A recent global study by WTW, a prominent advisory, broking, and solutions company, reveals a growing trend of Environmental, Social, and Governance (ESG) measures in executive incentive plans across various markets, including the Asia Pacific (APAC) region.

The study indicates a dramatic increase in the incorporation of ESG metrics among leading APAC companies, rising by 14 percentage points from 2022 to 2023, reaching 77%.

Among the top 352 companies in APAC, 264 disclosed the metrics used in their executive incentive plans. While European and North American companies generally disclose such information, only three-quarters of APAC companies do so.

Analysis by WTW across Australia, China, Hong Kong, India, Japan, Malaysia, and Singapore highlights varying levels of ESG metric adoption, with Australia, Japan, and Singapore leading the pack. However, inconsistencies persist in other parts of APAC regarding disclosure and integration of ESG metrics into executive incentives.

Zhu Xujing, Asia Pacific Leader of Executive Compensation and Board Advisory at WTW, notes that the extent of ESG measures' use in APAC executive incentives is influenced by each country's disclosure requirements.

Xujing appreciates Australia, Japan, and Singapore for their market-leading efforts in disclosure and ESG metric integration while acknowledging progress among leading companies in China, Hong Kong, India, and Malaysia.

While both short-term and long-term incentive plans (STI and LTI) are experiencing growth, the majority of ESG metric adoption is observed in STI plans, with two-thirds of APAC companies incorporating at least one ESG metric, a 15% increase from the previous year. However, only about 30% of top APAC companies include ESG metrics in their LTI plans.

Xujing further underscores the increased adoption of ESG metrics in industries like consumer staples, energy, financials, utilities, real estate, and communication services. Metrics in the Social category saw the most increase, with human capital-related measures being the most popular, followed by safety-related measures. Environmental, Social, and Governance metrics all saw notable increases compared to the previous year.

Shai Ganu, Managing Director and Global Practice Leader of Executive Compensation and Board Advisory at WTW stresses the growing interest from institutional investors in ESG and sustainability priorities.

Ganu highlights the increasing pressure on ESG-related disclosures and sustainability practices across APAC markets, with more companies integrating executive incentives with ESG measures to ensure alignment with stakeholders' interests, including shareholders' long-term interests.

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Source: WTW