Climate Business Institute: Rethinking Tomorrow Seminar Series

The Climate Measures and Reporting Impact Lab at the Climate Business Institute is pleased to welcome Dr. Leanne Keddie (Carleton University) as speaker in the “Rethinking Tomorrow” Seminar Series. Dr. Keddie will present the following paper:

Directing executive bonuses to address the climate crisis: Is it effective?

Leanne Keddie (Carleton University)
Awais Mojai (University of Vermont)
Patrick J. Callery (University of Vermont)


Corporate executive compensation contracts increasingly incentivize nonfinancial performance, such as Environmental, Social, and Governance (ESG) metrics, including greenhouse gas (GHG) emissions. This research examines whether GHG-related incentives in executive compensation plans are effective in reducing GHGs. GHGs are worldwide in their impact, with regulators increasingly restricting extra-territorial activity as evidenced by the Corporate Sustainability Reporting Directive in the European Union. We use a novel artificial intelligence (AI) application to collect data from proxy statements about GHG and ESG incentive use among S&P 500 firms. We go beyond previous studies by examining both explicit and implicit GHG-related compensation in annual incentive plans (not just sustainable compensation policies) and how they affect firm emissions. We find that use of explicit GHG incentives is associated with reductions in Scopes 1, 2 & 3 GHG emissions. However, ESG incentives without GHG metrics, and implicit GHG incentives, are less effective. Our work questions the effectiveness of some approaches to GHG incentives towards reducing emissions. Standard-setters and compensation committees may leverage this research to design more effective GHG incentives.