Global events are sparking companies around the world to accelerate changes to their Environmental, Social and Governance (ESG) priorities, according to a new survey of boards of directors by Willis Towers Watson.
“With investor and shareholder interest in ESG and sustainable investing increasing, companies are accelerating their focus on ESG initiatives,” said Shai Ganu, global head of executive compensation at Willis Towers Watson.
“We know from our research and consulting that companies’ greatest focus is on a stronger alignment of executive compensation plans and ESG priorities, particularly with climate change and environmental measures, diversity and inclusion matters, and overall human capital governance.”
The survey found that four in five respondents (78%) are planning to change how they use ESG with their executive incentive plans. More than four in ten (41%) plan to introduce ESG measures into their long-term incentive plans over the next three years, while 37% plan to introduce them to their annual incentive plans. Additionally, about a third plan to raise the prominence of Environmental and Social/Employee measures in their incentive plans.
The survey results sparks hope for the future of environment and social governance and diversity and inclusion as amid the coronavirus, they slipped down the list of priorities for many organisations. Although many companies are taking strides in the right direction, more should be encouraged to follow suit.
Challenges companies face with using ESG metrics in incentive plans were also identified in the survey. Among the greatest challenges cited by respondents were target setting (52%), performance measure identification (48%) and performance measure definition (47%).
Employers are also taking various measures to review their workforce through an ESG lens. Nearly half (46%) said they had deployed listening strategies to engage with their employees. In contrast, three in ten have created a new executive role to drive ESG strategy and have identified new positions in their organisations to help achieve their ESG strategy.
Nearly half of respondents are either planning to review their culture to ensure environment and social governance is embedded throughout their organisations or are considering doing so in the future. Also, about one in five respondents are expected to add board and compensation committee oversight of wellbeing and fair pay within the next three years.
As the coronavirus pandemic threatens the progress made in regards to fair pay, it is encouraging that companies are making additional measures to ensure fair pay. However, more still has to be done.
Overall, the survey found that while most companies are developing ESG implementation plans (84%) or have identified them as priorities (81%), less than half (48%) have incorporated them into their strategy, operations, products and services offerings, indicating that companies are on different parts of their governance journey.
Over half (53%) are accelerating their environment and social governance priorities and timing because of moral and ethical reasons and to increase their organisations’ long-term value. Over three in four respondents (78%) believe ESG is a key contributor to stronger financial performance.
Jessica Norton, UK Executive Compensation Practice Leader, Willis Towers Watson, said: “In the UK, although some companies are revising their use of ESG measures to support their executive pay programs and overall inclusion and diversity initiatives, more work needs to be done.
“We expect that the level of interest and involvement of more organisations will only rise as investors, consumers and employees increasingly press companies for a strong commitment to ESG as well as hold their CEOs more accountable.”