Companies are putting stronger emphasis on environmental, social and governance priorities. 
Global events such as the pandemic, economic uncertainties, and social and racial injustice are sparking companies around the world to maintain or accelerate changes to their environmental, social and governance (ESG) priorities, according to a new survey of boards of directors by Willis Towers Watson a broking and solutions company. The 2020 ESG Survey of Board Members and Senior Executives was conducted in September and October this year with participation from non-executive and executive directors, and non-board member management executives at 168 organisations, of which 38% were from the Asia Pacific and the rest from North America, Europe, Africa and the Middle East. Respondents employ 2.2 million workers.
Trey Davis, Executive Compensation Leader, Asia Pacific Willis Towers Watson said, “In Asia Pacific, integrating ESG metrics into incentive plans is less common and less advanced than in other parts of the world. Although companies are revising their use of ESG measures to support their executive pay programmes, it appears more work needs to be done. Some countries such as Singapore and Australia have already come a long way and can serve as models for other markets. Others like Japan are in close pursuit.”
Overall, while over 80% of companies are developing ESG implementation plans or have identified ESG priorities, less than half have incorporated ESG plans into all aspects of their businesses—strategy, operations, and products and service offerings indicate that companies are on different parts of their ESG journey. More than half are accelerating their ESG priorities and timing. Four in five respondents believe ESG is a key contributor to stronger financial performance.
Shai Ganu, Global Head, Executive Compensation, Willis Towers Watson said, “With institutional investor interest in ESG and sustainable investing increasing, companies are maintaining or accelerating their focus on ESG initiatives…We know from our research and consulting that companies’ focus is on a stronger alignment of executive compensation plans and ESG priorities, particularly with climate change and environmental measures, inclusion and diversity matters, and overall human capital governance.”
In Asia Pacific, seven in ten respondents plan to change how they use ESG with their executive incentive plans over the next three years. Seven in ten plan to introduce ESG measures into their long-term incentive plans over the next three years and six in ten plan to do the same with their annual incentive plans. Furthermore, close to a third plan to raise the prominence of environmental, social/employee and governance measures in their incentive plans in the coming year.
The survey identified challenges companies face with using ESG metrics in incentive plans. Among the greatest challenges cited by respondents are target setting at 46%, performance measure identification at 37% and performance measure definition at 34%. Employers are also taking various measures to review their workforces through an ESG lens. Nearly half said they have or will soon deploy listening strategies to better engage with their employees. More than a third have created a new executive role to drive ESG strategy, and half have identified new positions in their organisations to help achieve their ESG strategy. Half of the respondents are also either planning or considering identifying new skills and knowledge to help their organisations achieve their ESG strategy goals for the future. In addition, nearly half of respondents are either planning to review their culture to ensure ESG is embedded throughout their organisations or are considering doing so in the near future. Approximately one-third of respondents plan to add oversight of broad-based total rewards and employee well-being to the compensation committee’s remit within the next three years.
Paul Arkwright
Publisher
