Increased pressure for business transparency is motivating more companies to disclose environmental, social, and governance (ESG) information. Whether through reporting standards like the Global Reporting Initiative, indices such as the Dow Jones Sustainability Index, disclosure guidelines such as those of the Sustainability Accounting Standards Board, or investor and supply chain disclosure through CDP, stakeholders are influencing how businesses operate like never before.
CDP, previously known as the Carbon Disclosure Project, is a not-for-profit organization based in the United Kingdom that seeks disclosure on climate change business risks and opportunities, and greenhouse gas (GHG) data from the world's largest companies. Established in 2000, CDP has expanded its purview from investor climate change disclosure only in its early existence to now also include supply chain disclosure, water and forest footprint disclosure, and development of disclosure and performance leadership indices. CDP is the coordinating secretariat for 827 institutional investors with a combined $100 trillion of assets under management. CDP's influence is spreading through its Supply Chain program as well, with 89 companies requesting disclosure by their enterprise partners, comprising $2.7 trillion in procurement spending for 8,200 suppliers.
The objective of this article is to provide an overview of the CDP reporting process and how companies can achieve performance excellence through this vehicle for disclosure of climate change related information.
CDP Reporting & Disclosure
CDP reporting and disclosure is performed on an annual cycle. The request for information (RFI) on behalf of investors is issued in February and directed primarily to Chief Executive Officers of Global 500 companies, with responses due to CDP by the end of June. Supply chain members receive their RFI in April, with responses due by the end of July. Companies can respond regardless of whether they receive the RFI and can participate in either or both questionnaires.
The scope of CDP reporting is comprehensive, covering management, risks and opportunities, and emissions for Scope 1, Scope 2, and Scope 3 GHG emission sources, thus providing a thorough disclosure of a respondent's global climate change strategy and program. Each question is thoroughly evaluated and scored based on the quality of disclosure and the respondent's performance. Table 1 provides a summary of the core disclosure topics for both investor and core supply chain questionnaires.
Table 1. Investor and Supply Chain Core Disclosure Topics
|Strategy||Scope 1 Emissions Breakdown|
|Targets & Initiatives||Scope 2 Emissions Breakdown|
|Climate Change Risks||Emissions Performance|
|Climate Change Opportunities||Emissions Trading|
|Emissions Methodology||Scope 3 Emissions|
The supply chain disclosure program includes additional questions, as summarized in Table 2.
Table 2. Supply Chain Question Module
|Supply Chain Climate||Supply Chain Water|
|GHG emission allocation to customers||Customers' water-related risks|
|Collaborative opportunities with customers||Collaborative opportunities with supply chain members to reduce water risk|
|Lifecycle emissions for products, goods, & services||Reporting product or service water intensity for operations|
|Emission reduction initiatives||--|
|CDP Action Exchange Initiative for emission reduction projects||--|
Following submittal and evaluation of questionnaires, CDP publishes scores from the investor questionnaire in the Fall of each year through regional and country-specific reports. Prior to 2016, a numerical disclosure score (1-100) and letter performance band (A-E) were assigned to each responding company. For the 2016 and 2017 cycles, the scoring methodology has been modified to a single letter designation, as shown in Table 3.
Table 3. CDP Scoring Methodology
|Leadership||Steps taken to represent best practice||A/A-|
|Management||Implementation of actions, policies, and strategies to address environmental issues||B/B-|
|Awareness||Assessment of environmental issues, risks, and impacts in relation to the business||C/C-|
|Disclosure||Completeness of company response||D/D-|
For the 2017 cycle, progression through the four consecutive levels is achieved by obtaining at least 80 percent of the available points at each level. Scoring less than 45 percent of the available points at a given level is denoted by adding a minus sign to the scoring level. Companies demonstrating climate leadership are recognized on CDP's "A-List." Companies that receive the annual questionnaire and choose not to respond or do not provide sufficient information receive an "F" designation and are listed in CDP's reports. For the 2016 reporting cycle, the supply chain disclosure report included the names of companies that achieved "A-List" designation.
