Paying for net zero: PWC study finds that almost 80% of major European companies are linking executive pay to ESG metrics

Research from PWC has found that the majority of European companies are linking carbon targets to remuneration, a stark contrast to results in the US, where corporations in high-carbon sectors have been observed failing to impose such conditions.
March 14, 2023

Source: Unsplash

Vast majority of European companies say they are linking executive pay to climate metrics

A study by PwC UK in collaboration with the London Business School (LBS) has explored the relationship between ESG measures and executive pay, finding that 78% have some form of carbon target linked to pay. The research analysed the 50 top European blue-chip companies- those in the STOXX Europe 50, and these businesses were then split into two sub-categories, the ‘Climate Action 100+’ (CA100+), which accounts for 14 of the 50 companies and the ‘non-Climate Action 100+’ (non-CA100+) which covers the remaining 36. Climate Action 100+ is a group of companies seen as critical in driving the global net zero emissions transition.

Phillippa O’Connor, Workforce ESG leader at PwC, said: “Climate change is having a huge impact on the way businesses operate, with net zero targets, mitigation and adaptation measures of growing interest to investors. Recently we’ve seen an explosion of interest from investors and companies linking executive pay to ESG targets. In fact, 86% of companies have now adopted ESG measures in their executive remuneration policies, as businesses want to demonstrate they are serious about the ESG challenges.”[i]

Overall, the research found that almost all companies at least reference that carbon is considered in executive pay; however, there is variation in how this is applied. Maturity levels of carbon reduction schemes are reported to be more similar, with 68% of companies using SBTi-approved carbon reduction plans. However, CA100+ companies are observed to be targeting a slower pace for reaching net zero than non-CA100+ companies[ii].

PwC found that 71% of CA100+ companies are taking what the researchers’ class as a ‘basic’ approach- translating carbon strategy into an explicit carbon measure in executive pay with a separate weighting. This is significantly higher than amongst non-CA100+ companies, where half (50%) use the measure. Moreover, 64% of CA100+ companies go beyond this and have an explicit carbon measure worth 10% or more of the incentive (compared to 25% of non-CA100+ companies) - They classify this higher weighting as ‘Better’.

Source: PwC

Of those CA100+ companies which have an explicit carbon measure in pay, 80% have, at the very least, a loose statement linking this carbon measure to their long-term company plan (vs 72% of non-CA100+ companies). Contrastingly, just 10% of CA100+ companies provide a more comprehensive link (for example, numerical data to back claims) compared with 11% of non-CA100+ companies[iii].

Phillippa O’Connor, Workforce ESG leader at PwC, added: “Climate is the area of ESG with the strongest investor consensus. It’s crucial that leaders are clear on what is important to investors and understand the role they have to play in achieving both financial and non-financial metrics. Linking shareholder objectives to specific climate driven objectives gives leaders a clear definition of success, helps meet investor expectations, and ultimately helps achieve climate goals. Yet there are unintended consequences of linking pay to ESG metrics. ESG targets in pay is not always as simple as it seems and should not be viewed as the sole litmus test of a company’s commitments to ESG priorities. The challenge now must be to do it well, so that pay targets make a meaningful contribution to helping companies meet their climate goals.”[iv]

Europe’s progress on climate accountability varies greatly from that seen in the US, where a study by non-profit As You Sow last year found that corporations in high-carbon sectors were failing to link executive pay to climate metrics[v]. The study examined all 47 US companies targeted by the CA100+ initiative. Companies were assessed on three indicators:

  • inclusion of a climate metric in the 2021 CEO pay package, with higher grades for incentives tied to emissions reductions and alignment with 1.5° C goals;
  • inclusion of measurable climate metric and measurable pay; and,
  • inclusion of climate metric in the long-term incentive plan[vi]

As You Sow’s study revealed that 47 out of 47 US companies assessed either have “no linkage between CEO pay and climate metrics, or do not adequately tie CEO pay to climate performance metrics at the level of incentivisation required to achieve alignment with global 1.5° C emissions reduction goals.”[vii]

Financial opportunities for those acting as ‘sustainability leaders’

Last year we reported that a study from EY found that companies leading on climate action are more than twice as likely to exceed financial targets. The research, which surveyed more than 500 companies, each with a valuation of $1bn or more, looked at the measures taken to reduce emissions across the value chain. It found that of those classed as pacesetters (displaying high action on sustainability),[viii] 52% have captured significantly higher financial value than expected over the past year. Further, 93% of the total number of surveyed companies had made public commitments to climate action. Typically, these were found to have a specific emissions reduction target, but just 11% had more ambitious goals like achieving net-zero emissions[ix].


[i] Nearly four out of five companies adopting carbon targets in executive pay, new research from PwC and London Business School shows

[ii] Paying for net zero: Using incentives to create accountability for climate goals - PwC UK

[iii] Paying for net zero: Using incentives to create accountability for climate goals - PwC UK

[iv] Nearly four out of five companies adopting carbon targets in executive pay, new research from PwC and London Business School shows

[v] Study finds that corporations in high-carbon sectors are failing to link executive pay to climate action | Zero Carbon Academy

[vi] Pay For Climate Performance — As You Sow

[vii] Ibid

[viii] Ibid

[ix] EY study finds large companies leading on sustainability action likely to exceed financial targets. Whilst separately, SMEs say they require more help from government to address their environmental challenges | Zero Carbon Academy

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Lauren Foye
Head of Reports

Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”

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