Giving Compass' Take:
- Boards and c-suite executives are continuing to prioritize climate action by linking measures to executive incentive plans.
- In what other ways can corporations better understand climate-related issues and take action?
- Learn how to use your business to tackle climate change through inclusion.
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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.
As indicated by our research, more boards will be linking relevant climate action measures to executive incentive plans over the next few years. There are a few ways to make the connection, ranging from underpins to modifiers to short-term incentive (STI) plans to key performance indicators (KPIs) within long-term incentive (LTI) plans to standalone hyper-long-term incentive plans.
Read the full article about executive leadership on climate change measures by Nidia Martínez and Ryan Resch at GreenBiz.