2022 Use of Environmental, Social, and Governance Measures in Incentive Plans

FW Cook has conducted a third study of the use of ESG measures in annual and long-term incentive plans among the largest U.S. public companies, consisting of 250 U.S.-listed companies in the S&P 500 with the largest market capitalizations as of March 31, 2022 (excluding Foreign Private Issuers that do not have the same disclosure rules).

Key Findings:

• 74% of the largest companies disclose ESG measures in incentive plans (up from 64% in 2021). The vast majority of these companies incorporate ESG metrics in the annual incentive plan, but a few also incorporate ESG in a long-term incentive plan.
• The prevalence of ESG metrics in incentive plans varies significantly by industry and is most prevalent among companies in the Energy, Utilities, and Materials sectors (>80% prevalence). Such metrics are least prevalent among companies in the Consumer Discretionary sector (<65% prevalence).
• The types of ESG metrics employed vary by industry. Environment & Sustainability metrics are most common among the Energy and Utilities sectors, while Human Capital & Culture and Diversity & Inclusion metrics are generally most common among other industries. This year we observed a particular increase in the number of companies using diversity and inclusion metrics (58% in 2022 compared to 43% in 2021).
• 69% of companies with Diversity & Inclusion metrics provided specific and detailed goals, while 31% of such companies used broader goals. The most common Diversity & Inclusion metrics are goals surrounding diverse leadership representation, promotions and hiring of diverse employees across the entire company, and diverse representation across the entire organization.
• The most common approach to incorporate ESG metrics is to include the goals into a broader assessment of individual performance.
• Companies continue to disclose performance against ESG incentive measures on a qualitative basis, with less than a quarter of companies that use ESG incentive measures disclosing quantitative performance achievement.