{"id":89352,"date":"2023-10-04T09:21:44","date_gmt":"2023-10-04T13:21:44","guid":{"rendered":"https:\/\/newsroom.carleton.ca\/?post_type=cu_story&#038;p=89352"},"modified":"2025-08-19T09:37:05","modified_gmt":"2025-08-19T13:37:05","slug":"esg-bonuses-improving-sustainability","status":"publish","type":"cu_story","link":"https:\/\/carleton.ca\/news\/story\/esg-bonuses-improving-sustainability\/","title":{"rendered":"ESG bonuses are on the rise: Are they improving sustainability or just increasing executive wealth?"},"content":{"rendered":"\n<section class=\"w-screen px-6 cu-section cu-section--white ml-offset-center md:px-8 lg:px-14\">\n    <div class=\"space-y-6 cu-max-w-child-max  md:space-y-10 cu-prose-first-last\">\n\n        \n                    \n                    \n            \n    <div class=\"cu-wideimage relative flex items-center justify-center mx-auto px-8 overflow-hidden md:px-16 rounded-xl not-prose  my-6 md:my-12 first:mt-0 bg-opacity-50 bg-cover bg-cu-black-50 pt-24 pb-32 md:pt-28 md:pb-44 lg:pt-36 lg:pb-60 xl:pt-48 xl:pb-72\" style=\"background-image: url(https:\/\/carleton.ca\/news\/wp-content\/uploads\/sites\/162\/document-exchange-business-office-1200x900-1.jpg); background-position: 50% 50%;\">\n\n                    <div class=\"absolute top-0 w-full h-screen\" style=\"background-color:rgba(0,0,0,0.600);\"><\/div>\n        \n        <div class=\"relative z-[2] max-w-4xl w-full flex flex-col items-center gap-2 cu-wideimage-image cu-zero-first-last\">\n            <header class=\"mx-auto mb-6 text-center text-white cu-pageheader cu-component-updated cu-pageheader--center md:mb-12\">\n\n                                    <h1 class=\"cu-prose-first-last font-semibold mb-2 text-3xl md:text-4xl lg:text-5xl lg:leading-[3.5rem] cu-pageheader--center text-center mx-auto after:left-px\">\n                        ESG bonuses are on the rise: Are they improving sustainability or just increasing executive wealth?\n                    <\/h1>\n                \n                            <\/header>\n        <\/div>\n\n                    <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"absolute bottom-0 w-full z-[1]\" fill=\"none\" viewbox=\"0 0 1280 312\">\n                <path fill=\"#fff\" d=\"M26.412 315.608c-.602-.268-6.655-2.412-13.524-4.769a1943.84 1943.84 0 0 1-14.682-5.144l-2.276-.858v-5.358c0-4.876.086-5.358.773-5.09 1.674.643 21.38 5.84 34.646 9.109 14.682 3.59 28.935 6.858 45.936 10.449l9.874 2.089H57.322c-16.4 0-30.31-.16-30.91-.428ZM460.019 315.233c42.974-10.074 75.602-19.88 132.443-39.867 76.16-26.791 152.063-57.709 222.385-90.663 16.7-7.823 21.336-10.074 44.262-21.273 85.004-41.688 134.719-64.193 195.291-88.413 66.55-26.577 145.2-53.584 194.27-66.765C1258.5 5.626 1281.34 0 1282.24 0c.17 0 .34 27.596.34 61.3v61.299l-2.23.375c-84.7 13.718-165.93 35.955-310.736 84.931-46.494 15.753-65.427 22.076-96.166 32.15-9.102 3-24.814 8.198-34.989 11.574-107.543 35.954-153.008 50.422-196.626 62.639l-6.74 1.876-89.126-.054c-78.135-.054-88.782-.161-85.948-.857ZM729.628 312.875c33.229-10.985 69.248-23.523 127.506-44.207 118.705-42.223 164.596-57.709 217.446-73.302 2.62-.75 8.29-2.465 12.67-3.751 56.19-16.772 126.94-33.597 184.17-43.671 5.07-.91 9.66-1.768 10.22-1.875l.94-.161v170.236l-281.28-.054H719.968l9.66-3.215ZM246.864 313.411c-65.041-2.251-143.047-12.11-208.432-26.256-18.375-3.965-41.73-9.538-42.202-10.074-.171-.214-.257-21.38-.214-47.046l.129-46.618 6.654 3.697c57.313 32.043 118.491 56.531 197.699 79.143 40.313 11.521 83.459 18.058 138.669 21.059 15.584.857 65.685.857 81.14 0 33.744-1.876 61.306-4.93 88.396-9.806 6.396-1.126 11.634-1.983 11.722-1.929.255.375-20.48 7.769-30.999 11.038-28.592 8.948-59.288 15.646-91.873 20.147-26.36 3.59-50.015 5.627-78.35 6.698-15.584.59-55.209.59-72.339-.053Z\"><\/path>\n                <path fill=\"#fff\" d=\"M-3.066 295.067 32.06 304.1v9.033H-3.066v-18.066Z\"><\/path>\n            <\/svg>\n            <\/div>\n\n    \n\n    <\/div>\n<\/section>\n\n<p>This article is <a href=\"https:\/\/theconversation.com\/esg-bonuses-are-on-the-rise-are-they-improving-sustainability-or-just-increasing-executive-wealth-213034\" target=\"_blank\" rel=\"noopener noreferrer\">republished<\/a> from The Conversation under a Creative Commons licence. All photos provided by <a href=\"https:\/\/theconversation.com\" target=\"_blank\" rel=\"noopener noreferrer\">The Conversation<\/a> from various sources.