Although President Biden has disclosed an overall goal to cut US emissions in half by 2030, the prospect of a politically stable plan to address climate change faces long odds. Increasingly, shareholders are the ones pushing boards to take the next step, with proposals shifting from climate risk disclosures to dedicated plans to cut emissions, including linking the CEO’s pay to emission cuts.
A recent article from NPR, provocatively titled “Some CEOs Are Hearing a New Message: Act on Climate Or We’ll Cut Your Pay,” examines the trend with a fairly nuanced, moderate take on the issue and provides several specific examples within the energy and auto industries. It notes that:
- Partially in response to shareholder pressure, Shell doubled the weighting of its goals tied to reducing the company’s carbon footprint and stated that tangible incentives for executives to reduce carbon intensity align with Shell’s long-term strategy.
- General Motors committed to phasing out gas powered cars by 2035 (the company also received a shareholder proposal to add climate metrics to the compensation program).
The article expresses some skepticism that companies will weight ESG metrics heavily enough to drive rapid change. Jannice Koors of Pearl Meyer discussed the reality of shifting incentives from financial to non-financial metrics at a hypothetical 20% level, noting, “What in the current bonus plan has suddenly become 20% less important? Have profits become 20% less important? Have revenues become 20% less important? That 20% has to come from somewhere.”
Interestingly, the article does not highlight BlackRock’s call for companies to clearly delineate plans to shift to a “net-zero” economy nor does it highlight recent SEC actions focused on climate risk disclosure. It remains to be seen if shareholder proposals will see increased support. Some shareholders may feel they no longer need to pressure boards if the government is taking an active role in addressing climate change.
