Companies link executive pay to ESG targets in global shift: survey

Businesses are increasingly embedding climate, social, and governance goals into how they reward their top executives.

A growing number of companies are tying executive compensation to sustainability performance, with 78% of 375 leading firms now incorporating ESG metrics into boardroom pay, according to a new global report by KPMG International.

The study, based on public disclosures from major listed companies across 15 countries, found that businesses are increasingly embedding climate, social, and governance goals into how they reward their top executives.

The shift reflects a broader push to align corporate incentives with long-term, responsible growth.

“An effective way of providing [executives] with further incentives to stay on course is to anchor the company’s sustainability targets in their remuneration, in the same way as other strategic aims,” wrote Nadine-Lan Hönighaus, Global ESG Governance Lead at KPMG International.

Amongst the companies that disclosed how ESG targets are used in compensation plans, 88% aligned them with topics that are material to their business, showing a strong link between sustainability priorities and pay structures.

The most common ESG targets relate to climate change and a company’s own workforce. Climate-related targets typically address “reductions in greenhouse gas emissions,” whilst workforce goals cover areas like “employee engagement, the percentage of female managers, and injury rates.”

The structure of these incentives varies. 40% of companies use sustainability targets only in short-term incentives, whilst 23% include them only in long-term incentives.

A more integrated approach is also emerging, with 37% of companies using ESG criteria in both short- and long-term pay schemes.

KPMG’s data also reveals how countries differ in the adoption and alignment of these practices. For example, Japan had the highest number of companies (16 out of 25) with full alignment between ESG targets and material business issues, despite not being an EU member and having fewer firms using sustainability-linked pay overall.

“There is a small difference between the average level of consideration by companies in EU member states…and countries outside the EU,” the report noted.

But within those regions, the variation is wide, with the US ranking lowest overall, though still showing that 11 out of 25 top firms integrate sustainability into executive compensation.

When it comes to how much weight companies place on these goals, over 40% of those using both short- and long-term incentives allocate 11–20% of total pay to ESG performance, with more than 20% of companies dedicating 21–30% or more.

To help companies build effective frameworks, KPMG recommended starting with “a small number of suitable sustainability indicators that are truly decisive for business success.”

These indicators, the report advised, should be “closely linked to the corporate strategy” and based on “reliable data…available during the year.”