Achieving Performance Excellence
CDP's scoring approach leverages market forces to encourage disclosure of impacts on the environment and natural resources, and to measure and manage environmental impacts. An underlying objective is to have this disclosure motivate company action to reduce negative impacts. The scoring methodology is intended to assess a responder's progress towards environmental stewardship as disclosed through their CDP response, and provides a snapshot of how they compare with other companies. A summary of the maximum available points by questionnaire section is presented in Table 4, with sections garnering the most potential points highlighted.
Table 4. Summary of CDP Questionnaire Maximum Scoring by Module
|Targets & Initiatives||17||14||15||3|
|Scope 1 Breakdown||5||0||0||0|
|Scope 2 Breakdown||5||0||0||0|
|Overall Total (Range)||136-189||73.75-95.75||71-84||18.5-21.5|
|Source: CDP 2017 Climate Change Scoring Methodology|
Several aspects of the CDP scoring methodology are important to note:
- Each scoring level has a range of available points based on scoring routes and the answers provided to each group of questions. Generally, answering yes to more questions garners a higher score. Scores are calculated as a percentage in order to normalize the effect of different question routes, with the final score being the number of points awarded divided by the total number of points available.
- The sections providing the highest potential for scoring include strategy, targets and initiatives, risks and opportunities, emissions data (Scope 1 and 2), and Scope 3.
- Unanswered questions are scored zero, with blank cells within a table interpreted as not responding to the question. If no Disclosure points are awarded for a question, there is no eligibility for points at the Awareness, Management or Leadership levels.
- Scoring in the Scope 3 section is enhanced by reporting GHG emissions for more of the 15 Scope 3 emission categories.
- Points for GHG inventory verification are included in the maximum available points for Emissions Data (Scope 1 and Scope 2) and Scope 3 sections. Verification comprises over 30 percent of Disclosure points for each section; and about 50 and 100 percent of Management points for Emissions Data and Scope 3, respectively. This could make the difference in a company's ability to progress through each of these performance levels.
Due to the complexity of the CDP questionnaire, it is important to follow questionnaire directions explicitly. Input from a third party can be instrumental to ensure conformance and to improve quality of the submittal.
CDP recognizes positive and effective actions to mitigate risks due to climate change by awarding organizations a high leadership score through inclusion in the "A-List" of their respective program. To achieve "A-List" status, the following must be included in a company's response in addition to achieving the scoring thresholds:
- No significant relevant exclusions
- Verification of at least 70 percent of both Scope 1 and Scope 2 GHG emissions
- Obtain minimum Leadership points
- Submit a public response to the investor request
Additionally, the following checks must be passed:
- Manual Leadership question check by the CDP scoring team
- RepRisk check for reputational issues
- CDP local offices check
- CDP Scoring Steering Committee approval
While excellence in disclosure and performance is based in part on a respondent's values and intentions, their accomplishments and how well they set and achieve goals and objectives is emphasized.
CDP continues to raise the bar on climate change reporting and disclosure, with means for disclosure expanding to other venues over time. Key points for companies to develop a substantive disclosure include:
- Strong tone-at-the-top for climate change responsibility and accountability
- Comprehensive GHG inventories (including Scope 3 emissions) and verification
- Energy and GHG reduction targets, and demonstrated performance against targets
- Proactive mitigation, adaptation, and transparency (i.e., a key to progressing to advanced levels)
- Disclosure completeness and comprehensiveness, including means other than CDP
- Prior year's reporting trends and areas where other respondents are making headway
With the 2017 reporting cycle in progress, it is time to take stock now of how 2016 data will be developed, compiled, quality assured, reported, and potentially verified. For further information, please contact John Fillo, Principal Consultant, at (724) 996-1946 or firstname.lastname@example.org.