Tag: climate metrics

Are there best practices for linking executive compensation to climate goals?

In this new paper, Feet to the Fire: How Should Companies Tie Executive Compensation to Climate Targets?, from the Rock Center for Corporate Governance at Stanford, the authors looked at how some companies bolstered their commitments to climate action—the authors refer to it as “institutionalizing” their climate goals and commitments—by including climate-related metrics in executive compensation plans and agreements.  The authors observed that, increasingly, even in the absence of regulation, companies have made voluntary pledges to reduce their carbon emissions. Citing MSCI, the authors report that about “half of large, publicly traded companies have established carbon emissions targets, and a third have pledged to achieve net zero emissions by 2030 or 2050.” But is there anything to these promises? Have any of these carbon reduction objectives been fully integrated into the company’s strategy, operations or corporate culture? One way that some companies have sought to realize their climate goals is by tethering them to a measure of compensation. These climate metrics can function as both a signal of seriousness to the public and a mechanism for bringing accountability. In employing climate metrics as performance conditions in compensation programs, are there best practices to effectively achieve the kind of “institutionalization” that the authors advance?