Despite global headwinds around environmental, social and governance (ESG) policies and initiatives, European companies remain committed to driving outcomes against ESG goals through executive incentives. That is according to European-wide research from WTW.
The analysis from WTW, a global professional services company, investigated the disclosed executive incentive plans at the top 300 companies in major European stock indices, including those in France, Germany, Netherlands, Spain, and the United Kingdom.
More than 9 out of 10 (94%) of these companies incorporated at least one ESG metric in their executive incentive plan, which is stable on the year previous. 86% of European companies reported applying ESG measures in their short-term incentive (STI) plans while 70% reported applying ESG measures in their long-term incentive (LTI) plans.
Carbon emissions reduction metrics are by far the most prevalent ESG metric across Europe (70%), with the study reporting a six-percentage-point increase in the last year in the apply of environmental metrics in European LTI plans.
Source: WTW
Human capital metrics are also common across incentive plans, reported in 81% of plans in Europe, with metrics linked to diversity, equity, and inclusion (DEI) within management accounting for 44% and others linked to employee engagement accounting for 31%.
Despite a notable decline this year in the prevalence of metrics related to DEI in the US, according to WTW the result of recent Court rulings and Executive Orders, prevalence of DEI-related metrics has only slightly dropped across Europe (-3%).
Source: WTW
“The impact of diversity, equity, and inclusion developments is more muted across Europe, countered by regulatory pressure and reporting frameworks such as the EU’s Corporate Sustainability Reporting Directive and Pay Transparency Directive encouraging sustainability progress and transparency,” declared Hannah Summers, Director at WTW.
Commenting on the report’s main conclusion, Summers declared: “ESG metrics remain key feature of executive incentive plans in Europe despite headwinds. At the same time, companies are refining their approach by establishing quality ESG metrics that are aligned with stewardship of shareholder value, especially with a focus on environmental resilience and human capital metrics.”
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