5 Insights Shaping the Future of Global ESG Incentives

Five fresh insights for the future were provided by a recent Farient report that examined the use of ESG incentives globally.

The big picture: As companies advance their ESG strategies and progress towards quantifiable goals, the prevalence of ESG measures in their incentive plans will continue and practices will evolve.

2024’s Forward Looking Global Insights

1. Incentives will continue to be tied to ESG strategies.
   
   • Nearly 90% of large companies incorporate ESG into their incentives – a 23% increase from 2020, with the largest jumps in Canada, Singapore, South Africa, and the U.S.
     
     
   • The adoption of ESG incentives depends on the maturity of the ESG strategy. The report offers an ESG maturity curve illustrating the continuum of where companies fall in the process.
     
     
2. U.S. polarization of ESG is not dissuading companies from long-term value creation.
   
   
   • Among large companies globally, the prevalence of DEI measures increased by 22% from 2020, now used at 67% of companies.
     
     
   • Response to pushback has taken three forms: a move away from the term “ESG” in favor of more specific terminology, a doubling down on commitment messages and an emphasis on targeted initiatives.
     
     
3. There is an increased urgency to reduce greenhouse gas emissions, as evidenced by a sharp rise in incentives tied to these reductions.
   
   
   •  52% of large-cap U.S. companies and 61% of large companies globally have environmental measures in their incentives.
     
     
   • More aggressive targets and shorter goal periods are now possible thanks to improved data access and measurement tools.
     
     
4. The long-term nature of ESG goals will manifest in the use of these measures in the LTI plan as well as continued prevalence in STI plans.
   
   
   • 34% of international corporations put ESG measures in their LTI plans – up from 28% last year; 12% of American companies now follow suit.
     
     
5. Relative benchmarks could be forthcoming as data reporting improves.
   
   
   • As more comparable data becomes available and disclosures standardized, an opportunity may be created to use relative benchmarks to assess performance.