EU Companies Nearly Twice as Likely as U.S. to Link Executive Pay to ESG Goals: KPMG Report

New Study Highlights Global Disparities in Sustainability-Based Compensation

A new report by KPMG reveals that more than 80% of large EU-based companies now tie executive compensation to sustainability goals—nearly double the rate of U.S. companies. The study, which analyzed the 2023 annual reports of 375 public companies across 15 countries, highlights major regional differences in how businesses integrate environmental, social, and governance (ESG) factors into pay structures.

Europe Leads, While the U.S. Lags in ESG Pay Integration

According to the findings:

• France leads with 100% of companies linking executive pay to sustainability, followed closely by Germany and the UK (24 out of 25 companies each).
• 81% of EU-based companies include ESG in compensation, compared to only 44% of U.S. companies, making the U.S. the lowest among all countries studied.
• Globally, 78% of firms now integrate sustainability into executive compensation.

The report also found that U.S. companies are less likely to align ESG goals with material business topics—only 60% fully or partially align ESG incentives with relevant business factors, compared to 85% of EU firms and 88% globally.

Climate Change and Workforce Issues Dominate ESG Targets

Among companies incorporating sustainability into executive pay:

• Climate-related goals (such as reducing greenhouse gas emissions, energy use, and increasing renewable energy share) were among the most common factors.
• Workforce-focused targets, such as gender diversity in leadership, equal pay, and employee engagement, were also prevalent.

Read more about Companies Rebrand DEI Efforts Amid Political Backlash, Not Abandoning Goals.

Short-Term vs. Long-Term Sustainability Incentives

The study revealed stark contrasts in time horizons for sustainability-based compensation:

• 37% of companies use both short- and long-term ESG goals.
• 40% rely solely on short-term targets, while 23% focus only on long-term sustainability incentives.
• In the U.S., nearly all companies (10 out of 11) focus only on short-term sustainability targets, whereas countries like Italy (20 out of 23) and France (19 out of 25) incorporate both short- and long-term incentives.
• Germany had the most companies (13 out of 23) using only long-term ESG pay targets.

Why This Matters

According to Nadine Hönighaus, Global ESG Governance Lead at KPMG:

“Companies have made significant progress in recent years in identifying the risks and opportunities related to sustainability. However, the realization of these opportunities or risks often falls outside the normal business planning cycle. Incentivizing sustainability-minded behavior is a key element of an overall governance model that supports day-to-day decision-making.”

With investors, regulators, and stakeholders demanding more ESG accountability, the gap between U.S. and EU companies raises questions about long-term sustainability commitments in corporate leadership.

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