Stakeholders are influencing how businesses operate more than ever before, in part by exerting increased pressure to disclose environmental, social, and governance (ESG) information. This is being achieved through reporting standards like the Global Reporting Initiative, indices such as the Dow Jones Sustainability Index, disclosure guidelines such as the Sustainability Accounting Standards Board, investor and supply chain disclosure through EcoVadis or CDP, and adoption of sustainable development goals. This article focuses on some of the key developments in CDP's climate change reporting and disclosure program.
CDP 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 to now also including supply chain disclosure, water and forest footprint disclosure, development of disclosure and performance leadership indices, and other programs.
Developments in Reporting and Disclosure
The scope and complexity of disclosure to CDP has increased steadily, with 2018 marking a major update and revision to the disclosure programs' questionnaires.
Climate Change Disclosure Questionnaire
The structure of the climate change questionnaire has undergone some significant changes, as illustrated in the following table:
Specific changes and additions to the requested information is described below.
In prior years CDP requested information from companies in selected sectors (e.g., oil and gas, electric utilities, auto/auto component manufacturers, information/communications technology, and food, beverage and tobacco) through use of supplemental modules. Responses to questions in these modules were requested and were not scored.
For 2018, CDP incorporated sector-specific questions for 12 high-impact sectors grouped within four specific clusters:
Questions for specific sectors are now integrated within the individual questionnaires, as appropriate based on industry, and will be scored. CDP plans to introduce additional sectors in 2019.
While much of the same types of data and information are requested, certain questions have been consolidated and reorganized, and the level of requested detail has increased. Key developments in the questionnaire include:
- Governance - The question places greater emphasis on the position(s) with specific responsibility for climate-related issues and rationale, including the Board of Directors and Executive Management. Effective climate governance goes beyond just reporting to the Board or Management, but who has the ultimate responsibility and accountability.
- Risks and Opportunities - Detailed information still is required to describe and quantify risks and opportunities. However, the scope extends beyond just physical, regulatory and other to include technology, market, reputation, upstream and downstream. Responders need to address these broader categories of risks and opportunities, which no doubt were informed by responses from prior reporting years.
- Business Strategy - Specific questions are included on the use of scenario analysis and development of transition plans in determining business strategy related to climate change.
- Targets and Performance - There is a clear hierarchy associated with setting greenhouse gas (GHG) reduction targets, with an emphasis on absolute vs. intensity targets. The use of science-based targets (SBT) is more prominent, as well, with a claim for disclosure of SBTs requiring a priori validation by the SBT Initiative. Additionally, responders have the ability to designate climate goals other than just for GHG emissions (e.g., energy, waste) in their 2018 disclosure, thus enhancing the emphasis on continual performance improvement.
- Emissions Data - Scope 1, 2 and 3 emissions are addressed in this section. There no longer is a separate major category for reporting Scope 3 related information.
- Additional Metrics - The question is intended to identify areas, beyond GHG emissions, where companies are trying to reduce their environmental impacts. Explicit information is requested regarding metric(s) numerator and denominator, change from previous year and explanation(s).
- Verification - Specifics regarding verification efforts for Scope 1, 2 and 3 GHG emissions are included herein. The questionnaire provides the option to perform verification of other climate-related information reported in the CDP disclosure, as well.
- Carbon Pricing - This section comprehensively addresses carbon pricing to include regulated and voluntary emissions trading systems, cap and trade systems, and carbon taxes for which the respondent participates or is assessed. Company use of internal carbon pricing, as well as origination and use of project-based carbon credits, is addressed.
- Engagement - While prior questionnaires addressed the topic of communications, the 2018 questionnaire specifically requests information regarding value chain and public policy engagement. The former is to understand how a company works with upstream and downstream partners to reduce negative environmental impacts. The latter is intended to understand how companies' public policy activities on climate change relate to other stances taken.
- Other Land Management - This section is focused to agricultural commodities; food, beverage & tobacco; and paper and forestry sectors.
Finally there is one underlying theme that has influenced the changes made to the climate change and other questionnaires (i.e., supply chain, water, forest). The Financial Stability Board (an international body that monitors and makes recommendations regarding the global financial system) established the Task Force on Climate-related Financial Disclosures (TCFD), which has enhanced climate disclosure through emphasizing the link between climate-related risk and global financial stability. While the focus is on conducting scenario analysis in line with a two-degree GHG reduction pathway and then determining how climate-related issues affect business strategy and financial planning, the TCFD recommendations have had a profound effect on the evolution of the CDP questionnaires.
CDP continues to raise the bar on climate change reporting and disclosure. Key points for companies to develop a substantive disclosure include:
- Strong tone-at-the-top from the Board and Executive Management for climate change responsibility and accountability, including well-defined roles, responsibilities and authorities
- Comprehensive GHG inventories, including location- and market-based Scope 2, and Scope 3 emissions and verification
- Proactive risk and opportunity management, with effective risk mitigation and leveraging of opportunities
- GHG, energy and other performance targets, demonstrated performance against targets, and development of science-based targets GHG reduction targets
- Proactive mitigation, adaptation and transparency (i.e., a key to improving CDP disclosure and performance)
- Disclosure completeness, comprehensiveness, and consistency both within the questionnaire and externally
- Examine prior year's reporting trends and areas where other respondents are making headway
With the extended reporting deadlines (i.e., August 15th for climate change, August 29th for supply chain), companies have additional time to develop a more complete and robust disclosure.
For further information or if you require assistance with 2018 CDP disclosure, please contact John Fillo, email@example.com.