A new study by KPMG International reveals that a growing majority of major global firms are now tying executive compensation to sustainability outcomes, with 78% of companies analysed incorporating sustainability metrics into board-level pay.
The report, “Incentivizing Long-Term Value Creation: Linking Sustainability Metrics to Board Members’ Pay”, examined 375 large, publicly listed companies across 15 countries, assessing how sustainability is being embedded in executive remuneration frameworks.
Among the companies with sustainability-linked pay, 88% align targets with material ESG issues directly relevant to their business operations. Climate change and workforce-related metrics are the most frequently used targets, highlighting a focus on environmental and social responsibility.
While most companies continue to favour short-term sustainability objectives, the report notes that investor expectations increasingly demand a balance between short- and long-term incentives tied to sustainable value creation.
The research also highlights regional disparities. Firms in EU member states are more likely to align executive pay with sustainability performance than those in non-EU countries. However, the UK and Australia—both outside the EU—ranked second and third respectively in the global top 25, indicating strong individual performance in sustainability integration.
On average, 8.7 companies per country within the EU fully align board pay with material ESG topics, compared with 7.5 in non-EU countries. Notably, Japan and the UK show high levels of full alignment, despite operating outside EU regulatory frameworks.
Nadine-Lan Hönighaus, Global ESG Governance Lead at KPMG International said, “Despite ongoing economic and geopolitical uncertainty, the findings make clear that linking executive compensation to sustainability performance is becoming increasingly widespread. Transparency and relevance are key—companies must focus on a few measurable and meaningful indicators that can drive real progress.”
As sustainability-linked pay becomes more standardised, KPMG advises companies at the beginning of this transition to begin with clear, material, and measurable sustainability performance indicators that can effectively shape long-term corporate impact.
