- The most common sustainability targets relate to climate change (specifically greenhouse gas emissions) and a company's own workforce (often focusing on female leadership and injury rates).
- 88% of companies that specify sustainability targets in boardroom pay align these with sustainability topics material to their business.
- There are significant regional differences, with EU countries showing a higher average adoption of sustainability-linked pay compared to non-EU countries.
A new report from KPMG International has revealed that a growing number of companies are linking sustainability targets to executive pay.
375 large, publicly listed companies across 15 countries were studied for the report, ‘Incentivizing long-term value creation: Linking sustainability metrics to board members’ pay’, examining the adoption of sustainability in boardroom pay.
The study reveals that 78 percent of the businesses analyzed link executive compensation to sustainability performance. Meanwhile, 88 percent of companies that specify sustainability targets in boardroom pay align them to topics that are material to their business.
The most widely adopted sustainability targets relate to climate change and a company's own workforce, often aligning with ESG topics material to their businesses. While more companies link sustainability to short-term targets, investors generally expect to see a balance between both short-term and long-term targets.
The analysis also highlights a significant regional difference in the adoption of sustainability-linked pay. Companies in the EU are more likely to use such measures than those outside the EU, even though the UK and Australia, two non-EU countries, are ranked second and third in the top 25 companies. This shows that even beyond the EU's regulatory reporting requirements, companies are taking an ambitious approach to firmly anchoring sustainability in their organization and the actions of their managers.
Despite strong adoption of full alignment to material sustainability topics by both Japan and the UK, on average countries outside the EU are less aligned than those within it. An average of 7.5 companies in non-EU countries fully align material sustainability topics and boardroom pay measures, compared with 8.7 companies in EU member states.
Nadine-Lan Hönighaus, Global ESG Governance Lead at KPMG International, said:
Notes to editors:
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About the report
This report is based on data from 375 publicly listed companies, the 25 largest based on market capitalization in June 2024 from each of the following 15 countries: Australia, Austria, Belgium, Canada, China, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, the United Kingdom (UK) and United States (US). Nine are EU member states and the other six have significant numbers of companies that would have needed to comply with CSRD according to its original scope before February 2025’s Omnibus directive.
For each company, KPMG professionals examined its 2023 annual report and if required the compensation report, sustainability report and the company’s website to answer five questions:
- Is the board of management’s remuneration linked to sustainability-related performance targets?
- If yes, which sustainability matters and what key performance indicators are included in the remuneration policy?
- How closely does the remuneration policy reflect the material sustainability matters identified by the company in its reporting?
- What is the balance between incentives based on short-term sustainability performance targets (one year) vs long-term targets (more than one year)?
- What is the balance in variable remuneration between financial and non-financial/sustainability performance?
KPMG carried out the research in July and August 2024. The findings are based purely on analysis of publicly available information and no information was submitted directly by companies to KPMG firms.
This report builds on ‘Time to take a broader view’, a report published in May 2024 by KPMG in the Netherlands, which asked the same questions of the 50 largest listed companies on the Amsterdam Stock Exchange and the 25 largest listed companies in Germany, Sweden and the UK. It used annual reports published during 2023, meaning many would cover the financial year before those used in this report, and covered twice as many companies from the Netherlands. However, it produced similar results, with for example both sets of research finding that 88 percent of companies in the Netherlands use sustainability in working out boardroom pay.
About KPMG International
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively. KPMG firms operate in 142 countries and territories with more than 275,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities.
KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients. For more detail about our structure, please visit kpmg.com/governance.
