• Australia, China, Hong Kong, India, Japan, Malaysia, and Singapore are doing more to tie ESG metrics to executive pay.
• The APAC region is making progress but faces challenges, such as differing disclosure rules and institutional investors' expectations.
• The adoption of ESG metrics in North America will be at stake due to geopolitical changes.

A new study by global advisory firm WTW highlights the incorporation of environmental, social, and governance (ESG) metrics in executive pay programmes worldwide, with a particular focus on the APAC region.

Close to 75% of the leading 50 listed companies in the Asia-Pacific (APAC) region use ESG metrics now, with companies in the energy, materials, and financial services sectors leading the line. 193 of the 400 largest companies in APAC disclosed details about their executive incentive plans, with 74% including these metrics in their executive pay.

This shows an uptick in APAC compared to last year (2023). According to the study, 81% of companies globally use ESG metrics in executive pay plans. The report says that other regions like Europe (94%) and North America (77%) retained their adoption rates from the previous year.

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The incorporation of sustainability metrics is more common in short-term incentive (STI) plans than in long-term incentive (LTI) plans. In APAC, 64% of firms use at least one ESG metric in their STI plans, while only 30% include ESG metrics in LTI plans. European companies are incorporating long-term environmental goals into their LTI plans more than their APAC counterparts.

Shai Ganu, Managing Director and Global Practice Leader, Executive Compensation and Board Advisory, WTW, said: "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.

"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. 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.”

Globally, and in APAC, social metrics are the most widely used ESG category. In the last year, 62% of APAC companies included social metrics in executive pay programmes. Other metrics and their inclusion are as follows: diversity and inclusion (59%) and greenhouse gas (GHG) or carbon dioxide emission reductions (42%).

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Source: WTW