THE number of Asia-Pacific companies incorporating environmental, social and governance (ESG) measures in executive incentive plans rose 14 percentage points to 77 per cent in 2023 from 63 per cent in 2022, a new study by WTW has found.

In a report released on Wednesday (Jan 24), the advisory firm noted that Australia, Japan and Singapore have the highest prevalence of companies that use ESG metrics in the region – which continues to see a large disparity among markets.

WTW said the use of ESG measures in executive incentive plans is “considerably influenced” by the level of disclosure requirements in each market when it comes to Asia-Pacific. In this regard, Australia, Japan and Singapore are market leaders.

“In these three countries, the use of ESG metrics is comparable to Europe and North America. In other parts of Apac, disclosures on executive incentive design and use of ESG metrics are often inconsistent,” WTW said.

The other Apac markets analysed in the study included China, Hong Kong, India and Malaysia.

In Singapore, around 93 per cent of the 30 companies studied incorporated ESG metrics in their executive incentive plans. Around 86 per cent of the 100 Australian companies surveyed and 72 per cent of the 100 Japanese companies studied do the same.

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The increase in companies using ESG metrics in their executive incentive plans has been observed mainly for short-term plans, although growth has been observed for long-term plans as well.

In the region, two-thirds of companies polled used at least one ESG metric in their short-term executive incentive plans, while about one-third of Apac respondents included ESG metrics in their long-term plans.

Companies in the consumer staples, energy, financials and utilities sectors were more likely to adopt ESG metrics in their executive incentive plans, WTW said. It also noted a “marked increase” in the use of ESG measures for real estate and communication services companies during the year, on top of energy and industrial-sector companies.