From Morningstar: 2024-09-25 06:53:00

CEO compensation at the largest US oil and gas companies is only linked to climate targets by around 3%, with goals often being weak or ambiguous. Investors have power to push for climate-aligned executive pay, but companies are slow to adopt meaningful climate incentives. There is a disconnect between investor expectations and CEO pay, with many companies favoring traditional business practices over transition objectives. The energy transition poses a governance challenge for oil and gas companies, urging them to transform or risk obsolescence due to peak fossil fuel demand by 2030, driven by clean energy investment and climate policies. Best practices for transitioning involve clear, quantifiable emissions reduction targets and governance structures to support climate transition plans. Despite ambitious language on climate goals from oil and gas companies, CEO pay structures do not prioritize the energy transition, highlighting a need for investor-driven change through “say on pay” voting mechanisms. Climate transition plans by these companies fall short of Paris goals, lacking net-zero emissions targets and definitive strategies for scope 3 emissions reductions. Only five out of 15 companies have set credible emission reduction targets, with some companies failing to disclose their scope 3 emissions data. Long-term incentive-based CEO pay at oil and gas companies largely lacks climate metrics, eroding their influence over time. Exxon Mobil and Valero are among the few companies incorporating climate considerations into CEO LTIPs, although the impact on final payouts remains uncertain. The majority of oil and gas companies do not integrate climate actions into CEO pay incentives, signaling a need for stronger governance around energy transition goals.



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