Asia-Pacific companies integrate ESG metrics into executive incentive plans amid demands to promote sustainable business practices

A growing number of companies in the Asia-Pacific are integrating environmental, social and governance (ESG) metrics into executive pay packages amid pressure from investors and stakeholders to promote sustainable business practices, according to headhunters and professional services firms.

The increase is reflected in a study by professional services firm Willis Towers Watson (WTW) released on Wednesday.

The proportion of Asia-Pacific companies factoring ESG metrics into executive pay increased to 77 per cent last year, compared with 63 per cent in 2022, according to WTW’s analysis of the largest 264 companies among those that make such disclosures in seven markets in the region.

Disclosures on executive incentive metrics are a common practice in Australia, Japan and Singapore but less so in other Asia-Pacific markets, according to the report. These three countries also led the region in terms of the prevalence of ESG metrics, which stands at 93 per cent of companies in Singapore, followed by Australia at 86 per cent and Japan at 72 per cent.

Meanwhile, Hong Kong and mainland Chinese companies trailed their Asia-Pacific peers, at 55 per cent and 29 per cent, respectively.

As Asia-Pacific companies strive to achieve their ESG objectives, the integration of such metrics into executive compensation serves as a powerful tool in driving sustainable practices, attracting top talent, and showing their commitment to stakeholders, according to Timothy Smith, business director of sustainability at recruitment firm Hays Hong Kong.