The Advisors' Blog

There’s no “one size fits all” with ESG metrics. They have to be carefully tailored to support the specific ESG strategies & priorities that the board has directed. For that reason, metrics vary across industries. This 16-page Semler Brossy memo dives into emerging trends in different sectors. Here are some takeaways:

– Heavy industries – such as Energy & Materials – place significant emphasis on employee safety metrics, along with measures tied to environmental impact and stewardship. The Energy, Utilities & Materials industries have the highest prevalence of ESG metrics, with safety being the most common metric.

– Industries with a heavy strategic focus on recruiting & developing high-caliber talent – such as Financials, Technology & Healthcare – tend to emphasize human capital metrics such as retention and talent development

– Customer satisfaction is common among Health Care, Financials, Information Technology, Industrials, and Utilities companies. Somewhat unexpected is the low prevalence of customer satisfaction metrics in incentive plans among direct consumer businesses in the Consumer Discretionary and Consumer Staples industries, although these industries also have the lowest prevalence of ESG metrics overall.

– All industries are continuing to face pressure to demonstrate a commitment to social responsibility, which is fueling the adoption of newer “social” sustainability metrics such as Diversity & Inclusion. Blue chip companies are announcing the addition of E&S metrics to go-forward plans.

– D&I is a prevalent metric in Financials, Health Care, Information Technology, and Communication Services, which are all industries that would be predicted by SASB. However, we also find high prevalence of D&I in incentives in Energy, Utilities, and Materials businesses, which is not as intuitive and perhaps a reflection of the higher level of social scrutiny of these companies given their overall environmental footprint. Perhaps most surprising is the relatively low prevalence of D&I incentives in consumer-oriented businesses – Consumer Staples and Consumer Discretionary.

– Environmental metrics are still relatively rare. They’re most prominent by far in the Energy, Utilities and Materials sectors, where emissions is the most prevalent, followed by carbon footprint. We would not be surprised if the combination of stakeholder pressure and financial materiality (e.g., under the SASB framework) will cause environmental metrics to grow in prevalence across industries over time.

– Liz Dunshee