(21 March 2025 – Global) Major banks including UBS and HSBC are scaling back climate-linked incentives in executive pay, reflecting growing ESG scepticism, especially in the US.
UBS removed references to emissions reductions in its executive compensation plan, while Standard Chartered dropped financed emissions targets from its annual bonuses. HSBC reduced the weight of environmental goals in its long-term incentives from 25 percent to 20 percent following investor feedback. However, none of the banks have abandoned sustainability-linked pay entirely.
UBS said it retained some “environmental and sustainability” metrics. Standard Chartered’s long-term incentive plan and annual group plan reference cuts to financed emissions. The bank says its “commitment to sustainability is unwavering and comes right from the top”.
Investor concerns that ESG metrics may be too easy to achieve or lack meaningful impact are also influencing this shift. Data from WTW suggests that qualitative environmental targets often lead to higher payouts than quantifiable decarbonisation goals, raising questions about their effectiveness.
According to Tom Gosling of the London School of Economics’ sustainable finance initiative, as reported in the FT, ESG-linked pay can help focus attention on sustainability issues, but “there’s this danger of hitting the target and missing the point.” He warns that such schemes may simply lead to higher executive pay without driving real environmental change, “ESG targets aren’t really making nasty companies do less nasty things.”
With ESG under increasing scrutiny, companies now face a dilemma—refine sustainability-linked incentives to ensure real impact or risk further retreat in the face of investor and political pressure.