In 2021, the Climate Governance Initiative, in collaboration with WTW, published the Executive Compensation Guidebook for Climate Transition. This instructive guide explored how to drive climate strategy by meaningfully embedding it within executive compensation frameworks.
Over the 18 months since the original Guidebook’s publication, regulatory and investor contexts and market practice on the inclusion of climate-related performance metrics in incentive plans have evolved. This Addendum covers these observations and provides more detailed discussion around them.
It is intended to be read in conjunction with the original Guidebook.
Since the Guidebook’s publication, we have observed:
|Regulatory and investor context||Incentive plan market practice|
|• Regulatory and investor demand for greater disclosure on a company’s overall climate strategy including management of climate-related financial risks, plans to reduce emissions and transition to a low-carbon economy|
• A greater recognition of the need for robust governance, Board oversight and accountability structures, and for Board education and stewardship
• More views expressed from institutional investors, especially those in Europe, on climate (and broader ESG) metrics in executive compensation plans, as a widely recognized tangible governance mechanism
|• An increase in the use of environmental (and climate-specific) metrics globally|
• More companies are putting these metrics in long-term incentive plans
• Greater focus on quantitative assessment of progress
against these metrics
• Greater focus on the strategic alignment and clear
disclosure of these metrics
The remainder of this addendum provides more detailed discussions on these observations. While the market and regulatory landscape have evolved, it is maintained that the best approach to incorporate climate metrics into executive incentive plan is to first focus on aligning an organisation’s climate priorities with its business strategy and to stay sufficiently agile to evolve and learn over time as metrics and goals for the climate transition continue to be refined and scrutinised.
(after following the link, scroll down to the Downloads section to find the 2023 Addendum)
Incentivising for success: The role of executive compensation in climate transition plans
The launch of the 2023 Addendum was supported by a webinar focusing on linking executive compensation to climate transition plans.
The webinar, hosted by Shai Ganu, Managing Director and Global Leader – Executive Compensation & Board Advisory at WTW, featured an online fireside chat with Angeles Garcia-Poveda, Chairman of the Board at Legrand and board director peer exchange unpacking how directors can engage with:
- The key role of the remuneration committee in driving corporate climate action
- Short-term vs long-term incentives – which approach is most effective to drive climate transition? Ensuring incentives are robust and communicated clearly as part of an overall net-zero strategy
- This webinar will help you develop a clear understanding of how executive compensation can be a powerful tool through which you can drive the climate transition of the businesses you work for.
You’ll hear from board directors directly involved in remuneration committee decisions and strategic opportunities related to climate transition, and will leave inspired and ready to engage with the topic at your next board meeting.