Leveraging remuneration systems to incentivise performance in the area of sustainability is important, but it’s only one aspect of a good plan
What metrics are companies using to measure their progress on climate mitigation? How do corporate approaches differ by industry or geography?
The fight against climate change is increasingly intertwined with corporate accountability as stakeholders push companies to align executive incentives with environmental goals. The 2025 GECN Global Trends in Stakeholder Incentives Report paints a complex picture of global efforts to use executive pay as a lever for environmental action.
One of the stark findings of the research is the disjunction between the proliferation of environmental measures and their actual impact on emissions. While 65% of global companies now incorporate environmental measures into their incentive programs, only 46% of companies reported a decrease in emissions over the past year. Even more striking, incentive payouts averaged 119% of the target, suggesting executives may be rewarded even when emissions increase – or perhaps executives are being rewarded for increasing emissions more slowly.
This misalignment highlights a critical flaw: many of the incentives are activity-based rather than outcome-driven. For example, payouts are often tied to disclosure or investments rather than tangible emissions reductions. This underscores the need for a paradigm shift toward outcome-based goals that hold executives accountable for measurable progress.
Room for improvement
South Africa, while trailing leading regions like Europe and the UK, has made strides in embedding climate measures in incentive plans. Some 62% of companies in South Africa incorporate environmental measures in their long-term incentives (LTIs), outpacing the global average of 42%. However, the use of emissions-specific incentives lags at just 27%, compared to 79% in Europe and 58% in the UK.
South Africa’s performance also reflects broader structural challenges, including reliance on carbon-intensive industries and slower transitions to renewable energy. Regional disparities highlight the varying degrees of stakeholder pressure, regulatory frameworks and availability of green technologies.
Despite the long-term nature of emissions reduction goals, most companies rely heavily on short-term incentives (STIs) to drive climate action. The report reveals that 80% of companies use environmental incentives in STIs, while only 42% incorporate them into LTIs. This is particularly problematic given that climate targets, including net-zero aspirations, are set for horizons like 2050. Paying executives for short-term actions risks creating a mismatch between immediate activities and the long-term outcomes needed to combat climate change.
The regional breakdown is equally revealing. European and UK companies lead in incorporating LTIs, with 68% and 56%, respectively, compared to just 10% in the US. This divergence reflects cultural differences in executive compensation structures and a greater emphasis on sustainability in regions with stricter regulatory frameworks.
Efforts without major rewards
There is a paradox of increasing environmental measures but limited emissions reductions. This could stem from low baseline ambition, where goals often focus on easily achievable milestones; measurement complexity, where many companies struggle with Scope 3 emissions, which involve upstream and downstream activities and are difficult to quantify; and short-termism, where incentives frequently emphasise immediate disclosures or initial steps rather than sustained reductions.
A deeper misalignment emerges when the timelines of climate goals and incentive structures are juxtaposed. Climate change is a marathon requiring systemic shifts, yet most incentive programmes are sprints.
Regions like Europe and the UK have outpaced others in embedding rigorous environmental targets within incentive frameworks. Around 94% of UK companies disclose net-zero commitments, compared to just 60% in Canada. South Africa sits in the middle of this spectrum, grappling with economic and infrastructural challenges that impede large-scale decarbonisation efforts.
Play the long game
The current reliance on activity-based incentives such as emissions disclosures must evolve toward outcome-based systems. Targets should be tied to absolute emissions reductions rather than intermediary steps. Companies must also set ambitious yet achievable thresholds to balance investor expectations with operational realities.
To align with the temporal nature of climate goals, corporations should integrate environmental measures into LTIs. This ensures accountability over multi-year periods and aligns executive priorities with the 2050 targets. LTIs could include performance conditions based on net-zero milestones, Scope 3 reduction strategies (reducing emissions that occur throughout a company’s value chain, including those from transportation, purchased goods and services), or energy transitions.
Regions like South Africa and the US can benefit from collaboration with Europe and the UK to adapt successful strategies for local contexts. Developing tailored policies that account for regional nuances such as energy dependency or economic structure can drive more effective climate action.
Greater transparency around incentive structures and their alignment with climate goals is crucial. Stakeholders need clear metrics to evaluate progress, such as science-based targets or third-party certifications like the Science Based Targets initiative.
As the most challenging aspect of emissions measurement, Scope 3 demands more robust frameworks and collaboration across value chains. Companies must invest in data systems, supplier partnerships and standardised methodologies to effectively track and reduce Scope 3 emissions.
The corporate world must recalibrate its strategies. By shifting toward long-term, outcome-driven incentives and fostering global collaboration, businesses can play a pivotal role in mitigating climate change. The stakes are high, and the time for bold, systemic action is now.
Text | Chris Blair
Photography | Zamrznuti tonovi
Dr Chris Blair is CEO of 21st Century.
For more information, go to 21century.co.za.
