While critics claim that ESG pay is simply a PR move, Reichelstein and researchers found that it does help firms reach ESG benchmarks.
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As ESG investing has boomed, so has a movement to tie executive compensation to environmental, social, and governance goals such as reducing carbon emissions, diversifying the workplace, and improving corporate culture. Like all things ESG-related, this has sparked skepticism and controversy. Are these incentives and bonuses driving CEOs to meet ambitious goals or are they just another way to pad compensation packages?
The questions surrounding “ESG pay” and its efficacy intrigued Stefan J. Reichelstein, a professor emeritus of accounting at Stanford Graduate School of Business and a senior fellow at the Stanford Institute for Economic Policy Research and the Precourt Institute for Energy. With colleagues Shira Cohenopen in new window of San Diego State University, and Igor Kadachopen in new window and Gaizka Ormazabalopen in new window, PhD ’11, of IESE Business School in Barcelona, he recently published an early-stage exploration of the scale of ESG incentives in the C-suite and their impact.
This piece originally appeared in Stanford Business Insights from Stanford Graduate School of Business. To receive business ideas and insights from Stanford GSB click here: (To sign up : https://www.gsb.stanford.edu/insights/about/emails ) ]