The Advisors' Blog

Despite investors taking a more critical approach to ESG metrics recently, this Farient Advisors memo discusses the rise of climate metrics among a group of 500-plus exchange-listed companies in nine countries, based on research by the Global Governance and Executive Compensation (GECN) Group. Farient reports:

The use of environmental measures in incentives has increased to 61% globally, with significant increases across the various regions. For example, in the U.S., 52% of large-cap companies now use environmental incentive measures, up significantly from 34% in 2022 and 8% in 2021.

Of these environmental metrics, emissions metrics are the most common:

GHG emissions are the most common environmental measure, increasing by 33 percentage points over last year. This considerable jump coincides with increases in companies setting emissions reduction targets and disclosing them publicly. In fact, 63% of S&P 500 and STOXX Europe 600 companies have publicly disclosed Scope 1 and 2 emissions reduction goals for 2030.

The memo also provided these other key research findings:

– Common climate-related metrics include GHG emissions reductions, energy efficiency improvements, and the achievement of specific sustainability targets.
– Companies typically integrate these metrics into short-term incentive (STI) plans, and they are increasingly incorporating them into long-term incentive (LTI) plans.
– This trend is particularly noticeable in sectors with significant environmental impacts, such as energy, utilities, and manufacturing.

– Meredith Ervine