Why it's time for carbon bonuses

Firms attempting to execute on their climate change strategies will continue to struggle unless they are willing to give managers clear incentives to deliver against environmental targets.

That's is the conclusion of a panel of experts at a sustainable business conference hosted by reporting software provider SAS yesterday, which argued that many firms would struggle to meet internal environmental targets unless executives are more clearly rewarded for successfully hitting those targets.

Peter Lacy, head of Accenture's Sustainability Practice for Europe, Africa and Latin America, said that businesses should be integrating environmental targets such as emission reductions into their traditional performance management goals.

"In the past there has been a disconnect between those [performance management] metrics that really matter to the business and those around sustainability reporting," he said. "We are still nowhere near the fundamental alignment between sustainability reporting and other corporate metrics and it is still not cascading down to individual performance metrics."

He argued that as a result many large businesses were struggling to turn their climate change strategies into a reality.

"Companies are now thinking about new products, cost reduction, risk management both in terms of physical and legislative risks, and intangible assets in relation to climate change, but they struggle to shift from strategy to execution," he observed. "They need to be thinking about hard knowledge sets and the rewards and incentive structure that underpin that shift - that will be one of the litmus tests for this transition [to a low carbon economy]."

There are signs that some organisations are beginning to introduce bonuses and incentive schemes based on environmental performance.

Lacy noted that senior civil servants within Whitehall now had environmental metrics on their performance scorecards and were theoretically rewarded against them, while Neil Harris, green technology manager at Cisco, said the company was looking to introduce environmental metrics to its "management by objective targets" for some executives.

Moreover, Mike Duke, the incoming boss at retail giant Wal-Mart, hinted earlier this week that those executives that deliver strong sustainability performance would be rewarded. "You will see that the leaders that get ahead in Wal-Mart will be the ones who demonstrate their commitment to sustainability," he told executives at the company’s latest annual green conference. "You won't be able, in the future, to be viewed in the same way if you put this on the back burner."

Executives at SAS, which last year launched a new software suite designed to help firms measure and report on their carbon emissions, said that firms would only be able to reward staff based on environmental performance if they had access to accurate data to help them measure that performance.

Jonathon Porritt, chair of the government's Sustainable Development Commission, said that in addition to underpinning green management bonus schemes, environmental business metrics would also be required to help firms comply with upcoming legislation.

"The metrics of carbon will get more and more important," he said. "With carbon pricing we are still at a virtual scenario and because it is virtual, business brains look at it in a completely different way. I don't think most finance directors believe this will really hit the P and L [profit and loss]."

He predicted that attitudes would change quickly with the introduction of the government's Carbon Reduction Commitment carbon trading scheme, which will force 5,000 of the UK's largest firms to report on their carbon emissions and buy in extra credits if they exceed emission caps. "When it really takes off from 2012 then finance directors will sit up and ask "why wasn't I told about this"," he said.