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ACCA Applied Knowledge · Business and Technology · Sustainable business practices

A manufacturing company wants to embed sustainability into its strategy. The board decides to set targets for reducing carbon emissions and waste, to report progress to stakeholders each year, and to link part of senior managers' pay to meeting those targets. Which of the following best describes the main benefit of linking managers' pay to the sustainability targets?

The main benefit is that linking pay to sustainability targets aligns managers' personal incentives with the company's sustainability objectives, making implementation more likely. It does not remove reporting duties and cannot guarantee short-term profit, since sustainability investment often involves up-front costs before any benefits emerge.

  1. AIt aligns managers' personal incentives with the sustainability objectives, so the strategy is more likely to be implementedCorrect
  2. BIt removes the need for the company to report sustainability performance externally
  3. CIt guarantees that the company will become more profitable in the short term

Explanation

Linking remuneration to sustainability targets gives managers a personal incentive to achieve them, which helps turn strategy into action. It does not replace external reporting, which the board still intends to carry out. It also cannot guarantee short-term profit, as sustainability investment may involve costs before benefits arise.

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