CEOs’ Compensation Tied to Sustainability, but Progress Falls Short: IBM Study

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Title: CEOs’ Compensation Tied to Sustainability, but Progress Falls Short: IBM Study

According to a new study conducted by the IBM Institute for Business Value, approximately half of CEOs and their executive teams surveyed now have their compensation linked to the organizations’ performance in relation to sustainability goals. This represents a significant increase from last year’s study, where only 15% reported such a tie. However, despite this positive development, the study also found that many companies are struggling to meet their environmental, social, and governance (ESG) goals.

The annual study, titled CEO decision-making in the age of AI: Act with intention, was released on June 27, 2023. It revealed that while 95% of respondents have set operational ESG goals, only 10% have made substantial progress towards achieving them. Furthermore, environmental sustainability has slipped down the list of top organizational priorities, now ranking fifth compared to its third place position last year. In a surprising shift, productivity or profitability has taken the top spot this year, climbing from sixth place in the previous study.

Another notable finding is that less than half of the CEOs surveyed, around 45%, expressed confidence in their ability to report on ESG strategy and initiatives accurately. This lack of confidence is attributed to the expanding definition of sustainability and the uncertainty surrounding the appropriate metrics to use.

The survey was conducted through interviews with 3,000 CEOs from over 30 countries and 24 industries. The IBM Institute for Business Value collaborated with Oxford Economics to gain insights into executive perspectives on leadership, CEO decision-making, technological advancements, and vision for a future shaped by generative artificial intelligence.

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The IBM survey’s results regarding companies’ lack of confidence in sustainability reporting align with a previous study conducted by PwC and the Leadership Institute at the London Business School. This study focused on the prevalence and efficacy of linking executive pay to ESG-related goals. It revealed that a majority of the 50 largest European listed companies surveyed had adopted some form of carbon target incentive in executive pay, and most of them met their targets. However, the main areas where companies fell short were the transparency of targets, which were seldom disclosed in advance, and the quantitative link to the company’s long-term carbon reduction goals, which were often unclear.

Overall, the IBM study highlights the growing trend of linking CEOs’ compensation to sustainability goals. While this signifies progress in aligning executive incentives with responsible business practices, it also underscores the challenges companies face in meeting their ESG objectives. Moving forward, organizations must continue to address these challenges by establishing clear and transparent ESG targets and metrics, enabling accurate reporting, and fostering a corporate culture that prioritizes sustainability alongside profitability.

Frequently Asked Questions (FAQs) Related to the Above News

What is the main finding of the IBM Institute for Business Value's study?

The study found that approximately half of CEOs and their executive teams surveyed now have their compensation tied to sustainability goals, representing a significant increase from the previous year.

How many CEOs have set operational ESG goals?

According to the study, 95% of CEOs surveyed have set operational ESG goals.

How many CEOs have made substantial progress towards achieving their ESG goals?

Only 10% of CEOs surveyed have made substantial progress towards achieving their ESG goals.

What has happened to the ranking of environmental sustainability as an organizational priority compared to last year?

Environmental sustainability has slipped down to the fifth place from its third place position last year.

What has taken the top spot as an organizational priority this year?

Productivity or profitability has taken the top spot as an organizational priority this year, climbing from sixth place in the previous study.

How many CEOs expressed confidence in their ability to report on ESG strategy and initiatives accurately?

Less than half of the CEOs surveyed, around 45%, expressed confidence in their ability to report on ESG strategy and initiatives accurately.

What is the reason for the lack of confidence in reporting on ESG strategy and initiatives?

The lack of confidence is attributed to the expanding definition of sustainability and the uncertainty surrounding the appropriate metrics to use.

How many CEOs were interviewed for the survey?

The survey conducted interviews with 3,000 CEOs from over 30 countries and 24 industries.

Which organizations collaborated with the IBM Institute for Business Value to conduct the survey?

The IBM Institute for Business Value collaborated with Oxford Economics to gain insights into executive perspectives on leadership, CEO decision-making, technological advancements, and vision for a future shaped by generative artificial intelligence.

How do the findings of the IBM study align with a previous study conducted by PwC and the Leadership Institute at the London Business School?

The findings align in terms of companies' lack of confidence in sustainability reporting and the challenges faced in being transparent with targets and linking them to long-term goals.

What should organizations do to address the challenges in meeting their ESG objectives?

Organizations should establish clear and transparent ESG targets and metrics, enable accurate reporting, and foster a corporate culture that prioritizes sustainability alongside profitability.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

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