National Grid to link executive pay to carbon targets

The Sunday Times
June 21, 2009

Jenny Davey

NATIONAL GRID is planning to add environmental targets to the criteria for its executive bonus scheme.
Final details are still being drawn up but, in principle, 5% of the executive directors’ annual bonuses will be linked to green targets.
The company is carrying out a detailed audit on each of its businesses to establish what their emissions are, where they come from, and how they are measured.
Once the latest audit is completed this summer, National Grid will be able to set new car-bon-reduction targets that will be used as one of the criteria for the bonus scheme.
The aim is to produce annual and five-year targets measured in tonnes of carbon dioxide for each business.
These figures will then be integrated into the performance targets alongside customer service, reliability, operation-al and financial measures.
National Grid believes the move will help to drive a culture change in the company and to put green issues at the heart of the way it does business.
A spokeswoman said: “Minimising the impact on the environment and delivering safe, secure and economic supplies of energy to our customers is paramount to National Grid so we believe this is the right thing to do.”
The company has already set itself a long-term target to reduce greenhouse gas emissions 80% by 2050 and has an intermediate target to cut emissions 45% by 2020. The group is introducing low-emission vehicles for its fleets, developing low-carbon design features for its asset replacement programmes and incorporating carbon targets into its investment criteria.
Steve Holliday, the chief executive, is eager for National Grid to be seen as a leader in environmental matters. The company has teamed up with the World Wide Fund for Nature to seek its feedback on the group’s climate-change policies.
Holliday is not alone in his environmental initiatives. Deloitte said that six FTSE 100 companies, including Petrofac, Centrica, United Utilities and Carnival, had green targets as part of their pay schemes. At least a further four FTSE 250 companies also had green targets.
Carol Arrowsmith, pay consultant at Deloitte, said that she believed more companies would start to link their executive pay schemes to the quality of their business by using criteria such as environmental targets.
This approach was valid because mistakes in these areas could seriously damage long-term shareholder value, she added.
“Being green is becoming part of their licence to trade for some companies,” she said. “Being a good corporate citizen for some of the oil and energy companies has become a bit like health and safety. It is not because it is a nice thing to do, it is a necessary thing to do to be accepted.”
In America, executives have been building climate-change targets into their bonuses for some time.
A study last year of S&P 500 companies showed that93 of 321 respondents - or nearly 29% - had begun building environmental responsibility and climate awareness into executive incentives.
Half of the responding companies in the utilities sector have incentives tied to environmental goals.
ONLINE REPORTS
THE annual report hitting the doormat of investors could become a thing of the past - National Grid wants them to access its latest results online. Shareholders will no longer get the full paper version automatically. The Grid reckons if it sends out only a short summary version, it could save 150 tonnes of paper a year - equivalent to 2,550 trees.