February 12, 2024
Use of E&S Metrics Continued to Increase in 2023
Recent research from WTW covering more than 1,000 companies (including the S&P 500, FTSE 100, TSX 60, and major European and Asia Pacific indices) found that 81% of those surveyed include ESG metrics in incentive plans — up from 75% of surveyed companies in 2022. Not surprisingly, the practice is more prevalent in Europe, with 93% of surveyed European companies using ESG metrics, compared to 76% in the U.S. In the U.S. and Canada, use of ESG metrics in LTI plans specifically has more than tripled since 2019.
Human capital metrics are most prevalent, with common metrics including employee engagement, safety, succession & talent management, and management & workforce representation. That said, environmental and climate metrics are becoming increasingly common, with 80% of companies using them in Europe. In the U.S., prevalence has jumped from 12% in 2020 to 44% in 2023.
The announcement notes that companies need to focus on “identifying and measuring individual elements of ESG most impactful to businesses” given institutional investor and regulatory pressure. During our recent webcast, “The Latest: Your Upcoming Proxy Disclosures,” Gibson Dunn’s Ron Mueller noted that we’ve seen some shareholder proposals this proxy season asking companies to eliminate GHG reduction metrics as performance measures. We have yet to see whether this slows, halts or reverses the recent growth in the use of climate metrics.
– Meredith Ervine