ESG factors are now “ingrained” in US executive pay metrics, according to a New York-based corporate governance think tank.

Research from The Conference Board (TCB) reveals that ESG performance metrics are now lodged in the incentive plans for chief executives, and other C-suite members, in 75.8% of S&P 500 companies, up from the 66.5% of 2021.

But TCB finds a correlation with size across the broader Russell 3000 Index: only 23.8% of companies with less than $100m in revenue use ESG pay metrics, compared with 83.6% of those turning over $50bn or more.

Taking sides

The figures come despite the highly polarised nature of US political debate surrounding ESG: a split that is only deepening as Republican and Democrat candidates approach a presidential election in November of this year.

Matteo Tonello, managing director of The Conference Board, writes: “ESG backlash, which has been mounting since 2022, has not dissuaded companies from continuing to integrate ESG-related performance metrics into the incentive plans for their CEOs and senior executives.

“It may, however, prompt a reconsideration of the measures that should be employed.”

That shows in some of the figures. Despite their high-profile detractors, measures focused on diversity, equity and inclusion, remain the most popular ESG measures in use, by 49% of the Russell 3000. That is followed by employee engagement, 26%; health and safety, 26.6%; and retention and talent development, both on 24%.

Emissions reduction comes in at 21.6%; succession planning and corporate culture are both 15%.

Consumer staples and energy are the biggest users of ESG pay measures (72.2% and 67.7% respectively), with utilities on 59.6% and communication services on 58.5%.

The evolution of ESG metrics

The statistical breakdown suggests an evolving use of ESG metrics in pay deals for leaders. “As the rate of adoptions of ESG performance metrics increases,” Tonello writes, “compensation committees are becoming accustomed to setting more precise ESG-related targets and to conducting non-discretionary forms of assessment of ESG performance.

“Metrics related to human capital management performance remain the most frequently used, but the prevalence of environmental metrics has doubled in just two years.

“The most frequently used ESG performance metrics reflect companies’ commitment to diversity and inclusion and to net-zero environmental impact.”

This may be the case, but many senior business leaders have stopped using the term ‘ESG’. For example, Larry Fink, chief executive of the fund manager BlackRock, believes it has been “weaponised”.

The Wall Street Journal reports that corporate leaders are beginning to use terms other than ‘ESG’ when in public discussion. Some have even “rebranded” their public documents accordingly.

The WSJ cites Daryl Brewster, head of Chief Executives for Corporate Purpose, a not-for-profit group, saying: “ESG is complicated.” CNBC, the broadcaster, recently ran a headline saying there was a “corporate war” over so-called “woke” policies.

This could be true, but it may just be politicians arguing in a bubble. Despite becoming shy about their credentials, US companies appear to be continuing to implement ESG-type executive pay policies. This suggests that, in spite of political pressure, other sources of influence—risks policies, workers, consumers, investors and the broader public debate—may be having a greater impact on board decision-making.