As organizations acknowledge the need to transition to a net zero business model, investors expect board members not only to drive the adoption of a credible climate transition strategy, but also to provide clear evidence that its execution has been embedded effectively across all key management processes, including enterprise risk management, strategic planning, innovation, capital investment and human capital.
One critical lever is for management to be held accountable for the delivery of the strategy and, where appropriate, the capturing of opportunities in climate transition.
Willis Towers Watson, partnering with the Climate Governance Initiative, has developed a guidebook to explore how to drive the climate strategy by meaningfully embedding it within executive compensation frameworks. Our work is informed by findings of surveys and interviews with investors and board members from organizations across the globe.
Through interviews with board members around the world, review of public disclosures from more than 800 companies and Willis Towers Watson’s expertise in executive compensation design, we document our observations on the best practices in how executive compensation can be a powerful tool in driving climate transition and climate risk mitigation.
The merits of linking executive compensation and climate objectives are well established. Emissions reduction and renewable energy adoption are increasingly prevalent metrics in executive incentive plans, especially in Europe and in high-emitting industries such as oil and gas.
There remains much for the business community to learn about the implications of a transition to net zero. Setting consistent and reliable goals and milestones will be challenging. But companies must resist the tendency toward inaction, as climate is widely considered the single-most significant risk to the planet, businesses and the stability of the global financial system.