<\/p>\n\n\n\n<p><a href=\"https:\/\/sprott.carleton.ca\/profile\/leanne-keddie\/\" target=\"_blank\" rel=\"noopener noreferrer\">Leanne Keddie<\/a> is an assistant professor in the Sprott School of Business at Carleton University.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p><\/p>\n\n\n\n<p><iframe loading=\"lazy\" style=\"width: 100%; height: 100px; border: none; position: relative; z-index: 1;\" height=\"400\" src=\"https:\/\/narrations.ad-auris.com\/widget\/the-conversation-canada\/esg-bonuses-are-on-the-rise-are-they-improving-sustainability-or-just-increasing-executive-wealth\" width=\"100%\"><\/iframe><\/p>\n\n\n\n<p>An increasing number of companies are paying bonuses to executives in the pursuit of sustainability. Driven by an ever-growing focus on global issues, <a href=\"https:\/\/www.wtwco.com\/en-ca\/insights\/2023\/01\/global-study-on-esg-incentives-in-executive-compensation\" target=\"_blank\" rel=\"noopener noreferrer\">more than three-quarters of large, publicly traded companies<\/a> in Europe and North America now use environmental, social and corporate governance (ESG) metrics when determining executive bonuses.<\/p>\n\n\n\n<p>In addition, nearly two-thirds of companies in Europe and the United Kingdom now include environmental criteria as part of their executive incentive schemes.<\/p>\n\n\n\n<p>Typically, annual cash bonuses represent about <a href=\"https:\/\/doi.org\/10.1016\/B978-0-44-453594-8.00004-5\" target=\"_blank\" rel=\"noopener noreferrer\">24 per cent of a typical CEO&#8217;s pay<\/a>. Since bonus payments depend on the achievement of specific performance goals, <a href=\"https:\/\/doi.org\/10.1016\/j.jfineco.2019.02.007\" target=\"_blank\" rel=\"noopener noreferrer\">their influence on executives&#8217; actions tends to be more immediate<\/a>.<\/p>\n\n\n\n<p>While such incentives can <a href=\"https:\/\/doi.org\/10.1002\/smj.3018\" target=\"_blank\" rel=\"noopener noreferrer\">enhance a firm&#8217;s ESG performance<\/a>, they also present an opportunity for executives to obtain bigger bonuses under the illusion of \u201cdoing good.\u201d There is always a risk of executives manipulating performance metrics to gain bonuses.<\/p>\n\n\n\n<h2 id=\"examining-esg-incentives\" class=\"wp-block-heading\">Examining ESG incentives<\/h2>\n\n\n\n<p>We first noticed that a significant number of executives were being paid bonuses for achieving ESG goals in 2015. By 2020, more than 43 per cent of executives from the largest 500 publicly traded U.S. firms had ESG incentives.<\/p>\n\n\n\n<p>Since the use of ESG incentives is relatively new, we suspected they might be susceptible to abuse and decided to investigate. Our <a href=\"https:\/\/doi.org\/10.1108\/SAMPJ-11-2022-0605\" target=\"_blank\" rel=\"noopener noreferrer\">recent study<\/a> examines how ESG incentives impact yearly bonuses for top executives.<\/p>\n\n\n\n<figure class=\"wp-block-image align-center\"><img decoding=\"async\" src=\"https:\/\/images.theconversation.com\/files\/551062\/original\/file-20230928-25-vr2kf8.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip\" alt=\"Four stacks of coins sit on a table, each increasing in size. A small tree sits on three of the stacks and a hand is placing a fourth tree on the last, tallest stack of coins.\"\/><figcaption class=\"wp-element-caption\"><span class=\"caption\">Two-thirds of companies in Europe and the United Kingdom now include environmental criteria as part of their executive incentive schemes.