94 per cent of companies having incorporated ESG metrics in their incentive plans, ahead of North America’s 77 per cent.
At the same time, it was these regions that saw little change in 2024, with APAC being the only region to observe an increase of 2 per cent over the previous year.
Plus, it was APAC companies operating in the energy, materials and financial sectors that had some of the highest prevalence of ESG metrics in the study, WTW highlighted.
“The disclosure and prevalence of ESG metrics used by companies in APAC continue to vary and are influenced by the level of disclosure requirements and institutional investors’ expectations in each market,” said Shai Ganu, managing director and global practice leader, executive compensation and board advisory at WTW.
The study further revealed that, in APAC, the highest proportion of ESG metrics used in long-term incentive (LTI) plans are companies in the industrial sectors.
However, ESG metrics are still most frequently used in short-term incentive (STI) plans, with only a small number of companies implementing such metrics in LTI plans in addition to their STI plans.
Breaking this down, WTW said that almost two-thirds (64 per cent) of companies included at least one ESG metric in their STI plan, an increase of 4 per cent from a year ago.
Less than a third (30 per cent) of APAC companies used ESG measures in their LTI plans, though, materially lower than European companies, which incorporate long-term carbon emission goals in their LTI plans.
“While markets such as Australia, Japan, and Singapore continue to have high prevalence of ESG measures in executive incentives, we haven’t seen significant change over the past year,” Ganu said.
“Going forward, geopolitical shifts may prompt slowdown in adoption of climate and DEI measures, particularly in North America. Nevertheless, Asian companies will do well as they continue to drive the right behaviours by ensuring alignment between ESG strategy and executive incentives.”
Overall, social metrics remain the most popular ESG metric category used globally, with 62 per cent of APAC companies including that in their executive pay plans, an increase of 8 per cent in 2024.
Moreover, 59 per cent of companies have used diversity and inclusion measures in their incentive plans. However, less than half (42 per cent) of companies in APAC used environmental metrics, starkly different compared to 85 per cent of companies in Europe.
