ESG metric adoption continues steady growth while diversity targets decline 

A Mercer review of the proxy circulars of 31 TSX 60 early filers showed that more companies are adopting Environmental, Social and Governance (ESG) metrics in their executive incentive plans, and those that already had ESG metrics are maintaining fairly consistent weightings. However, targets for executive and board diversity are declining across these large Canadian public companies, particularly for underrepresented groups beyond gender.

Going forward, we anticipate companies will continue to adopt ESG metrics in their incentive plans given sustained stakeholder pressure on ESG performance. And companies that have adopted targets for executive and board diversity will need to navigate an increasingly complex regulatory and political environment around their diversity commitments. 

ESG incentive plan metric adoption expands while weightings remain relatively stable

Companies continue to integrate ESG metrics into their executive compensation plans at a measured pace, with growth rates suggesting deliberate rather than aggressive adoption. From 2023 to 2024, ESG metrics in short-term incentive plans (STIPs) increased from 67% to 73% of TSX 60 early filers, while long-term incentive plan (LTIP) adoption remained a minority practice, increasing from 26% to 29%. Notably, average weightings remained consistent, increasing slightly from 24% to 26%, indicating that while more companies are adopting ESG metrics, those already using them aren’t significantly increasing the portion of pay tied to ESG performance.

Environmental stewardship continues to dominate ESG adoption, appearing in 67% of 2024 STIPs – unchanged from 2023. Other metrics show slight changes from 2023 to 2024.

What this means: Companies have likely identified their priority ESG areas and are focusing on executing their plans rather than expanding them to include more ESG measures. However, the slight decline in DEI metrics may signal sensitivity to recent political pressures.

Executive and Board diversity targets decline modestly

The number of TSX 60 early filers that have adopted gender diversity targets decreased slightly from 2023 to 2024 with respect to both executive team diversity (52% to 50%) and board diversity (90% to 87%). Broader diversity initiatives had more significant declines, including targets for visible minorities, indigenous peoples, persons with disabilities and 2SLGBTQ+ representation.

Improvements in board diversity continue to outpace executive team diversity achievements, driven in part by pressure from proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis. The proxy advisors have made board diversity a key consideration in their proxy voting recommendations, while being less prescriptive on executive team composition.

What this means: The focus of proxy advisors on board diversity combined with the relative ease of diversifying boards through strategic appointments, versus the longer timelines for executive development, may explain the consistent performance gap.

Looking ahead

While the integration of ESG metrics in incentive plans continues a steady march forward, diversity initiatives face new headwinds that require a more nuanced approach. As we continue monitoring ESG metrics and diversity initiatives throughout 2025, we anticipate that companies focusing on building robust, defensible practices rather than chasing the latest trends will likely emerge as leaders in balancing stakeholder expectations with practical realities.

This is our second report in Mercer's TSX 60 early filers series and we plan to release additional focused insights in the coming weeks.