<\/span><br>\n<span class=\"attribution\"><span class=\"source\">(Shutterstock)<\/span><\/span><\/figcaption><\/figure>\n\n\n\n<p>Since these large companies are required to disclose information on how they pay their top executives, we used novel artificial intelligence to examine these companies&#8217; documents.<\/p>\n\n\n\n<p>In our analysis, we took into account how much money we expected executives to make, how much power they had over their firm&#8217;s board of directors, whether they used ESG incentives or not and whether a variety of corporate governance mechanisms (like sustainability committees) were in place.<\/p>\n\n\n\n<h2 id=\"the-good-news-and-the-bad-news\" class=\"wp-block-heading\">The good news and the bad news<\/h2>\n\n\n\n<p>Our study found that overall, executives do not appear to be leveraging their power to get higher compensation through ESG incentives. That&#8217;s the good news.<\/p>\n\n\n\n<p>The bad news, however, is that not all executives are wielding their power for good. Some executives seem to use their power to obtain higher bonuses from ESG incentives. This seems to happen particularly in environmentally sensitive industries (mining or oil and gas, for example) or in firms that have other corporate governance mechanisms in place, like sustainability committees.<\/p>\n\n\n\n<p>It&#8217;s possible that tighter oversight is needed in certain industries or even that some <a href=\"https:\/\/doi.org\/10.1007\/s10551-012-1331-5\" target=\"_blank\" rel=\"noopener noreferrer\">corporate governance mechanisms may be more for show than for governance<\/a>. For instance, board members should ensure they have the requisite knowledge to engage in meaningful conversations about the use of ESG incentives in compensation plans.<\/p>\n\n\n\n<p>They may also need to put additional checks and balances in place to better monitor, control and advise management on the use of these incentives, especially with respect to the selection of ESG performance metrics.<\/p>\n\n\n\n<h2 id=\"why-does-this-matter\" class=\"wp-block-heading\">Why does this matter?<\/h2>\n\n\n\n<p>Key stakeholders like the <a href=\"https:\/\/corpgov.law.harvard.edu\/2018\/07\/01\/the-directors-es-guidebook\/\" target=\"_blank\" rel=\"noopener noreferrer\">Canadian Coalition for Good Governance<\/a>, standard setters like the <a href=\"https:\/\/www.ifrs.org\/content\/dam\/ifrs\/publications\/pdf-standards-issb\/english\/2023\/issued\/part-a\/issb-2023-a-ifrs-s1-general-requirements-for-disclosure-of-sustainability-related-financial-information.pdf?bypass=on\" target=\"_blank\" rel=\"noopener noreferrer\">International Sustainability Standards Board<\/a> and rating agencies such as <a href=\"https:\/\/www.msci.com\/documents\/1296102\/34424357\/MSCI+ESG+Ratings+Methodology+-+Pay+Key+Issue.pdf\/5bbf5a6c-cdd4-c7ba-87a0-2f8dc2bf4b96\" target=\"_blank\" rel=\"noopener noreferrer\">MSCI<\/a> advise organizations to include ESG goals in executives&#8217; compensation plans. The objective, presumably, is twofold: to measure what matters and provide executives with incentives to move their organizations toward sustainability.<\/p>\n\n\n\n<p>However, the connection between ESG incentives and sustainability is not so clear-cut. We still need to learn more about the use of ESG incentives to be able to apply them properly. Moreover, firms often equate their ESG focus with sustainability, <a href=\"https:\/\/theconversation.com\/what-is-sustainability-accounting-what-does-esg-mean-we-have-answers-150996\" target=\"_blank\" rel=\"noopener noreferrer\">but the two are not the same<\/a>.<\/p>\n\n\n\n<p>A focus on ESG is a focus on how environmental, social and governance factors affect the financial performance of the firm while a focus on sustainability is a focus on how the firm affects society and the environment. Think of it as the difference between a selfie and a landscape photo \u2014 one looks inward (ESG) and the other outward (sustainability).