Boardroom blocks: Less than 10% of UK CEOs have financial bonuses to combat climate change

Analysis of the 159 firms found that more than 90% had no financial incentive to focus on environmental sustainability

Research from Vlerick Business School has found that 6% of the 159 UK companies analysed have a bonus in their KPI focusing on the environment, with less than 1% having long-term, rather than annual, incentives focused on environmental sustainability.

The study examined the pay levels, and incentives of both chief executives and chief financial officers at 899 European businesses, mainly focused on the STOXX 600 index of the 600 largest firms across European countries, including 159 UK firms.

Analysis of the 159 firms found that more than 90% had no financial incentive to focus on environmental sustainability. The majority of long-term and short-term incentives for chief executives were linked to income, revenue and profit, customers, safety, innovation and shareholder return.

Professor Xavier Baeten, who led the study, said: “There is a general consensus in business, certainly among larger firms, that there is a climate crisis and that different stakeholders have to play a role in becoming part of the solution. They now understand how their practices are impacting the environment and are actively looking to implement initiatives that focus on being more environmentally friendly.

“However, our research shows that for the overwhelming majority of UK firms, there is no incentive for the top CEOS to enact these environment-focused initiatives and policies”.

The majority of UK firms did include at least one non-financial KPI in their bonus plans, but just 21% of chief executives had a long-term incentive that was not related to profits or returns.

Long-term incentives are a much more significant part of the remuneration package in the UK compared with other countries. The research notes that UK chief executives are much more incentivised to improve the share price of an organisation compared to other nations across Europe.

Contradictory messages

Earlier this year, the chief executives of more than 180 corporates began lobbying for other big businesses to stop maximising profits for shareholders at the expense of the environment or society.

In a statement from the Business Roundtable – a collaborative, US-based organisation with 192 members, hailing from all major sectors and covering all states. Members of the Business Roundtable collectively control more than $7trn in annual revenues, with their companies covering more than 15 million employees in the US and beyond.

The new statement, which aims to define “the purpose of a corporation”, states that the maximisation of profits for shareholders will no longer be sufficient for big business of the future to meet the demands of society, investors or the workforce.

Nonetheless, questions have been raised as to whether the new statement is a genuine sign of business transformation – or simply a greenwashing tactic to allow big companies to carry on with business-as-usual while claiming they are not.

Matt Mace