The Carbon Disclosure Project (more commonly, CDP) continues to gain traction as perhaps the premier global repository for carbon emissions, mitigation strategy, and program disclosure information. The initiative began more than a decade ago as an effort driven by an atypical non-governmental organization (NGO) and has now gained the attention and support of many Global 500 companies along with their supply chain partners. During its 12-year existence, CDP has generally been less visible than other environmental NGOs. However, CDP’s emphasis on identifying material risks and capitalizing on opportunities strikes a chord with business leaders in general. So, in many ways, the rising interest by companies in recent years comes as no surprise.
This article briefly recounts the impressive evolution of CDP to an increasingly prominent NGO that is exerting a powerful influence on transparency and mitigation related to carbon, energy, water, and other natural capital assets.
Background on CDP (www.cdproject.net)
The CDP is an investor sponsored, non-profit organization based in the United Kingdom with offices across Europe, South America, Australia, New Zealand, India, China, Japan and the United States. The organization represents the collective interest of more than 650 institutional investors with over $78 trillion in assets. Given the strong investment community influence, CDP’s objectives have always centered on gathering, analyzing and reporting environmental data (initially carbon, then water, and likely additional parameters in the future) as a means for investors to improve the management of long-term risk and opportunity in their portfolios.
The CDP system is based on a simple formula: measure, report and manage the key parameters of interest. Through that process, CDP firmly believes that companies will pay appropriately close attention to long-term business sustainability and develop more effective strategies for mitigation – while simultaneously leveraging opportunities for improving business performance.
In its early stages, CDP sought to establish a framework for carbon disclosure including GHG emissions and energy consumption, with an initial focus on the utility sector. By the mid-2000s, CDP began sending annual questionnaires to the Chief Executive Officers (CEOs) of Global 500 companies requesting detailed information on carbon emissions, energy consumption, climate change risks and opportunities, and carbon mitigation strategies. As things have evolved, the disclosure program now includes a more detailed questionnaire for Global 500 companies, a separate questionnaire for Global 500 supply chain partners, and new questionnaires on topics beyond carbon (as discussed below).
Response rates to the CDP questionnaire have improved dramatically over the past five to seven years. Historically, the percentage of recipients responding to the annual questionnaire was often below 50%. In recent years, the response rate has consistently been at or above 70%. Plus, company responses to the Supply Chain questionnaire have continued to increase. Some statistics from the 2012 CDP summary bear out these points:
- Among Standard and Poors (S&P) 500 companies, the response rate was right at 70%
- For the Global 500 group of companies, the response rate was 81%
- Supplier responses have increased to 1,864 in 2012 versus 1,000 in 2010 and 715 in 2009
Increasing Impact via Leadership Indices and Special Programs
To extend efforts to meet its objectives regarding transparency and performance improvement, CDP has established two leadership indices and four topical programs. These include:
- Carbon Disclosure Leadership Index
- Carbon Performance Leadership Index
- Water Disclosure
- Supply Chain Program
- US Cities Disclosure
- Forest Footprint Disclosure (New)
The purpose of the Leadership indices is to recognize companies that excel in providing detailed information on carbon data (Carbon Disclosure Leadership Index) and that have achieved notable progress in terms of mitigation (Carbon Performance Leadership Index). Companies can improve their scores on either (or both) leadership index by demonstrating the following actions:
- Comprehensive treatment of strategy, risk and opportunity management as well as inventories, GHG inventories, programs and performance
- Strong management support
- Comprehensive GHG inventory – including Scope 3 with verification
- Demonstrated performance with respect to achieving GHG reduction targets
- Proactive mitigation, adaptation, and transparency
- Providing supporting and corroborating information
- Consistency across responses
- Interpreting and addressing trends
The Water Disclosure program was established to catalyze sustainable corporate water management, so that businessescan capitalize on changing global water availability, measure and manage their water use, and manage the risks that water shortages may pose to their supply chains. As with the Carbon Disclosure program, an essential objective is improve performance by providing data that can inform companies, investors, and governmental entities.
The Supply Chain program was established to enable companies to improve their understanding of how supply chain carbon emissions impact their overall carbon footprint as well as how to engage with suppliers to address carbon risks and opportunities. Nearly 60 companies have signed on as members of the Supply Chain program, many of whom are requesting that their key suppliers report carbon data via the CDP system. The CDP’s Supply Chain program has received significant visibility due to Wal-Mart’s adoption of the CDP reporting platform under its Supplier Sustainability Initiative.
