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Global companies have started to drop climate goals from executive pay plans, as the corporate world retreats from ESG initiatives in the face of fierce US opposition and mounting costs.
Payouts linked to environmental, social and governance goals had become ubiquitous in Europe and common in the US in recent years. Investors had also started to lobby for pay to be tied to tougher ESG targets, because of concerns that the goals used have been too easy to reach.
But Swiss bank UBS’s annual report this week dropped language linking executives’ pay to goals including slashing emissions from lending to real estate, power and cement by 2030.
Standard Chartered removed references in executives’ 2025 annual bonus plans to cutting financed emissions in line with its 2030 targets.
In its most recent annual report, HSBC cut the weight given to environmental goals in its executives’ long-term incentive plan for next year from 25 per cent to 20 per cent, following feedback from shareholders. It also dropped a sustainability measure from annual bonuses.
None of the banks dropped the metrics entirely. UBS said it retained some “environmental and sustainability” metrics. Standard Chartered’s long-term incentive plan and annual group plan reference cuts to financed emissions. The bank says its “commitment to sustainability is unwavering and comes right from the top”.
Some US companies also retained sustainability targets in their pay plans even while dropping elements tied to diversity, equality and inclusion. Data centre operator Equinix, for example, kept sustainability in its 2025 bonus plan but cut references to “increasing racial and gender diversity”.
Still, the number of US companies linking sustainability targets to pay plateaued last year, according to the Conference Board think-tank, even as global temperatures have risen faster than expected.
That levelling off, “may indicate both a maturing of [climate change] efforts and a recalibration of corporate approaches to climate change following persistent ESG pushback”, the think-tank said.
Andrew Page, head of a team at PwC that provides advice on executive pay said that there was a clear “bifurcation” of interest in such targets depending which side of the Atlantic investors sat. “If you are a big globally diversified company . . . it’s likely you’re hearing a conflicting message.”
Other companies beyond banking that had previously linked sustainability goals to pay have also started to backtrack on climate targets.
BP this month dropped a target that linked bonus pay to growth in its energy transition businesses, only a year after introducing it. The oil supermajor, which this year tore up its plan to become a leading green energy company, said in its annual report that the component had yielded “a nil outcome” for last year.
Starbucks’ latest proxy statement says that it will remove a greenhouse gas emission reduction element from its long-term incentive plan next year, as well as getting rid of a diversity, equity and inclusion metric. Its annual bonus plan will however “assess goals intended to bring a culture of belonging, joy and sustainability”.
A retreat from climate targets in pay may also reflect investor concerns that executives could be reaping easy rewards from goals that have little discernible impact on companies’ sustainability strategy, let alone on the increase in global temperatures.
Payouts for qualitative measures on the environment — more open to gaming than, say, hard decarbonisation goals — are higher than for quantitative ones, data on European companies from consultant and broker WTW show.
US executives are more likely to hit environmental targets that cannot be quantified, according to academics at Stanford university and UC Berkeley.
Embedding such targets in pay can help prioritise environmental issues, said Tom Gosling, director of the London School of Economics’ initiative in sustainable finance. But “there’s this danger of hitting the target and missing the point,” he added.
Companies rarely dock pay to punish failure on environmental metrics, only add to it for success.
“ESG targets aren’t really making nasty companies do less nasty things,” Gosling said. “There’s a real danger that you just end up with more pay, not more ESG.”
Additional reporting by Patrick Temple-West and Ian Johnston
Climate Capital
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