Bank buildings in downtown Toronto.“They’re difficult to define, they’re difficult to measure, and the outcome is also super difficult to assess in terms of financial and personal performance,” he said, adding that this is particularly concerning because environmental impacts play out over a much longer time horizon than one, two or three-year compensation cycles.
Emily Parsons, a compensation professional at Hugessen Consulting, said a follow-up review this year, which is to be published in June, is finding some “modifiers” that align more closely with longer-term climate time horizons. However, these still tend to contain “little disclosure on the targets or mechanics of this component.”
Conor Chell, head of the ESG practice at law firm MLT Aikins LLP in Calgary, said directors and executives should be paying close attention to a Feb. 9 lawsuit filed by ClientEarth, an environmental charity, which wants to hold directors of Shell PLC personally liable for setting allegedly unrealistic net zero targets. Notably, he said, the lawsuit has support from institutional investors that hold more than 12 million shares of the energy giant.
“Currently, the compliance market for carbon credits only covers about 25 per cent of global emissions, leaving the remaining 75 per cent to be covered at some point by the voluntary markets,” he said. “The voluntary carbon markets are largely unregulated and have come under significant scrutiny recently, so if a company’s net-zero target is tied to that portion of the market, that could be problematic.
For example, Waste Connections Inc. and Teck Resources Ltd. have begun to incorporate these measures into longer-term incentive plans through a long-term equity-based instrument known as performance share units , he said.