Asia Pacific companies are incorporating sustainability metrics into executives’ performance measures and incentive plans at a faster rate than anywhere in the world.
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A study by WTW, a London-based insurance broker and advisory firm that researches environmental, social and governance (ESG) performance, found that of 400 listed companies in Asia Pacific, 193 disclosed the metrics they use in incentive plans for senior management. Three quarters of companies (74 per cent) that disclosed these metrics linked ESG performance to executive pay programmes.
This marks a 2 per cent jump from 2023, compared to the global average of 81 per cent, where companies across various regions saw little change in the prevalence of ESG-linked executive incentives last year, including in North America (77 per cent) and Europe (94 per cent).
“Geopolitical shifts may prompt a slowdown in the adoption of climate and diversity, equity, and inclusion measures, particularly in North America. Nevertheless, Asian companies will do well as they continue to drive the right behaviours by ensuring alignment between ESG strategy and executive incentives,” said Shai Ganu, managing director and global practice leader, executive compensation and board advisory of WTW.
”This [increase] signals that boards are increasingly holding management responsible for interests of all stakeholders – not just for financial performance. This is particularly relevant for companies in Southeast Asia and Hong Kong where a large proportion of companies have a controlling shareholder,” Ganu told Eco-Business.
Companies in the energy, materials and financial services sectors continue to lead in terms of prevalence of ESG metrics in Asia Pacific.
Australia had the most firms where ESG metrics were incorporated into executives’ pay programmes to measure and drive sustainability outcomes, at 92 percent.
It is closely followed by Singapore at 82 per cent, Japan (74 per cent) and Hong Kong (71 per cent).
Despite the region’s progress in sustainability-linked remuneration, only a third of companies used ESG measures in their long term incentive plans. This is materially lower than European companies, which more actively incorporate long-term carbon emission goals into their long term schemes, noted the study.
This is partly because the prevalence of long term incentive plans in Asian companies is lower than that in the West and Australia, with the exception of developed countries like Singapore, Ganu said.
Several large Singaporean companies have included carbon-emission reductions as a key performance indicator in their performance share plans, linked to broader 2030 or 2050 plans, he added.
Social metrics remain the most popular ESG metric category used globally, with 62 per cent of Asia Pacific companies including social scores in their executive pay plans, an increase of 8 per cent in 2024. Additionally, 59 per cent of companies have used diversity and inclusion measures in their incentive plans.
However, only 42 per cent of companies in the region used environmental metrics, which is a large difference compared to 85 per cent of companies in Europe. Among the companies surveyed, 30 per cent incorporated carbon emissions measures including Scope 3 emissions or full value chain emissions.
“The disclosure and prevalence of ESG metrics used by companies in APAC continues to vary and is are influenced by the level of disclosure requirements and institutional investors’ expectations in each market,” said Ganu.
“While markets such as Australia, Japan, and Singapore continue to have a high prevalence of ESG measures in executive incentives, we haven’t seen significant change over the past year.”
