How to make climate progress: Tie it to CEO pay

livemint.com:

Should corporate executives’ pay be tied to climate-related goals? More company boards think so, as awareness grows that climate change could have an impact on corporate bottom lines. Some 54% of S&P 500 companies incorporated climate-related metrics into their executives’ compensation plans in 2023—more than double the figure from two years earlier, according to a January report from the Conference Board and ESGauge, a data analytics firm. But experts say how a company ties pay to climate is crucial, with some methods more effective than others.

Here’s a look at some of those approaches. Use science-based metrics For starters, climate-related goals have to be firmly rooted in science, says David Larcker, a professor and director of the Corporate Governance Research Initiative at the Stanford Graduate School of Business. Companies that are serious about rewarding for climate goals should also break down their long-term targets into smaller, clearly achievable and measurable goals, says Larcker, who is also a distinguished visiting fellow at the Hoover Institution, a public-policy think tank.

Companies should be sure to audit reported metrics for accuracy, he adds. The metrics will differ by company, depending on where the biggest impact can be made, says John McCalla-Leacy, head of global ESG at KPMG International. He has clients, for instance, that focus heavily on reducing emissions within their supply chain, while others focus more on reducing emissions within their own operations.