During September and October 2020, WTW conducted the 2020 ESG Survey of Board Members and Senior Executives, its results being based on responses from non-executive and executive directors, and non-board member management executives at 168 organizations throughout North America, Europe, Asia, Africa and the Middle East.
Some of the key findings of the survey include:
- nearly 4 in 5 respondents (78%) are planning to change how they use ESG with their executive incentive plans over the next three years;
- more than 4 in 10 (41%) plan to introduce ESG measures into their long-term incentive plans over the next three years;
- about 37% plan to introduce ESG measures into their annual incentive plans;
- about a third plan to raise the prominence of environmental and social/employee measures in their incentive plans.
- over half (53%) are accelerating their ESG priorities and timing;
- over 3 in 4 respondents (78%) believe ESG is a key contributor to stronger financial performance.
Shai Ganu, Global Head, Executive Compensation, at 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."
The survey identified challenges companies face with using ESG metrics in incentive plans. Among the greatest challenges cited by respondents are target setting (52%), performance measure identification (48%) and performance measure definition (47%).
Employers are taking various measures to review their workforces through an ESG lens. Nearly half (46%) said they have deployed listening strategies to engage with their employees, while 3 in 10 have created a new executive role to drive ESG strategy and have identified new positions in their organizations to help achieve their ESG strategy. Nearly half of respondents are either planning to review their culture to ensure ESG is embedded throughout their organizations or are considering doing so in the future. In addition to culture, about 1 in 5 respondents are expected to add board and/or compensation committee oversight of wellbeing and fair pay within the next three years.
While most companies are developing ESG implementation plans (84%) or have identified ESG priorities (81%), less than half (48%) have incorporated ESG plans into all aspects of their businesses, indicating that companies are on different parts of their ESG journey.
Ryan Resch, Managing Director, Executive Compensation, Willis Towers Watson, said:
"Although companies are revising their use of ESG measures to support their executive pay programs, it appears more work needs to be done. Boards have been asking for more information on ESG strategies and priorities, particularly in the areas of the environment and employee diversity, to understand their alignment to sustainable value creation and materiality. Their goal is to support the identification of the right measures for their incentive plans with appropriate performance targets."