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On climate change, boards have key role to play

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Calvert tested the financial materiality of five gender diversity factors: (1) number of female board members, (2) percentage of female board members, (3) number of women in board leadership roles, (4) number of women named executive officers (NEOs) and (5) TruValue’s circumstantial score related to diversity and inclusion news/issues over a three-year period.

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By John StreurPresident and CEO, Calvert Research and Management

Washington - Today, I'll have the privilege of participating in a webinar on climate change for the National Association of Corporate Directors (NACD). This issue can have broad consequences for business models, shareholder value and growth potential, which means that corporate board members need to examine the potential impacts of climate change on their operations.

This follows the release earlier this year of the 2019 NACD Blue Ribbon Commission report, Fit for the Future: An Urgent Imperative for Board Leadership. It emphasizes the importance of board leadership acting as agents of change to help their companies adapt to the modern competitive landscape, which is constantly and rapidly changing. Many of these changes involve environmental, social and governance (ESG) issues, and climate change is among the most critical of these.

Among the focuses of the webinar will be the risks that boards need to consider, and the role board members can play in helping to address them.

Recognize the risks

It has become more apparent that all companies should be concerned about climate risk, not just those operating in fields like energy where the connection is obvious. Many boards have recognized and embraced the need to examine this. Among the key areas of risk to consider are:

  • Regulatory
  • Litigation
  • Physical
  • Transition
  • Existential
  • Systemic

Not all risks are equally applicable to every company or in every subindustry, but board members should consider which ones are material for their particular operations and examine them accordingly. Many of these risks may cause concern for companies of all sizes and in every industry.

Necessary oversight

Boards have a key role in overseeing company management. For climate change, board members should determine which metrics are material to company operations and examine those to ensure that management is responding appropriately. Boards should consider linking particularly important metrics to CEO compensation.

Investors are paying increasing attention to client risk, demanding that companies demonstrate that they are prepared for the potential impacts of climate change.

Bottom line: Increasingly, corporate boards are recognizing the impact of risks and opportunities associated with climate change on material areas of their businesses.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.