Climate targets, executive compensation, and corporate strategy
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Repository DOI
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Authors
Ritz, R.
Abstract
Since the 2015 Paris Agreement, climate change – and wider environmental, social and governance (ESG) issues – have risen to board-level on the corporate agenda. Under increasing pressure from institutional investors, companies are reformulating their strategies for a climate-constrained world. A novel aspect of the emerging corporate response is that executive compensation is being linked to climate targets. At the world’s largest energy companies, climate metrics now make up 8% of CEO’s short-term incentive plans. This paper explains the case for corporate climate action, summarizes the use to date of climate-linked management incentives, and presents a framework for understanding their benefits and design challenges.
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Keywords
Balanced scorecard, corporate climate action, corporate strategy, ESG, executive compensation, management incentives
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Publisher
Faculty of Economics, University of Cambridge