ESG Metrics Still Differ Largely By Industry, Says New Report

• Operational Metrics. 51% of the S&P 500 now ties operational ESG metrics to pay, which Semler defines as those relating to the health of the business: safety, customer satisfaction and talent (employee satisfaction, development and turnover).  
  • Talent metrics are most prevalent in people-driven industries such as Financials, Real Estate and Health Care. Over a third of Financials have talent development metrics tied to pay.
• Sustainability Metrics. 38% of the S&P 500 now ties sustainability metrics to pay, including D&I and environmental metrics. 
  • D&I metrics have exploded in prevalence despite SASB defining them as “material” for only a few industries. Prevalence exists in some unexpected industries such as Energy (36%), Utilities (36%) and Materials (35%), reflecting the various reasons why a company might add D&I metrics to the plan, not all of which are focused on materiality. Interestingly, Semler found that Consumer Goods has a lower-than-expected rate of D&I metrics given its consumer-oriented business model. 
  • Environmental metrics, while still centralized in Energy, Utilities and Materials, are the subject of increasing stakeholder pressure for all industries in the context of climate change. If environmental metrics wind up being tied to pay, the focus will likely be on how companies plan to achieve their stated “net zero” or energy reduction commitments.

The high and sometimes unexpected prevalence of D&I metrics in 2021 disclosures points to an increasingly important truth in executive compensation and governance: materiality is in the eye of the beholder. Whether diversity is material to a company’s individual business strategy seems to be less important, in many cases, than the impact of external pressure. As Semler points out, this may present a risk of companies adopting such metrics too quickly or without having tested the alignment of such metrics to strategy in a way that makes them sustainable in the long term.