More companies in the Asia-Pacific region are incorporating environmental, social, and governance (ESG) metrics into executive pay packages as investors and stakeholders push for sustainable business practices. This trend is highlighted in a study conducted by professional services firm Willis Towers Watson (WTW). According to WTW’s analysis of the largest 264 companies in seven markets in the region, 77% of Asia-Pacific companies included ESG metrics in executive pay last year, compared to 63% in 2022.
The report reveals that Australia, Japan, and Singapore are leading the region in terms of integrating ESG metrics into executive pay. These countries also have a higher prevalence of ESG metrics, with 93% of companies in Singapore, 86% in Australia, and 72% in Japan incorporating them. On the other hand, Hong Kong and mainland Chinese companies have lower adoption rates, with 55% and 29% respectively.
The integration of ESG metrics into executive compensation is seen as a powerful tool for achieving ESG objectives, attracting top talent, and demonstrating commitment to stakeholders. Timothy Smith, business director of sustainability at recruitment firm Hays Hong Kong, emphasizes the growing recognition of the importance of aligning executive compensation with sustainability and social responsibility. Stakeholders, including investors, customers, and employees, are demanding sustainable and responsible business practices, which has driven the adoption of ESG metrics in executive compensation.
Metrics related to human capital and carbon emissions reduction receive the most attention across all ESG categories in the Asia-Pacific region, according to WTW. The social category experienced the largest increase, rising from 47% in 2022 to 60% last year. Employee engagement and safety were the most common features tied to executive incentive plans within this category. Environmental metrics also saw an increase, from 28% in 2022 to 39% last year, with measures related to carbon or greenhouse gas emissions being the most popular.
Shai Ganu, managing director and global practice leader of executive compensation and board advisory at WTW, notes that there is increasing pressure for ESG-related disclosures and sustainability practices in the Asia-Pacific markets. More companies are incorporating ESG measures into executive incentives to ensure alignment with the interests of all stakeholders, including long-term shareholder interests.
Hays’ Smith highlights that publicly listed companies with social ambitions, established foundations, endorsement of the United Nations Sustainable Development Goals, or subject to regulatory frameworks are particularly proactive in adopting ESG metrics. By incorporating these metrics, executives are held accountable and their actions align with their stated values.
According to Martin Xiang, principal of Heidrick & Struggles Hong Kong, companies are becoming more aware of monitoring ESG performance, leading to increased integration of such metrics into executive pay. Hong Kong’s financial services sector, in particular, has seen a significant increase in the use of ESG metrics in executive incentive plans due to its position as an international financial hub and stringent ESG reporting requirements.
John Mullally, managing director at recruitment consultancy Robert Walters in Hong Kong, expects the trend of including ESG metrics in executive incentive plans to become more prevalent in Hong Kong and Greater China. Companies, especially those in regulated industries, are actively working to incorporate ESG considerations into their business strategies to attract external investment from asset management companies.
In conclusion, the integration of ESG metrics into executive pay packages is on the rise in the Asia-Pacific region. Companies recognize the importance of aligning executive compensation with sustainability and social responsibility to meet stakeholder demands and drive sustainable practices. Metrics related to human capital and carbon emissions reduction receive the most attention, while metrics in the social category saw the largest increase. Australia, Japan, and Singapore lead in the adoption of ESG metrics, while Hong Kong and mainland China have lower adoption rates. However, the trend is expected to gain momentum in Hong Kong and Greater China in the future.
