CEOs and Climate Change

Top execs have little incentive to address environmental concerns.
CEOs and Climate Change

WHY HAVE THE world’s corporations done little to tackle the climate crisis? Perhaps because they have no monetary incentive to do so. According to new research from the Vlerick Business School in Belgium, only 6 percent of CEOs in the U.K. have bonuses tied to key performance indicators (KPIs) that focus on the environment, and fewer than 1 percent are offered long-term incentives in this area.

This was one finding of a recent study that examined the pay levels, habits, and incentives of CEOs and CFOs at 899 major European companies. The main focus was on the STOXX 600—a stock index of the 600 largest firms across European countries, including 159 U.K. firms. The research was produced by Xavier Baeten, a professor in reward and sustainability at Vlerick Business School and director of the school’s Executive Remuneration Research Centre; and researcher Bettina De Ruyck.

Baeten and De Ruyck found that for U.K. CEOs, both short-term and long-term incentives focus less on environmental issues and more on income, revenue and profit, employees, customers, safety, innovation, and shareholder return. And this distribution of incentives holds true even though, as Baeten notes, most CEOs “now understand how their practices are impacting the environment and are actively looking to implement initiatives that focus on being more environmentally friendly.”

Baeten suggests that firms should consider exactly how climate change will affect them and develop sustainability strategies that align with their business goals. “Then these firms can select the relevant KPIs to include in CEOs’ remuneration.