More than half of S&P 500 companies filing proxies after October included ESG metrics in the annual incentive plan, according to the
newest study from Meridian. The report, which covered 266 S&P 500 companies filing between October 2020 and May 2021, found that the most common ESG metrics in annual plans were social (95%) followed by environmental (39%) and then governance (11%). Highlights included:
- Social Metrics. Of companies using social metrics, over 60% included D&I metrics while 45% included health and safety, 38% included product safety, quality and brand, and 34% included human capital, culture or labor metrics.
- Environmental Metrics. Almost 60% of companies that included these were in energy, utilities, materials, capital goods and real estate. The most common metrics were related to carbon and climate, such as greenhouse gas emissions, carbon footprint, emissions containment and deployment of renewable energy. However, it’s worth noting that given recent SEC and investor focus on climate disclosures for all companies, we may see these kinds of metrics expand outside current industries.
- Governance Metrics. These were the least common, and included metrics such as cybersecurity, data privacy, business ethics and board diversity.
- Form and Weighting. About a third (34%) of companies disclosed an assigned weight for an ESG metric, compared to 66% who used an unweighted metric and 10% who used a modifier.
- Of companies that assigned a specific weight, percentage weightings ranged from 5-30% with the most prevalent weightings at 10% or 20%.
It is worth noting that as of right now, the vast majority of ESG metrics are qualitative in nature. However, this is likely to change as companies gain more experience with modeling and monitoring progress on metrics and begin to feel comfortable disclosing more quantitative goals. In addition, 13 companies now include ESG metrics in their long-term incentive plan, which may better reflect the long-term nature of most ESG goals. As goals become more specific and quantitative, it will be easier to incorporate them into long-term incentives.
