Boards are accelerating changes to ESG priorities, promoted by global events such as the pandemic, economic uncertainties, and social and racial injustice, said Willis Towers Watson recently when releasing results of a survey.
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 Asia Pacific and the rest from North America, Europe, Africa and the Middle East. Respondents employ 2.2 million workers, according to the firm.
With institutional investor interest in ESG (environmental, social, and governance) and sustainable investing increasing, companies are maintaining or accelerating their focus on ESG initiatives, said Shai Ganu, global head, Executive Compensation, at Willis Towers Watson.
“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,” he noted.
- In Asia Pacific, seven in ten respondents are planning to change how they use ESG with their executive incentive plans over the next three years.
- 69% plan to introduce ESG measures into their long-term incentive plans over the next three years while 61% plan to do the same with their annual incentive plans.
- Close to a third plans to raise the prominence of environmental (29%), social/employee (29%) and governance (31%) measures in their incentive plans in the coming year.
- Among the greatest challenges cited by respondents are target setting (46%), performance measure identification (37%) and performance measure definition (34%).
- Nearly half (47%) of employers said they have or will soon deploy listening strategies to better engage with their employees while 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 the organisations achieve their ESG strategy in the future.
- 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.
- About one-third of respondents are planning to add oversight of broad-based total rewards and employee wellbeing to the compensation committee’s remit within the next three years.
- Overall, while most companies are developing ESG implementation plans (84%) or have identified ESG priorities (82%), less than half (48%) have incorporated ESG plans into all aspects of their businesses — strategy, operations, and products and services offerings, indicating that companies are on different parts of their ESG journey.
- More than half (55%) are accelerating their ESG priorities and timing.
- Four in five (81%) respondents believe ESG is a key contributor to stronger financial performance.
More works need to be done in APAC
In Asia Pacific, integrating ESG metrics into incentive plans is less common and less advanced than in other parts of the world, said Trey Davis, Executive Compensation Leader, Asia Pacific Willis Towers Watson .
Though companies are revising their use of ESG measures to support their executive pay programmes, it appears more work needs to be done, he added.
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, he noted
“Boards have been asking for more information on ESG strategies and priorities, particularly in the areas of environmental conservation and employee wellness, to understand their alignment to sustainable value creation and materiality,” said Trey. “Their goal is to improve the sustainable performance of the organisation by identifying the right measures for their incentive plans with appropriate performance targets.”