CO2 Management Incentives

Trend Definition 

What is the essence of this trend? What is its impact? 

• Essence: CO2 Management Incentives link parts of the manager’s compensation package to the achievement of pre-defined sustainability goals to foster sustainable practices led by managers across all levels 
• Impact: CO2 Management Incentives foster an environmentally responsible management style and align company and environmental goals, ensuring leadership accountability for measurable climate actions

Trend Drivers 

Why is this trend emerging now? What’s changing? 

• Talent Attraction: As the workforce becomes more environmentally conscious, organisations use CO2 incentives to attract top talent seeking purpose-driven workplaces, aligning individual values with corporate goals 
• Connection of Purpose and Compensation: Coupling executive pay to short-term goals, mostly financial, incentivises potentially environmentally damaging behaviour to optimise short-term profits 
• Environmental Accountability: Global climate awareness and regulations require executives to lead by example regarding environmental efforts

Use Cases 

How to apply this trend? 

• Supplier-enabled Emission Reduction: Supplier engagement enabled buyers to reduce emissions
  Example: Danone linked 20% of its CEO’s compensation to sustainability targets, these were reached mainly through a reduction of emissions in procurement 
• Pharmaceutical Industry: Measuring leaders by ESG fulfilment
  Example: Pfizer included ESG metrics in the compensation package of more than 30’000 of its leaders, therefore putting more pressure on procurement departments to stay compliant with ESG regulations and targets

Procurement Relevance & Response Strategies 

How should Procurement adapt its Processes, Organisation, and Strategy?

• Transparent Reporting: Procurement teams must gather enough information on the emissions contained in the sourced products to report them to the finance and HR departments to determine the final manager’s compensation 
• Incentives for Low-Carbon Suppliers: Develop incentive programs for suppliers who demonstrate strong carbon management practices or use low-carbon processes