Sneak Peek: New 2023 Research Report Shows ESG’s Staying Power

November 7, 2022

Environmental, social, and governance (ESG) incentives in executive compensation are becoming more prevalent. For a third consecutive year, research from Farient Advisors in conjunction with the Global Governance and Executive Compensation Group (GECN) finds an increase in the use of stakeholder incentives that demonstrates a commitment to tying executive compensation to ESG goals. Based on an analysis of the largest companies in leading global indexes, the research report shows that more than three-fourths of large companies now incorporate stakeholder measures into their executive incentive plans. Prevalence is up by 5 percentage points compared to 2021 and 14 percentage points compared to 2020. The full research report, 2023 Global Trends in Stakeholder Incentives: The Staying Power of ESG, provides predictions and recommendations to help boards understand how the world’s largest companies are incorporating ESG metrics into pay plans. The full report will be available soon. For now, take a sneak peek at some major takeaways, stats, and quotes.

Important Research Report Takeaways

  • The adoption of stakeholder measures continues to increase, but the rate of growth is slowing
  • Companies are coalescing around climate and diversity measures in incentive plans
  • The increasing use of environmental measures is a global trend across industries with a focus on GHG emission reductions
  • The use of DEI measures continues to grow considerably and is now far ahead of other social measurement types
  • Stakeholder incentives are increasingly being incorporated into long-term incentives
  • Stakeholder incentive measures are becoming increasingly quantified
  • More work is needed to set rigorous targets and make stakeholder incentives a meaningful portion of overall pay

 

The Global Evolution of Stakeholder Incentives over the past three years

The Global Evolution of Stakeholder Incentives over the past three years 2023 Farient Research Report

 

Quotes and Stats from the upcoming Farient/GECN Research Report

“Investor policies have evolved, shaped by the advent of index investing and increasing pressure to ‘invest with a conscience.’ As investors take longer-term perspectives on their holdings, they are engaging directly with issuers around their ESG and sustainability strategies to gauge the strength, longevity, and riskiness of corporate cash flows.”

“The importance of stakeholders to healthy corporate cash flows over the long term is borne in the notion that shareholders and stakeholders win together.”

“The adoption of stakeholder measures in incentives among large cap companies may be hitting a plateau. However, companies in regions and industry sectors with a lower prevalence will increasingly use stakeholder measures in incentives.”

“Large investors have been one of the main drivers in companies adopting sustainability strategies and targets, diversifying their boards, and disclosing ESG information. A more recent development has been investors’ role in driving the integration of stakeholder measures in incentive plans.”

“The use of environmental measures has increased to 50% globally with significant increases made across the various regions.”

“Investors are focusing heavily on social issues, primarily workforce diversity, which has driven up the use of DEI measures in incentive plans. Globally, 60% of companies using social measures in incentives focus on diversity, up 15 percentage points from last year.”

“Social measures will continue to capture needed improvements that indicate how the business is living its values, how it is achieving competitive advantage through employing a diverse workforce, and/or how it is preserving value through such measures as safety.”

“Companies will increasingly face investor scrutiny to explain their stakeholder measures, justify their goals, and warrant their results.”

“Boards have a critical role to play in all four stages of the stakeholder incentive journey, i.e., determining whether to adopt stakeholder incentives, and if so, which measures to select, how best to incorporate such measures into the plans, and how to establish goals and verify results.”

 

About Farient Advisors 

Farient Advisors provides a comprehensive array of services to boards and management including compensation program design, performance measurement, goal setting and pay for performance alignment, board of directors’ compensation, stakeholder incentives (climate, diversity, equity, and inclusion (DEI), transactions (mergers and acquisitions, spinoffs, pre-IPO/SPACs), and shareholder communications. Farient has locations in Los Angeles, New York, Louisville, and Dallas and is a founding partner of the Global Governance and Executive Compensation Group (GECN), serving clients in more than 35 countries. Farient is recognized by the Women’s Business Enterprise National Council as a certified diverse company.

 

 

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