Chipotle Links Executive Compensation With ESG Goals

While voluntary, ESG planning is being driven by investors and possibly by Congress.

March 08, 2021


NEWPORT BEACH, Calif.—Companies across the United States, including big names like Chipotle and McDonald’s, are beginning to link compensation for their executive teams to the company reaching environmental, social and governance (ESG) milestones. Many investors have placed more value on companies with such goals, giving them greater importance to corporations.

Chipotle Mexican Grill announced that it has introduced a new ESG metric that ties executive compensation to ESG goals. The objectives, which are categorized by Food & Animals, People, and the Environment, will hold Chipotle’s executive leadership team responsible to make business decisions that cultivate a better world, according to a press release.

  • Food & Animals: $5 million over the next five years to help invigorate the struggling farming industry. The company also introduced a Virtual Farmers Market to help create additional revenue streams for its suppliers amid COVID-19.
  • People: Maintain both racial and gender pay equity. Chipotle is also implementing a program to accelerate the development of its diverse field organization and support center employees for promotion to above restaurant and next level roles.
  • Environment: Moving its 2025 goal to publish its Scope 3 emissions to December 31, 2021.

For the convenience and fuel retailing industry, publishing Scope 3 emissions will allow them to discuss the low carbon fuels they are selling to consumers, such as biodiesel, ethanol, natural gas and electric (kWh).

Starting this year, Chipotle’s executive leadership team will be evaluated on the company’s progress toward the following, overarching company goals, and 10% of their annual incentive bonus will be tied to the company’s ESG progress.

Performance for racial and gender diversity goals also will impact executive compensation plans at McDonald’s. The company is now incorporating quantitative human capital management-related metrics to annual incentive compensation for its executive vice presidents, according to a press release. In addition to McDonald’s financial performance, executives will be measured on their ability to champion the company’s core values, improve representation within leadership roles for both women and historically underrepresented groups, and create a strong culture of inclusion within the company.

By the end of 2025, McDonald’s expects to increase representation of underrepresented groups in leadership roles at the senior director level and above in the U.S. to 35%, and increase representation of women in leadership roles globally, also senior director and above, to 45%. The 2020 baseline data shows women make up 37% of leadership roles.

Lender and Investor Interest

As noted in the NACS Sustainability Playbook, the banking and investment communities have long expressed interest in sustainability issues. However, more recently sustainability reporting metrics and tools have become mainstream and the concept is more widely accepted. They also are looking at ESG factors when making corporate loans and they are starting to provide borrowers with lower interest rates based on their sustainability profile.

Large asset managers are also aggressively pursuing sustainability-based investment strategies. Larry Fink, the CEO of Black Rock, issued a letter to the world’s CEOs encouraging them to focus on triple bottom line issues. “We believe that sustainability should be our new standard for investing,” he said.

Convenience Retail Interest

In a recent Convenience Matters podcast, “Why ESG Is Becoming Important to Retailers,” Jeff Hove, vice president of the Fuels Institute, shared insights on how voluntary ESG could change with legislative efforts to drive greater sustainability programming in the future.

“A lot of companies out there have got a sustainability program,” Hove said. “What ESG is really doing is demanding the tracking of certain metrics that are material to greenhouse gas emissions,” he said, adding that the transportation industry is looking at CO2 emissions. “The fuels industry has implemented numerous environmental initiatives, from leak prevention to low carbon fuels, and the ESG plan is a good tool to share what organizations have achieved,” he said.

While voluntary, many companies are working on ESG planning because the Biden Administration has made environmental protection a cornerstone of its plans.

“A lot of [company ESG planning] is being pushed by investors,” Hove said. “Indirectly, our folks will be doing business with other folks who may be demanding that [retailers] have an ESG plan in place to do business with them. It’s a bit of a domino effect.”

NACS members who are interested in learning more about ESG and a new Fuels Institute resource that’s under development may contact Hove at