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The data, shared exclusively with Financial News, shows 86% of the 72 companies surveyed — with market capitalisations ranging from £22m to £6.6bn — have established some form of link between ESG and executive pay. This is up from 25% the year before.

This has mostly been done through short-term bonuses and/or long-term incentive plans for top bosses. Carbon emissions, health and safety measures and diversity, equity and inclusion stats are among the most frequently used ESG metrics.

This mirrors a trend seen at Britain’s biggest businesses — nearly 90% of FTSE 100 companies had embedded environmental, social or governance measures in their annual bonuses for 2022, according to PwC.

“The overwhelming majority of mid- and small-cap UK company boards are more concerned about ESG issues than ever,” Sunil Dhall, chief financial and operating officer of Peel Hunt, said.

“Moreover, boards are taking action to ensure ESG is at the heart of strategy, with increased investment planned for next year and a focus on ESG-linked remuneration for executives.”

READ Fund houses tell FTSE: ‘Show restraint’ on CEO pay

Peel Hunt and SIFA Strategy said small and mid-cap bosses were increasingly viewing ESG as important to their future success.

Fifty-two percent said they had embedded ESG into their strategy, compared to just 26% in last year’s survey. However, only 13% described ESG as being “fully embedded” into their business.

Regulatory requirements such as the Task Force on Climate-related Financial Disclosures have made environmental issues top of mind for senior executives — 59% stated these will have a significant or very significant impact on their company’s valuation and performance over the next decade. Just over half (51%) said the same about governance issues and 39% about social issues.

However, in the post-pandemic landscape bosses are recognising that social issues are becoming a critical element in the battle to retain and attract top talent, the report notes.

Around two thirds of respondents said they felt pressure from the workforce to implement ESG measures, from net-zero programmes, mental health and well-being considerations and strong diversity, equity and inclusion policies.

“We’ve done a lot of well-being stuff around flexible working, cost of living crisis, and there has been a lot of focus driven by the massive changes that are going on around us and how that impacts our people,” one survey respondent said.

Another said: “Being a progressive company is attractive for younger people in particular. If we were doing a risk matrix, people would be the biggest material risk to the business and retaining and attracting them is therefore critical and one of the tools in our tool kit is being a responsible business.”

“ESG is often viewed with a focus on the environment, but what the research shows is that social issues and how companies consider and behave towards their workforce, consumers, and customers is of equal, if not more, importance,” said Fergus Wylie, director and co-founder of SIFA Strategy.

“This is going to create new management and data challenges in the future.”

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To contact the author of this story with feedback or news, email Kristen McGachey