Guerdon Associates’ Global Governance and Executive Compensation Group (GECN Group) has published the 5^th annual sustainability report. See the 2024 Global Trends in Stakeholder Incentives: Climate Strategies and Incentives for Corporate Sustainability HERE.

Each year we investigate CEO sustainability incentive trends across 500 companies globally including:

• Australia (ASX100)
• Canada (TSX60)
• Continental Europe
  • France (CAC 40)
  • Germany (DAX 30)
  • Switzerland (SMI 20)
• Singapore (STI 30)
• South Africa (JSE Top 40)
• United Kingdom (FTSE 100)
• United States (S&P100)

This year, we took a deep dive into the most common, and arguably most universally material, key sustainability dimension: climate.

What metrics are companies using to measure their progress on climate risk mitigation? To what extent are they leveraging their remuneration frameworks to spark performance in this area? How do corporate approaches differ by industry or geography?

The majority of companies across all the regions canvassed in the research now use environmental incentives.

This continues a trend where the prevalence of environmental measures in incentive plans of the globe’s top companies has been increasing year on year.

Figure 1: Prevalence of environmental measures in incentives globally

Several hundred company directors, investors and executives attended our GECN Group’s global webinar on 4^th and 6^th of February to mark the release of the report.

The webinar:

• Presented the global findings;
• Looked at regional differences; and
• Gazed into the crystal ball on what the future held for incentive plan environmental measures.

Our study found measurement frameworks globally are maturing rapidly. Measures are more quantitative and GHG emissions are maintaining their relevance as TCFD transitions to IFRS S2.

Will Trump end it all?

Global sentiment has changed.  Boards are cognisant of investors’ wishes. Anti-greenwashing has seen large investors and some companies pulling back from environmental requirements in several well developed markets including Canada, UK, Australia and the US. Projects with longer time frames to achieve net zero are being scrapped due to high risk and uncertain returns. There will be a change to the extent “E” measures will be used. The focus is, and likely to remain, on fewer measures.

We see companies falling into one of three buckets:

1. Climate exposed

The companies that are compelled  by regulation (e.g. power generators) or costs (e.g. insurers) to mitigate the effects of climate on their business.

2. Non-climate exposed

Companies that are not facing pressure to mitigate the effects of climate.

3. Strategically impelled

Companies whose strategy aligns to climate mitigation (such as those who can win additional customers by “being green” or who will win work from other companies for the same reason (e.g. green steel, EV manufacturers).

A proportion of the climate exposed will continue to focus on GHG emissions. Others will refine their focus on mitigation of the effects of climate change on their business.

The non-climate exposed will pull back on environmental measures, and likely refocus on financial measures.

The strategically impelled will incorporate environmental measures as necessary to realise their strategy (with a direct link to financial return).

Other significant findings amongst the report include:

• While primarily used in STI plans, environmental measures are increasingly being used in LTI plans. Globally, 80% of companies use environmental measures in their STI and 42% in their LTI. Twenty-five percent have environmental measures in both short and long-term incentive plans.
• GHG emission incentive measures tend to be the most common type of environmental measure used. Five years ago, 37% of companies used GHG emissions as a measure. This peaked at 83% in 2023 and fell back to 77% in 2024.
• The use of emissions measures varies by sector, and is the highest among energy, materials and utilities companies where 79% , 68% and 67% have adopted them respectively on a global basis.
• Eighty percent of companies across all regions have a long-term net zero commitment including GHG emission reduction targets.
• In the year studied, companies with emissions incentives recorded higher emissions reductions (48%) than those without emissions incentives (43%).
• Across all areas of the study Australia was neither the leader nor the laggard, coming in around the middle of the seven regions studied.

Regional spotlights:

Australia

• Australia has experienced an overall, gradual increase in adopting environmental measures.
• Where a company uses climate measures, they are more likely to be found in short-term (88%) rather than long-term (19%) incentive plans.
• This can be linked to Australia requiring a shareholder vote on all director equity grants. The increased scrutiny on LTIs makes it harder to include climate measures that are not quantifiable, leading to adoption of those that are (such as Scope 1 and 2 emissions).
• STIs don’t require specific votes, so more qualitative measures are found in scorecards.

Canada

• While Australia and Canada are similar in terms of reliance on resources exports, Canada also has more industrial companies, so many expect there to be a higher prevalence of climate incentive measures.
• Canada is facing a pause on funding environmental investments amid anti-greenwashing legislation (HERE). The legislation punishes unverifiable numbers in sustainability reports and has resulted in companies pulling back on current disclosures and removing past disclosures from websites. It is difficult to transparently reward that which you are pulling back from disclosing.

Continental Europe

• Continental Europe continues to place the most emphasis on environmental measures.
• Eighty-four percent of companies have climate incentive measures.
• The focus now is being economically competitive by simplifying regulation and making it less burdensome.
• IFRS leads these efforts with the introduction of a sustainability pillar to standardise climate reporting (HERE).
• In coming weeks, the Swiss will vote on a referendum put forward by the green youth party to require companies to operate within planetary boundaries (HERE).

Singapore

• Singapore appears to be the laggard in the study.
• Although 50% of companies have climate incentives, median scope 1 and 2 emissions for the companies in the study rose by 2% in the most recent year.
• This can be attributed to the annual increase in economic growth from prior and Singapore’s economy being highly dependent on petrochemicals fossil fuel energy. So when the economy sneezes, GHG emissions reduce, and vice versa, more so than other countries

South Africa

• South Africa’s focus, for historical reasons, is mostly on the “S” in ESG.
• Financial performance is typically more highly weighted than environmental performance.
• Despite this South Africa stays in the middle of the “E” pack from a disclosure and awareness perspective and is second only to Europe on the prevalence of climate measures in LTIs.
• While committed to net-zero by 2050, there is minimal regulatory pressure.

United Kingdom

• The UK was an early adopter of climate measures. A focus on science-based target initiatives and audited transition plans to support them makes the UK the leader outside continental Europe on climate-based incentives.
• Climate measures, especially scope 1 and 2 emissions, are increasingly found in LTIs.
• Investor focus has now turned to environmental measures paying out more than other measures. More scrutiny is being paid to these targets and vesting levels.

United States

Notwithstanding the Trump administration’s backtracking on climate change and withdrawal from the Paris Climate Agreement, US companies are expected to continue to disclose and incentivise climate measures because:

• US companies are beholden to requirements in other markets they operate in (such as in the EU);
• Environment is core to the strategy of many companies either in climate change risk mitigation, GHG import restrictions for core markets, and demands of key customer segments.

You can access our GECN Group’s sustainability reports HERE.

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