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Climate targets, executive compensation, and corporate strategy

Author

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  • 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.

Suggested Citation

  • Ritz, R., 2020. "Climate targets, executive compensation, and corporate strategy," Cambridge Working Papers in Economics 2098, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2098
    Note: rar36
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2098.pdf
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    Cited by:

    1. Kaushik Ranjan Bandyopadhyay, 2022. "Oil and Gas Markets and COVID-19: A Critical Rumination on Drivers, Triggers, and Volatility," Energies, MDPI, vol. 15(8), pages 1-21, April.

    More about this item

    Keywords

    Balanced scorecard; corporate climate action; corporate strategy; ESG; executive compensation; management incentives;
    All these keywords.

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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