More Asia-Pacific firms tie top executives’ pay to ESG goals, says report

SINGAPORE - Companies’ adoption of environmental, social and governance (ESG) metrics is increasingly tied to the salaries of top executives in Asia-Pacific, in line with global trends.

More Asia-Pacific firms are including ESG metrics in evaluating top executives’ pay packages, with 77 per cent of them doing so in 2023, up from 63 per cent in 2022, a study by insurance broker WTW said.

It added that disclosures on how top executives’ performances are evaluated are a common practice in Australia, Japan and Singapore, but less so in other Asia-Pacific markets.

“In these three countries, the use of ESG metrics is comparable to Europe and North America,” the report said.

Ms Zhu Xujing, the Asia-Pacific leader for the executive compensation board advisory at WTW, said: “The use of ESG measures in executive incentive plans in Asia-Pacific are considerably influenced by the level of disclosure requirements in each country.”

She noted that although disclosures are not as strong in markets like China, Hong Kong, India and Malaysia, companies there are picking up the pace in their ESG commitments and aligning business practices with ESG priorities.

The report looked at 352 firms in seven markets in Asia-Pacific, of which 40 were from Singapore, including publicly listed firms Sembcorp, Keppel, Singtel and CapitaLand.

Of the 40 Singapore firms, 30 gave information about their executive incentive metrics and 28 disclosed ESG metrics.

In Asia-Pacific, 75 per cent, or 264 of the 352 firms, disclosed their executive incentive metrics in 2023.

This is lower than in Europe and North America, where all companies WTW looked at disclosed some information about the metrics used in pay packages.

The study noted that of the 264 companies that disclosed their executive incentive metrics, 204 said they used at least one ESG metric in their pay packages for top executives.

In line with other regions, metrics related to human capital and carbon emissions reduction are the most common across all ESG categories in Asia-Pacific.

Among the social metrics, employee engagement and staff safety are the most common in executive incentive plans. Metrics related to diversity, equity and inclusion are slightly less common in Asia-Pacific than in other regions, the report said.

Companies in consumer staples, energy, financials and utilities were more likely to adopt ESG metrics than other industries in 2023, noted Ms Zhu.

The study found that energy is the only sector where all firms in the region use at least one ESG metric.

Meanwhile, only half of the firms in the information technology sector in the region use at least one ESG metric.