ESG in Executive Pay

Exploring the evolving landscape of Executive Pay

Almost 60% of FTSE 100 companies now include environment, social and governance (ESG) measures as part of their executive incentive plans, an increase of almost a third on last year (when 45% of companies had these measures).

With COP26 ensuring the attention of the world is on the climate crisis, businesses are increasingly focussed on their role in achieving net zero. But decarbonisation is just one facet of the broader environmental and social challenges faced today - with companies and their shareholders deeply engaged in the actions business can take. Executive pay is seen as a key tool - offering an important lever through which companies and investors can engage and align senior leaders with ESG challenges.

On 4 November 2021, Institutional Shareholder Services (ISS) released a consultation for proposals that would see ESG performance measures scrutinised by the same standards as financial metrics under its Continental European and UK & Ireland guidelines. This signals the importance with which investors are viewing progress on ESG issues - as increasingly on a par with financial performance. 

Our latest update paper looks at the current state of the market and the evolving views of shareholders and proxy agencies on this important issue.