A new
large-scale study of ESG metrics among the S&P 500 found that 57% of companies included ESG metrics in incentive plans this year. The study, conducted by Semler Brossy and broadened to encompass the entire S&P 500 for 2021, split ESG metrics into two categories: “Sustainability” (long-term climate, culture, D&I) and “Operational” (customer satisfaction, safety, turnover).
Findings included the following:
- ESG Metrics. D&I is the most common ESG metric, used by 28% of the S&P 500, with safety a close second at 24%. Other common metrics were talent development (22%) and turnover/retention (17%). Overall, human capital metrics were found at 41% of companies.
- Climate. Environmental metrics are still only found at a minority of companies, with emissions topping the list at 7%. However, this could change given increased focus by the SEC and investors.
- Diversity and Inclusion. D&I metrics increased by almost 20% this year, not including go-forward 2021 metrics (a recent Center survey found that 15% of Subscribers plan to add metrics for 2021).
- Safety. Safety metrics jumped by 36% this year, largely due to the impact of COVID-19. However, they were mostly included in the individual component of the annual bonus, so the change may not be permanent.
- Size Matters. Larger companies were more likely to use ESG metrics with 62% of larger companies including them versus 55% of smaller companies within the S&P 500. In particular, 38% of large companies use D&I metrics in the incentive plan now, compared to only 22% of smaller companies – a trend we expect to change as diversity metrics become more common across the market.
For companies considering a change to include ESG metrics, most experts advise moving ahead – but with caution. The unintended consequences of adding ESG metrics where a company has not prepared the way through strategic goals and cultural improvements could be problematic. In addition to the survey linked above, we recommend Semler’s report on “
Moving Cautiously on ESG Incentives in Compensation” for suggestions on how to begin.