The US Cities program was established to provide a platform for municipalities to improve transparency regarding carbon emissions data, analysis of climate risks/opportunities, mitigation strategies and adaptation plans. The CDP expects that this repository of information will improve the sharing of best practices across municipalities worldwide.
The CDP reporting schedule is now well established and consistent from year to year. Slight differences exist depending on whether the company is responding to CDP’s Investor request or Supply Chain request. Companies should be aware of the deadlines and their relation to other environmental disclosure dates related to regulatory deadlines.
As noted on the CDP web site, the deadlines for Carbon and Waste Disclosures are as follows:
Investor Carbon Disclosure: CDP sends out its annual information request to company CEOs on February 1st after which the online response system is open for data input from disclosing companies. Companies should submit their CDP response by the May 30th deadline. Information is published on the CDP website during the month of September.
Supply Chain Carbon Disclosure: CDP sends out its annual information request to companies worldwide on April 1st after which the on-line response system is open for data input from disclosing companies. Suppliers should submit their CDP response by the July 31st deadline. Information is published on the CDP website during the month of January.
Water Disclosure: The timeline depends on the type of request made by CDP. For the Investor survey, companies receive the request in early February and must submit responses by June 27th. For Supply Chain water disclosure, companies receive the request in early April and must submit responses by July 31st.
Forest Footprint Disclosure: This new disclosure program will follow the same timelines that exist for the Water Disclosure program.
Why Report to CDP & What Lies Ahead?
Most large organizations, along with many small/medium enterprises, are now discovering that environmental disclosure requests from key stakeholders have become a business imperative. This fact is especially true with respect to information and strategy on GHG emissions. What in the past might have been infrequent and optional is now regular and becoming mandatory.
As noted in this article, CDP has gained traction in the past decade as a significant platform for disclosure regarding carbon, energy, and other natural capital assets. As articulated well by CDP, companies that disclose are able to demonstrate awareness of GHG issues, leadership in understanding climate change and water risks, positioning to capitalize on innovation and revenue generation opportunities, and preparation to avert future risks from climate change and water impacts. As the influence from CDP increases globally, companies of all sizes would benefit from being prepared to respond.
Companies already reporting to either the Investor or Supply Chain CDP surveys should expect to be prompted in the future to provide more detailed responses regarding emissions, risk management plans and strategies for capturing opportunities as related to activity within their own organizational boundaries. Further, questions from the CDP surveys will continue to prompt companies to consider the benefits of establishing programs to address environmental risks related to their supply chains. As companies undertake this evaluation, many will develop life cycle carbon/energy analyses to prioritize mitigation efforts within their supply chains. Moving forward, current CDP respondents should also strive to develop a better understanding of the expectations connected to CDP’s newer programs – such as the relatively new Water Disclosure and emerging Forest Footprint Disclosure – to understand whether and when stakeholder requests for this information might be forthcoming.
Companies not currently reporting to CDP may find it prudent to evaluate whether their key customers are CDP respondents or, more significantly, members of the CDP Supply Chain program. With the already noted strong CDP emphasis on supply chain management, companies who do not directly receive CDP questionnaires may be tasked by their customers to provide input to their customers’ CDP disclosures.
In conclusion, the CDP disclosure program is likely to continue its momentum toward a greater level of global influence on companies’ GHG (and other environmental asset) disclosures. This increased influence will occur either directly via CDP’s survey process or indirectly due to CDP respondents asking for similar information from their supply chains.
As your organization considers disclosure, there are several considerations to keep in mind. These include:
- Gathering accurate information is important because it can be used to determine enterprise value
- Verification of the collected information typically increases the level of credibility stakeholders place in your response
- Development of automated systems to facilitate data collection and analysis tends to be highly beneficial and cost effective
- CDP surveys do force a company to honestly examine long-term risks and opportunities
- CDP surveys and other similar disclosure programs are increasingly pointing companies in the direction of assessing impacts beyond their own organizational boundaries – that is, toward conducting life cycle analyses
For further information on how Trinity can assist with any of your needs related to environmental and carbon disclosure information collection, analysis and reporting, please contact Rich Pandullo, Director of Sustainability & Environmental Management, at (919) 462-9693 or email@example.com. Note that Trinity is an official partner of CDP in the area of Education and Training.