Climate Strategies and Incentives for Corporate Sustainability

Executive Summary

For years, the GECN Group has studied the use of ESG incentives across companies globally. We have noted the continued adoption of ESG measures among companies of all sizes and the steep adoption of environmental and climate measures. In this year’s report, the GECN Group takes a deeper dive into the use of environmental measures, particularly those aimed at reducing GHG emissions.

Companies globally are facing immense pressure to respond to the physical and financial impacts of climate change risk. They are responding by adopting and disclosing climate strategies, setting long-term and near-term targets, and tying executive pay to those targets. This shift has been influenced by multiple factors including regulatory requirements, stakeholder pressures, and demands for greater transparency and accountability from investors and customers.

Key trends identified in corporate climate strategies and incentives include:

• Climate strategies: nearly all large global companies have developed an environmental and/or climate strategy, which is no longer a question but an expectation
• Disclosures and targets: almost all companies have disclosed their emissions across Scope 1 and Scope 2, while most have also made progress on Scope 3. A number of companies have also developed goals for reducing those emissions over the long-term and near-term
• Sectoral differences: different industries are at varying stages of adopting environmental and emissions measures and goals. Utilities lead in this area. Conversely, rapid growth and operational pressures have resulted in increased emissions among Information Technology firms
• Role of incentives in driving progress: the use of environmental measures in executive incentive plans has surged, indicating that companies are leveraging compensation structures to drive climate action. It appears as though such incentives are effective, as companies with emissions incentives also experience greater reductions in emissions
• Short-term Incentives (STI) vs. Long-term Incentives (LTI): while most companies use emissions measures in STI plans, there is increased adoption of environmental measures in LTIs, with a majority of companies in Europe, the UK, and South Africa using them in the LTI
• Challenges and criticisms: companies face challenges in setting realistic and ambitious climate targets, particularly in incentives. They continue to use a mix of both quantitative and qualitative goals that can provide actionable levers while aiming for results that demonstrate progress against public commitments

As we enter 2025, certain conditions may hinder or slow progress. Political changes introduce uncertainty. However, it is clear that large companies have already made strides in addressing their climate impacts and continue to work toward a greener planet.

Future advancements will likely depend on regulatory support, technological innovation, infrastructure development, and sustained corporate commitments to climate goals. Climate incentive measures in executive pay programs can be part of an impactful environmental strategy that can help drive and demonstrate meaningful progress.