Companies are increasing their commitments to improving performance on environmental, social, and governance (ESG) initiatives. Naturally, boards are looking to use incentives to ensure that executives pursue and are held accountable for these goals—as they have long used incentive compensation to enforce other strategic and financial objectives.
But before designing an appropriate ESG incentive program, companies must be sure they have a well-defined ESG strategy embedded in corporate objectives and initiatives. Poorly thought-out incentives can backfire, causing frustration among executives, confusion for external stakeholders, and holding back ESG progress in the organization.
This paper explores the potential pitfalls in ESG incentive plans and how companies can develop a strategy that prevents risks before they occur.