50% of CEOs have their pay tied to ESG goals; up from 15% a year ago
The practice of linking incentive pay for senior executives to performance on ESG factors has surged in the past year, with approximately half of CEOs reporting that their compensation is now tied to sustainability goals, up from only 15% one year ago, according to a new global CEO survey released by IBM. For the study, “CEO decision-making in the age of AI,” the IBM Institute for Business Value (IBV), in cooperation with Oxford Economics, interviewed 3,000 CEOs across more than 30 countries and 24 industries, with a focus on areas including perspectives on leadership and business, the executives’ changing roles and responsibilities, key challenges and opportunities, and their use of technology, data and metrics.
In addition to the rapidly growing integration of ESG factors into executive compensation, the survey also found that “Environmental sustainability” was identified as the most frequently cited top challenge over the next three years by CEOs, at 42%, and retaining the top spot from last year’s survey, followed by cybersecurity and data privacy at 32% and tech modernization at 27%. Even as sustainability challenges and incentives remain top of mind, however, the IBM report found that environmental sustainability has declined on the list of top organizational priorities, with respondents ranking it in fifth place, down from third in the prior year, as ‘productivity or profitability’ surge to the top spot (from 6th last year), and cybersecurity and data privacy move higher as well.
The lower prioritization on sustainability comes as progress on sustainability-related initiatives remains slow, with the report citing another recent IBV study, “The ESG data conundrum,” which found that while 95% of companies have now established operational ESG goals, only 10% have made significant progress towards achieving them, with a lack of inadequate data cited as the greatest obstacle.
The earlier study also found that nearly three quarters of executives agreed that ESG needs to be a higher priority for their organizations, but noted challenges to sustainability efforts including inadequate data (the top cited challenge at 41%), followed by regulatory barriers at 39%. The study found that less than half of CEOs (45%) reported confidence in their organizations’ ability to report on ESG strategy and initiatives, and that this lack of confidence was mirrored by consumers, with consumer trust in corporate sustainability statements plummeting over the past few years to only 20% from 48% in 2021. Similarly, the new report found that only 34% of CEOs often use ESG data to make strategic decisions, compared to 76% and 75% who use operational data and financial data, respectively.
A related challenge towards making progress on sustainability initiatives revealed by the report was a lack of consistent standards, with 56% of CEOs reporting that they are currently delaying at least one major investment due to a lack of consistent standards, particularly in emerging areas such as sustainability and data & privacy.