2023 Use of Environmental, Social, and Governance Measures in Incentive Plans

FW Cook conducted a study of the use of ESG measures in annual and long-term incentive plans among the largest U.S. public companies, consisting of the 250 U.S.-listed companies in the S&P 500 with the largest market capitalizations as of April 30, 2023 (excluding Foreign Private Issuers that do not have the same disclosure rules).

Key findings include:

• The number of large companies disclosing ESG measures in incentive plans is relatively stable year-over-year (75% prevalence in 2023 vs. 74% in 2022).
• Incorporation of ESG measures in annual incentive plans remains the most common practice, but a few companies also incorporate ESG in a long-term incentive plan.
• Diversity & Inclusion and Environment & Sustainability measures are the most common ESG categories used in incentive plans in 2023. We saw an increase in prevalence from 2021 to 2022 for both categories, with an uptick for Environment & Sustainability in 2023.
• The prevalence of ESG categories in incentive plans varies significantly by industry. Performance in Environment & Sustainability and Health & Safety outcomes has been a longstanding focus among the Energy, Utilities, and Materials sectors, and Human Capital & Culture and Diversity & Inclusion (D&I) measures are more commonly used outside these sectors.
• Companies are increasingly using ESG goals as stand-alone weighted measures and/or stand-alone modifiers. Our findings indicate that the use of stand-alone weighted measures now nearly matches the practice of including ESG goals in a broader assessment of individual performance (38% vs. 39% prevalence, respectively).
• Most companies continue to disclose performance against ESG incentive measures on a qualitative basis, although the number of companies disclosing quantitative measures for ESG performance increased this year to 25% of the sample.