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Executive Compensation Guidebook for Climate Transition: 2023 Addendum

The

Climate Governance Initiative and WTW have published a 2023 Addendum to the Executive Compensation Guidebook for Climate Transition. The Addendum to the Guidebook, which was published in 2021, provides updated observations on evolving regulatory and investor contexts, and market practice on the inclusion of climate-related performance metrics in incentive plans.

In 2021, the Climate Governance Initiative, in collaboration with WTW, published the Executive Compensation Guidebook for Climate Transition. This instructive guide explored how to drive climate strategy by meaningfully embedding it within executive compensation frameworks.

Over the 18 months since the original Guidebook’s publication, regulatory and investor contexts and market practice on the inclusion of climate-related performance metrics in incentive plans have evolved. This Addendum covers these observations and provides more detailed discussion around them.

It is intended to be read in conjunction with the original Guidebook.

Since the Guidebook’s publication, we have observed:

• Regulatory and investor demand for greater disclosure on a company’s overall climate strategy including management of climate-related financial risks, plans to reduce emissions and transition to a low-carbon economy

• A greater recognition of the need for robust governance, Board oversight and accountability structures, and for Board education and stewardship

• More views expressed from institutional investors, especially those in Europe, on climate (and broader ESG) metrics in executive compensation plans, as a widely recognized tangible governance mechanism

• An increase in the use of environmental (and climate-specific) metrics globally

• More companies are putting these metrics in long-term incentive plans

• Greater focus on quantitative assessment of progress

against these metrics

• Greater focus on the strategic alignment and clear

disclosure of these metrics

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