Three in four major companies linking carbon targets to executive pay

28th February 2023

More than three-quarters of Europe’s top 50 companies are linking carbon reduction targets to executive pay, a new study by PricewaterhouseCoopers (PwC) has uncovered.

The analysis of STOXX Europe 50 companies found that 78% have adopted some sort of carbon target in executive pay, which is up significantly from 2021, when 60% linked any sort of ESG measure to pay.

Payouts in carbon targets averaged 86% last year, with over half paying out 100%, which the researchers said was “surprisingly high” given the inadequate progress on reducing emissions.

Almost all companies said carbon is considered in executive pay, but there is a wide spectrum of approaches for how it has been adopted.

At one end of the spectrum, carbon is just one item on a list to consider of qualitative ESG measures, while at the other end, carbon can be a separately weighted quantitative component of the pay plan tied directly into a firm’s strategy.

Phillippa O’Connor, workforce ESG leader at PwC, said that there has been an “explosion of interest” from investors and companies linking executive pay to ESG targets recently.

However, she added: “ESG targets in pay is not always as simple as it seems and should not be viewed as the sole litmus test of a company’s commitments to ESG priorities.

“The challenge now must be to do it well, so that pay targets make a meaningful contribution to helping companies meet their climate goals.”

The research also found that the bigger carbon emitters are more likely to put carbon measures in executive pay, and are therefore more likely to score well against investor expectations.

This comes after separate research by consultancy firm Airswift recently found that fossil fuel firms are becoming more popular among workers by improving their ESG performance, as well as pay.

Indeed, 87% of renewables professionals surveyed said they would consider leaving their current role, and 51 % would move to oil and gas companies – a 14% increase on last year.

Meanwhile, KPMG has found that a third of 18-24-year-old UK workers have turned down job offers from companies with ESG commitments that do not align with their values.

The accounting giant's survey of adult office workers, students, apprentices and those who have left higher education in the past six months, also found that 46% want the company they work for to demonstrate a commitment to ESG.

John McCalla-Leacy, head of ESG at KPMG in the UK, said: “For businesses the direction of travel is clear.

"By 2025, 75% of the working population will be millennials, meaning they will need to have credible plans to address ESG if they want to continue to attract and retain this growing pool of talent.”

IEMA recently launched its Green Careers Hub which will help anyone – from any sector or background – understand how they can play a role in the wider green economy.

Photo by Damir Kopezhanov on Unsplash

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