The Advisors' Blog

FW Cook recently posted preliminary findings from a study of ESG metrics in incentive plans, based on disclosures through September 15th. The prevalence of quantitative ESG metrics jumped by 21% in 2020 compared to the prior year – and based on corporate announcements this year, we’ll likely see an even bigger jump when 2021 disclosures become available. Here are a few takeaways:

– 160 companies (64%) use ESG in one or more incentive plans, up from 132 (56%) last year. This is a 21% year-over-year increase in prevalence

– 148 companies (59%) use ESG metrics in their annual incentive plan only, up from 53% last year

– Only 9 companies (4%) use ESG metrics in both the annual and long-term incentive plan, up from 3% last year

– Only 3 companies (1%) use ESG metrics in their long-term incentive plan only, versus no companies last year

– Of the 160 companies using an ESG-based metric, 54 (34%) measure performance using a formulaic metric or modifier approach. This differs considerably from prior year experience in which only 22% of companies employed a non-discretionary approach

– Among the 160 companies most recently disclosing ESG-based metrics, Human Capital & Culture metrics were the most common (70%), followed by DEI and Environment & Sustainability (67% and 36%, respectively).

Dan Ryterband, FW Cook’s Chair & CEO, says that no plan design trend has evolved faster than ESG – and he expects that the focus is permanent. He cautions that there is no “one-size-fits-all” approach and that the metrics need to truly support business objectives. Board advisors, the disclosure team, directors and managers need to be able to justify new metrics and respond to questions about how the chosen framework will support the company’s strategy & goals.

– Liz Dunshee