answering your questions about the CDP
published 6.20.21
The threat that climate change poses for business is no longer theoretical.
The mistake many companies make when addressing their carbon footprint for the first time is assessing their new programs with metrics like ROI, expected costs versus profit, differentiation, and competitive position. These actions seldom show short term financial returns, making it necessary to add other metrics to the pool.
Data disclosed to the Carbon Disclosure Project (CDP)* in 2018 by 4,800 global companies that collectively reported supply chain efficiency efforts showed 551 million metric tons of carbon reduction and $14 billion USD in cost savings. We must move towards a model that demonstrates that true value, measured not by immediate ROI but by the ability to maintain natural and societal resources over the long term.
“the first step towards managing carbon emissions is to measure them because in business what gets measured gets managed”
- Lord Adair Turner, Chairman, UK Financial Services Authority.
It is not only important to measure emissions, but also to make data available to the public and have a framework that supports comparability. Doing so helps companies identify areas for prioritization and allows them to understand the impact of their supply chain while giving other stakeholders visibility.
Here are some questions we’re frequently asked about the CDP:
How does it work?
CDP provides a detailed questionnaire about water, deforestation, and climate for companies to fill out. This serves as guidance for companies to determine what needs to be measured based on their industry, products, supply chain, etc.. After the information is submitted, CDP gives every company a score from A to D based on a standardized methodology that measures whether and how well a company responds to each question. A high CDP score means high environmental awareness, advanced sustainability governance, and leadership, and a low score is a call to action.
As companies undertake the endeavor of measuring emissions, they have come to realize that “Scope 3”— indirect emissions related to a company’s operations, value chain, and product usage— represents more than 80% of the total emissions. Measuring this can be a very complicated and time consuming process. This is why the CDP provides an option for corporations to request that their suppliers fill out the CDP report in order to gather data about water, deforestation, and climate impacts and make appropriate procurement decisions.
How does it integrate into the reporting landscape?
Today we hear of many reporting frameworks companies, and it can become difficult to understand the unique purpose of each one and how they interact. The key here is to understand who your target audience is.
To start off, we have SASB and GRI, two organizations that have studied which issues are material by industry and identify which metrics matter the most to the specific audiences. Companies can use these frameworks when conducting their own materiality assessments. SASB focuses on investors, with GRI geared towards general stakeholders. Unlike CDP, these entities do not provide a questionnaire to fill out, but rather guidance on what metrics to include in each company's sustainability report. CDP focuses on the environment, while the other two focus on social, environmental, and economic factors as a whole.
More recently, we have seen a rise in corporate disclosures using the guidance of the Task Force on Climate-Related Financial Disclosures (TCFD). Rather than focusing on the company's impact on the environment, it focuses on the environment's impact on the company. Because it is very important to assess the level of risk companies are taking, SASB, GRI, and CDP joined forces in 2020 to align TCFD with their respective reporting strategies. In doing so, the CDP started including questions around scenario planning and carbon pricing, which are critical items for companies tackling climate change.
Finally, there is the GHG Protocol, which is a manual with instructions on how to measure emissions in a standardized way.
More information on how these and other platforms compare can be found at The Landscape Map and this partnership article.
What are the benefits and limitations of CDP disclosure?
Disclosing environmental data can take a lot of time, yet it also brings many benefits to your company and shareholders. CDP is hard at work on finding solutions and ways to add more value to companies. Benefits, limitations, and next steps can be found below.
Benefits
Investors: CDP claims that 590 investors and 200+ large purchasers with over $115 trillion USD in assets have requested that companies disclose environmental data through CDP since 2016.
Environmental, Social, and Corporate Governance (ESG) strategy:
Reporting environmental metrics allows companies to understand which aspects of the business have the highest environmental impact. For example, Walmart only realized the emissions impact of its refrigeration after disclosing.
The platform has allowed companies to see the environmental impact of suppliers to drive better procurement decisions. Examples from Dell and PepsiCo here.
Compare themselves with competitors and learn from a network of companies.
Improve business reputation: build trust through transparency and respond to public environmental concern.
Regulation preparedness: allows companies to be prepared for likely mandatory environmental reporting rules.
Uncover risks and opportunities: generate new insights by looking at data through a different lens. Examples of economic impacts disclosed from climate disasters here.
Track and benchmark progress.
Establish a credible strategy for mitigation and adaptation that includes items related to TCFD, carbon pricing, and science based targets (SBTi).
Limitations
According to MIT press, there are two main limitations to CDP:
Since everything is voluntary, companies choose what to disclose and how to measure it. This presents difficulties when comparing companies. CDP is working hard to solve this.
There is no clear study that demonstrates how much investors are affected by climate change. There is still a big short term incentive driven by stock prices and providing immediate value that affects these decisions.
What can I expect from the CDP in the near future?
CDP’s focus points for the next 5 years are:
Quality and detail of data: ask suppliers to provide emissions data broken down by customer, facility, process, and product.
Standardization: ask governments, companies and investors to request information in a standardized way.
Supplier performance management: facilitate discussions between procurement teams to identify key performance indicators for incorporation into supplier management processes.
Innovation: drive new products and markets. CDP will be requesting information on business opportunities related to climate change and proposals for collaborative projects for emission reductions.
If you’re looking for support tracking, disclosing, or addressing your carbon emissions, drop us a line - we’d love to chat.
*The CDP is a non-profit that runs the largest environmental disclosure platform for companies, governments and investors. Its purpose is to help organizations tackle climate change, safeguard water and protect forests. Currently more than 8,400 companies representing 50% of the world's market capitalization use it to disclose emissions.
by María Otero-Estrada
Consultant
