Cummins Inc: Linking CEO Compensation To Climate Performance

November 28, 2022 As You Sow

WHEREAS: The IPCC states that the window for limiting global warming to 1.5 degrees Celsius (“1.5oC”) to avoid the worst impacts of climate change is quickly narrowing. Immediate, sharp emissions reduction is required of all market sectors.[1]

In response to this growing material climate risk, the Climate Action 100+ initiative (“CA100+”), a coalition of over 700 investors with $60 trillion in assets, issued a Net Zero Benchmark (“Benchmark”) outlining metrics that create climate accountability for companies and transparency for shareholders. Expectations include setting a net zero ambition, adopting 1.5°C aligned reduction goals across all relevant emission scopes, and establishing executive compensation metrics for achieving emissions reduction targets.[2]

As a global leader in engine manufacturing and components for heavy industrial vehicles, Cummins Inc. (“Cummins”) is included on the CA100+ list of the world’s largest corporate greenhouse gas emitters. Companies in the transportation sector are particularly vulnerable to climate risk as this sector was responsible for 37% of global greenhouse gas emissions in 2021.[3]

Cummins has set a goal to reduce its Scope 3 use-of-product emissions, which represent 99% of the Company’s value chain emissions, by 25% by 2030 (from a 2018 baseline), a goal significantly below that necessary to align with the 1.5°C Paris goal and the CA100+ Benchmark. Cummins is not on track to achieve even this limited goal. From 2018 to 2021, Cummins’ use-of-product emissions have increased 6 percent.[4]

Cummins has also failed to meet the CA100+ Net Zero Benchmark indicators for climate-related executive compensation metrics.[5] Cummins’ compensation structure does not currently link greenhouse gas emissions reduction to executive compensation.[6] In fact, Cummins received an “F” grade on a recent report assessing Company Chief Executive Officer (CEO) compensation linkage to climate performance.[7]

Linking executive compensation to achieving 1.5°C aligned emissions reductions will incentivize leadership to prioritize climate performance while providing board oversight on this important issue. By tying CEO pay to 1.5°C aligned emissions reduction targets across its value chain, Cummins can assure investors it is adequately planning for long-term value creation and managing climate risk.

BE IT RESOLVED: Shareholders request the Board disclose a plan, at reasonable expense and excluding confidential information, to link executive compensation to 1.5°C aligned greenhouse gas emissions reductions across the company’s value chain, including Scope 1, 2, and 3 greenhouse gas emissions.

SUPPORTING STATEMENT: Proponents suggest the Board assess and disclose the benefits to the company of:

Linking executive compensation to emission reductions across the Company’s full value chain;
Linking compensation to a: (1) standalone, (2) quantitative emissions reduction metric, (3) that is not a de minimis portion of total pay;
Including emission reductions in the long-term incentive plan, preferably as performance share units;