Monday, April 15, 2024

How climate change can be addressed through executive compensation

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Environmental, social and governance (ESG) issues are increasingly becoming incorporated across all aspects of organizations, including business strategies, operations and product/service offerings.

Recent global research of boards of directors by Willis Towers Watson found that 70 to 80 percent of respondents have identified ESG priorities and developed ESG implementation plans. However, only 48 percent have fully incorporated ESG into their businesses, indicating that organizations are at different stages in their ESG journeys. While the most cited reason for taking ESG actions is that they see it as the right thing to do, over three-quarters (78 percent) of respondents indicate that they believe ESG is a key contributor to strong financial performance.

Although many organizations have adopted ESG principles, executives and boards could do more to meet the demands of institutional investors, customers, employees and other stakeholders especially in regard to climate change risk.

Some 41 percent of respondents ranked the environment — including climate change — as their leading ESG priority; and 43 percent anticipated it will remain No. 1 in three years.

A particularly effective way to advance ESG principles is through redefining responsible leadership. And one of the most useful tools in prompting leaders to address climate change and make their organizations more sustainable is through compensation and incentive programs, and the incorporation of new climate-action metrics into such programs. Read more…

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