<\/p>\n\n\n\n<figure class=\"wp-block-image align-center\"><img decoding=\"async\" src=\"https:\/\/images.theconversation.com\/files\/551063\/original\/file-20230928-27-tod5ti.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip\" alt=\"A group of people in business attire sit around a table looking at a computer screen that displays the letters ESG\"\/><figcaption class=\"wp-element-caption\"><span class=\"caption\">The connection between ESG incentives and sustainability is not so clear-cut. We still need to learn more about the use of ESG incentives to be able to apply them properly.<\/span><br>\n<span class=\"attribution\"><span class=\"source\">(Shutterstock)<\/span><\/span><\/figcaption><\/figure>\n\n\n\n<p>There is limited evidence that awarding bonuses based on ESG criteria automatically translates into improved sustainability for a company. While there is <a href=\"https:\/\/www.gsb.stanford.edu\/insights\/does-it-pay-link-executive-compensation-esg-goals\" target=\"_blank\" rel=\"noopener noreferrer\">some evidence they might<\/a>, it&#8217;s still too early for a definite answer.<\/p>\n\n\n\n<p>ESG factors focus on risks and opportunities that affect <em>financial<\/em> performance, not necessarily those that are connected to planetary sustainability. In fact, there is no work to date that we are aware of that connects a firm&#8217;s performance to planetary sustainability at all.<\/p>\n\n\n\n<p>While ESG incentives may help a firm mitigate the risk of investors&#8217; or regulators&#8217; intervention, they don&#8217;t necessarily translate into sustainability performance. We cannot reiterate this enough: a focus on ESG is a focus on risk and opportunity management, not sustainability.<\/p>\n\n\n\n<p>Our research is a reminder, to boards of directors, executives, regulators and standard-setters, that one-size-fits-all is rarely appropriate and without looking closely at what is happening, these incentives can be abused.<\/p>\n\n\n\n<p>__<br>\n<a href=\"https:\/\/newsroom.carleton.ca\">Carleton Newsroom<\/a><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/counter.theconversation.com\/content\/213034\/count.gif?distributor=republish-lightbox-basic\" alt=\"The Conversation\"\/><\/figure>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>An increasing number of companies are paying bonuses to executives in the pursuit of sustainability. Driven by an ever-growing focus on global issues, more than three-quarters of large, publicly traded companies in Europe and North America now use environmental, social and corporate governance (ESG) metrics when determining executive bonuses.<\/p>\n","protected":false},"author":410,"featured_media":89355,"template":"","meta":{"_acf_changed":false,"footnotes":"","_links_to":"","_links_to_target":""},"cu_story_type":[1623],"cu_story_tag":[],"class_list":["post-89352","cu_story","type-cu_story","status-publish","has-post-thumbnail","hentry","cu_story_type-expert-perspectives"],"acf":{"cu_post_thumbnail":false},"_links":{"self":[{"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/cu_story\/89352","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/cu_story"}],"about":[{"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/types\/cu_story"}],"author":[{"embeddable":true,"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/users\/410"}],"version-history":[{"count":3,"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/cu_story\/89352\/revisions"}],"predecessor-version":[{"id":89358,"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/cu_story\/89352\/revisions\/89358"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/media\/89355"}],"wp:attachment":[{"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/media?parent=89352"}],"wp:term":[{"taxonomy":"cu_story_type","embeddable":true,"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/cu_story_type?post=89352"},{"taxonomy":"cu_story_tag","embeddable":true,"href":"https:\/\/carleton.ca\/news\/wp-json\/wp\/v2\/cu_story_tag?post=89352"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}