Almost two thirds (60%) of companies around the world who responded to the Global Equity Organisation’s (GEO) Global Equity Insights Survey (GEIS) apply environmental, social and governance (ESG) targets to share-based employee compensation.
The non-profit body says its survey reveals that the most common areas for such targets are CO2 reduction, diversity, and corporate governance, including ESG issues.
Of companies that reported that they apply ESG targets, 84% said that they apply them to the management board. These targets set the strategic direction of the company for its board members, who use it to guide their implementation of day-to-day operations.
Forty percent of companies that reported they use ESG targets said they apply them to short term incentive plans (STIs), which companies are increasingly offering to a wider range of employees in order secure talent and lock in innovation.
By comparison 30% of companies said they apply ESG to long-term incentive plans (LTIs), which are typically used to incentivise executives.
Overall 18% of companies said they were applying ESG targets to both plan types, while 13% said that, although they didn’t currently use ESG targets, they were considering introducing them.
The findings of the survey suggest that low performing companies are more likely to only apply ESG targets to their LTIs than high performers: 20% of ‘low performers’ said they had compared with just 11% of companies noted as high performing.
Sheila Frierson, president: plan managers NA at Computershare, one of the report’s sponsors, comments: “More and more companies worldwide are working hard to figure out how they can best embed ESG principles into employee compensation, including employee equity plans.
“Companies will aim to implement systems that best align the goals of the company, such as reducing their environmental imprint or increasing employee diversity.
“Their approach will also be influenced by relevant jurisdictional ESG regulations including The EU’s Sustainable Finance Disclosure Regulation (SFDR) or voluntary guidance such as Australia’s principles for responsible investment.”
Eighty-four percent of companies who responded to a survey question on environmental targets said that they have applied targets related to reducing such emissions.
The report found that 40% of respondents were applying social targets to the increasingly high-profile issue of employee diversity. In North America, 30% of companies apply targets related to gender diversity in management positions, with 70% of companies in the region applying targets related to diversity in general.
Meanwhile, 22% of companies have created targets for the reductions of accidents; that figure rises to 33% for firms outside Europe or North America, suggesting the issue is most acute for countries where health and safety regulations are still rapidly evolving.
Thirty-nine percent of companies are applying corporate governance targets to ESG instruments, with that figure rising to 67% in North America, according to the report. 28% of companies are focusing on stakeholder relationships while a further 17% are incorporating targets relating to sustainable supply chains.
The issue of supply chain sustainability appears to be more prominent in Europe, with 22% of companies on the continent incorporating such targets into supply lines.
The research also shows that institutional investors and proxy advisors have a significant influence on responding companies’ ESG targets, with more than half (62%) saying that they have a medium-to-high influence.
While most North American companies (42%) surveyed described institutional investors and proxy advisors as having a ‘medium’ influence on the targets, most European companies (43%) said that their impact was ‘high’, reflecting the increasing influence of proxy advisers on European organisations.
The report also points out that 38% of companies questioned publish ESG reporting information within the annual report and that many also publish using other channels.
Thirty-two percent of companies still don’t report on ESG topics in relation to LTIs, it added.
The research was also sponsored by Fidelity, hkp/// group, SAP, Siemens Energy, University of Göttingen and Vialto.