Scientists lately broke the record for the coldest temperature recorded in a lab till date
- From Apple to Caterpillar, which just launched a new ESG pay plan last week, CEO remuneration is being connected to environmental, social, and governance (ESG) measures across a wide variety of organizations.
- The oil and gas industry, which is at the epicenter of climate change and market risk, is tying executive compensation to carbon objectives.
- Royal Dutch Shell was one of the first Big Oil firms to tie bonuses and compensation to fossil fuel reduction goals, but more energy peers are following suit.
As energy demand rises and commodities market pundits predict a return to $100 oil, new factors in the energy sector are pressuring producers to extract less, ranging from increased fiscal discipline in the United States after a decade-long bust to ESG pressure and how energy executives are compensated by shareholders.
Royal Dutch Shell was only first Oil company that linked ESG to executive compensation in 2018, allocating 10% of (LTIP) long-term incentive plans to carbon reduction. BP followed suit, incorporating ESG factors into both its yearly bonus and long-term incentive plan. While the European majors were the first to integrate greenhouse gas emissions targets into executive compensation plans, Chevron and Marathon Oil are among the U.S.-based oil corporations to do so.
Current Scenario of Oil and Gas Industry:
The oil and gas businesses are joining a long list of public companies tying ESG to executive pay, including Apple, Clorox, PepsiCo, and Starbucks. Last week, industrial Caterpillar announced the creation of a new role of chief sustainability and strategy officer, as well as the announcement that a portion of CEO salary will henceforth be tied to ESG.
According to a similar study of board members and senior executives conducted by the business last year, nearly four out of five respondents (78%) intend to change how they employ ESG in their executive incentive schemes over the next three years. This illustrates the contemporary business argument about purpose vs. profit, with the environment taking precedence.
Fossil fuel industry under pressure:
According to the US Energy Information Administration, petroleum accounted for nearly a third of US energy consumption in 2020, but it was responsible for 45 percent of all energy-related CO2 emissions. Natural gas also produced 36 percent of CO2 emissions and provided nearly a third of the country’s energy. Coal, which accounted for roughly 10% of energy use and nearly 19% of emissions, has mostly been abandoned by oil and gas corporations.
The energy sector has rebounded this year as a result of robust global economic growth, and increased demand for oil and gas as a result of lower supply has resulted in a price increase. This could encourage oil and gas corporations to produce more, although compensation for energy transition targets is increasing. The CEO and CFO’s yearly bonuses in 2021 are expected to be 120 percent of their base salaries, which will stay the same as in 2020, at $1,842,530 and $1,200,900, respectively.