IBM Survey Reveals Surge in CEOs Linking Pay to ESG Goals

A recent global CEO survey conducted by IBM has highlighted a significant increase in the practice of tying executive compensation to Environmental, Social, and Governance (ESG) goals. The survey, titled “CEO decision-making in the age of AI,” was conducted by the IBM Institute for Business Value (IBV) in collaboration with Oxford Economics. It involved interviews with 3,000 CEOs across more than 30 countries and 24 industries, shedding light on shifting perspectives, priorities, and challenges faced by top executives.

The standout finding from the survey reveals a dramatic surge in CEOs connecting their incentive pay to ESG performance. Approximately 50% of CEOs now report that their compensation is linked to sustainability objectives, marking a significant rise from the 15% reported just one year ago.

Among the survey's other noteworthy findings:

• Top Challenge: "Environmental sustainability" emerged as the most frequently cited top challenge over the next three years by CEOs, with 42% of respondents emphasizing its importance. This was followed by concerns about "cybersecurity and data privacy" at 32%, and "tech modernization" at 27%. Environmental sustainability retained its position from the previous year's survey.
• Shifting Priorities: Despite the elevated focus on ESG goals, the report noted a decline in the ranking of "environmental sustainability" as an organizational priority. It dropped to fifth place, down from third in the previous year. "Productivity or profitability" surged to claim the top spot, a notable rise from sixth place in the prior year.
• Obstacles to Progress: The report highlighted challenges to sustainability initiatives, with a lack of adequate data being cited as the primary obstacle (41%). Regulatory barriers were the second most cited challenge (39%). The study pointed out that while 95% of companies have established operational ESG goals, only 10% have made significant progress towards achieving them.
• Consumer Trust: The trust of consumers in corporate sustainability statements has seen a drastic decline over recent years. Only 20% of consumers expressed trust in these statements, compared to 48% in 2021. This lack of confidence is mirrored by CEOs, with only 45% reporting confidence in their organizations' ability to report on ESG strategy and initiatives.
• ESG Data Usage: The report also revealed that only 34% of CEOs frequently use ESG data to make strategic decisions. In contrast, 76% and 75% of CEOs use operational data and financial data, respectively.
• Lack of Consistent Standards: A significant challenge in progressing sustainability initiatives is the lack of consistent standards. The report indicated that 56% of CEOs reported delaying at least one major investment due to the absence of consistent standards, especially in emerging areas like sustainability and data privacy.

The findings underscore the growing importance of ESG considerations in the decision-making process of CEOs. While progress is being made, challenges related to data, standards, and consumer trust highlight the need for continued efforts to integrate sustainability goals effectively into business strategies.