Most Executive Pay Still Isn’t Linked to Climate Action – Why That Matters for Your Organisation

This blog is for CEOs, CFOs, board directors, and HR leaders—anyone responsible for executive performance, sustainability strategy, or governance.

If you're asking yourself: “How do we ensure our climate commitments are real, not just PR?” — this is for you.

Despite bold climate commitments from many organisations, executive compensation still lags behind in aligning with climate action. While some leading companies have begun tying CEO pay to emissions targets and ESG performance, most have not made meaningful or measurable links.

If climate change is one of the biggest risks and responsibilities facing businesses today, why isn’t it reflected in how leaders are rewarded? For an organisation serious about reaching net zero and thriving in a carbon-constrained economy, executive alignment is essential. Yet studies show that less than 15% of high-emitting companies tie pay to specific climate targets — and many of those targets lack transparency, ambition, or accountability.

Pay is a powerful motivator. Without connecting it to climate outcomes, many firms risk sending mixed messages internally and externally. As a decision-maker, this raises critical questions:

• Is your leadership team truly incentivised to deliver on climate targets?

• Are your ESG goals backed by performance-based accountability?

• Could this be a missed opportunity to strengthen leadership, trust, and long-term value?

Now. With new global standards like IFRS’ ISSB Climate Disclosure rules and proposed SEC climate mandates, climate-related performance is quickly becoming a mainstream governance issue.

Companies that act early can:

• Strengthen investor trust

• Attract and retain next-gen talent

• Avoid reputational risk and greenwashing claims

• Lead the market on purpose-aligned governance

Leaders like Schneider Electric, Unilever, and NatWest are paving the way:

• 20% of CEO bonuses at Schneider are linked to ESG and climate performance.

• NatWest added climate conditions to stock issuance for its CEO.

• Energy sector companies are beginning to link pay to emissions reductions, but often with vague or long-horizon targets.

Yet many organisations still struggle with:

• Vague goals like “improving sustainability” instead of clear metrics

• Short-termism in bonus structures that overlook long-term climate goals

• Lack of transparency about what targets exist and how they’re measured

A 2022 analysis by As You Sow found:

• Over half of large U.S. emitters had no climate-related links to CEO pay

• Only one company tied pay to an absolute emissions reduction target

• Many targets were too weak or the incentive too minor to drive real change

Note: from 1 Jan 2025, Australian companies subject to compulsory AASB S2 climate reporting must state whether and how climate factors affect executive remuneration and the percentage linked. Listed companies must also explain performance conditions in the Corporations Act s300A remuneration report.

Why This Matters for You: To lead in today’s economy, your executive team must be part of the climate solution not just in words, but in performance.

Aligning pay with climate performance is more than a governance trend. It’s a strategic move to:

• Embed climate responsibility into business DNA

• Reduce risk from greenwashing and inaction

• Demonstrate leadership to investors, regulators, and staff

What You Can Do:

• Review your executive pay frameworks: Are they aligned with ESG outcomes?

• Begin internal conversations about what’s measurable, material, and auditable

• Partner with advisors who can help build credible, transparent performance plans

Make climate accountability pay off.

If climate is core to your strategy, your leadership incentives should prove it. Eco Profit helps boards and executives design measurable, auditable, and investor-ready pay frameworks that embed climate performance into your business DNA.

[Start aligning executive rewards with climate results →]