CDP: Should Executive Pay be Tied to Climate Goals?

Just 16% of the world’s largest companies are on track to reach net zero by 2050, according to Accenture.
In its Corporate Health Check, the CDP — formerly Carbon Disclosure Project — found that just 10% of companies are taking tangible actions across all environmental areas the study covers and just 1% reached its highest level of assessment.
The CDP says that of those on track, 80% tie executive pay to climate goals.
Sherry Madera, CEO of CDP, says: “As the pressures on our planet intensify, the inaugural CDP Health Check delivers an unmistakable call to action — the time for decisive leadership is now.
“Disclosure alone cannot deliver action; integrating this disclosure data as a core dataset for key business decisions enables the levers to be pulled and the change we need to see.
“Companies that embed climate and nature into their strategy, governance and financial planning are leading the way; yet the reality is that far too many businesses remain on the sidelines and policymakers must step up to reward Earth-positive leadership and fast-track the transformation our planet urgently needs.”
What is the CDP Corporate Health Check?
The CDP is an international non-profit organisation that helps organisations and governments to accurately disclose their environmental impact.
In 2022, nearly 19,000 organisations disclosed environmental information through it.
The CDP Corporate Health Check assesses companies worth 67% of global market value on sustainability initiatives.
These include looking at climate and nature transparency, targets, governance, strategy and progress to cut impacts.
The Corporate Health Check indicators were developed as part of the World Economic Forum’s State of Nature and Climate publication.
Gim Huay Neo, Managing Director at the World Economic Forum, says: “The analysis from the CDP Corporate Health Check underscores the reality that while there is positive business momentum, it is not commensurate with the escalating risks and consequences of the climate and nature emergency.
“Companies need to further leverage the power of data, technology and innovative partnerships to leapfrog from crisis to opportunity for people, planet and prosperity.”
How companies are meeting climate goals
CDP says companies on-track with their emissions targets and making progress on nature are significantly more likely to be using environmental data for key business decisions.
The study identified four key business levers that companies are using to make the most progress.
Engaging across the value chain is the lever used by most frontrunners in CDP’s research — a strong 87%.
These organisations work with suppliers and customers to reduce emissions across their value chains, compared with 62% in the wider market.
Linking executive pay to climate targets is done by 80% of frontrunning companies compared to just 48% that aren’t on track to meet their goals.
Feike Sijbesma, Co-Chair of the World Economic Forum‘s Alliance of CEO Climate Leaders and Chairman of the Supervisory Board at Royal Philips, explains: “This report is an important call to action for companies to act with even more urgency, transparency and accountability addressing the impact of climate change on nature.
“It provides strong scientific evidence that the stability of our earth-system is at risk, impacting the lives of many, especially the most vulnerable.
“Now is the opportunity for all stakeholders to join forces and act boldly to accelerate the pace of nature and climate action and deliver a sustainable future for all”.
Almost two thirds of front-running companies have created a 1.5°C aligned climate transition plan, compared to just 36% in the rest of the sample.
Companies in the manufacturing and services sectors are the furthest ahead of their counterparts at setting these plans.
Around 40% of companies on track to meet climate targets have put a price on carbon.
Just 20% of the rest of companies CDP assessed have taken this step.
James Davis, Partner and Co-head of Climate and Sustainability, Europe at Oliver Wyman, says: “This report highlights important progress by the corporate sector in recent years, but also the large gap in ambition and results that remains.
“The steep increase in disclosures, especially in the US and Asia, reflects the continued growth in focus on environmental topics by corporations across the globe in spite of headwinds.
“There is evidence that this is starting to translate into results and emission reductions.
“However, while some organisations are making progress, many fall short, particularly in moving from disclosure to action.
“Our analysis shows that the most effective strategies for delivering results include putting in place transition plans, carbon pricing, value chain engagement and linking executive pay to climate goals.
“It also shows that leadership in sustainability can go hand in hand with strong financial performance, provided there is a supportive economic and policy framework.”
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