CDP, Carbon Disclosure Project, is a non-profit organization that provides a framework for ESG reporting and disclosures for environmental practices. Both the public and private sector can voluntarily disclose their environmental impact, which foster transparency and accountability. This article demonstrates how CDP reporting works and how CDP scores can help drive climate action and promote a sustainable global economy.
What is CDP?
CDP is an investor-minded global non-profit organization that works to improve the reporting on environmental initiatives and sustainability efforts. It offers an environmental impact disclosure system that is based on voluntary questionnaires that are available on the ORS Platform that CDP provides. The aim is that this will help organizations or companies reach goals of a more sustainable economy, combat the effects of climate change, and reach net zero objectives.
- What? CDP promotes annual environmental reporting for both the public (cities, states, regional governments) and private sector (businesses, investors)
- When? It was formed in 2000 and was originally known as the Carbon Disclosure Project
- Where? CDP was established in the UK and operates in over 50 countries today
- Who? Cities, states, regions, and companies from over 90 countries report to CDP
One of several ESG reporting frameworks
The CDP questionnaire is one of the many major environmental, social and governance (ESG) reporting frameworks that businesses report on.
Explore other frameworks:
- Task Force on Climate-related Financial Disclosures (TCFD)
- Greenhouse Gas Protocol (GHG)
- Global Reporting Initiative (GRI)
CDP scoring provides a benchmark for companies
CDP encourages businesses to voluntarily report annually on climate, supply chain, and water and forest indicators. While it is voluntary to answer the CDP questionnaires, most companies are being requested to report on how their business practices impact climate change, water security, forests, plastics, and biodiversity, which are the five main themes that CDP covers. In practice, an investor or customer can request information on how it is tackling these challenges, for which a CDP score can be beneficial.
The CDP score is based on how well you as a business are performing based on a set of indicators. In fact, CDP administrates the largest database of companies’ environmental impact, making it a powerful tool to benchmark companies. This makes reporting to CDP an incentive for improving customer relationships, building brand legitimacy, and being a leader in your industry. For CDP, there is an overall aim to help organizations mitigate risks and identify opportunities that will improve their environmental practices, while also using environmental transparency as a tool in itself to attract investors and meet their demands.
The CDP objectives
CDP considers transparency to be the key to achieving the goals of a better, greener future. Its objectives can be summarized as follows:
- Building a sustainable economy: Promoting environmentally sustainable practices and motivating the public and private sectors to be accountable while also building credibility
- Combating climate change: Driving climate action by aligning corporate strategies with the Paris Agreement
- Creating a net zero future: Working in close collaboration and in partnership with governments, investors, and NGOs to align economic players with global climate objectives
How does CDP work?
The CDP manages a large database consisting of self-reporting environmental data from hundreds of companies. The collection of data is the foundation for assigning each organization with a performance score. Additionally, by collecting data, the CDP is able to track companies’ and cities’ progress in achieving climate-related goals.
CDP collects and scores environmental data through questionnaires that are broadly divided into three programs, namely climate change, water, and forests. The answers from these questionnaires (disclosures) are accessible to stakeholders who are interested in a company’s or body’s environmental progress.
It is the most widely used sustainability and carbon disclosure rating system available. When reporting to CDP, entities earn a Carbon Disclosure Rating. They get one rating from climate, and another rating for forest and water. Having said this, if a company for example only answers the questionnaire on water, they get a score on water alone. These scores help investors incorporate ESG indications into their investment strategies. In other words, the CDP scores are meant to encourage entities to become industry leaders in environmental action.
The CDP themes
Climate change
The questionnaire on climate change revolves around how to address climate impacts and risks, decarbonization opportunities, and Scope 1, 2, and 3 emissions. Climate management is considered, as well as the overall processes for identifying environmental impacts, risks, and opportunities.
Water Security
The questionnaire is centred on resource management and data related to scarcity and access, as well as water quality. Impacts, risks, opportunities, and dependencies are also covered in this questionnaire.
Forests
One of the main functions of this questionnaire is to monitor forest commodities and supply chain risks associated with deforestation. CDP enables companies to measure the impact, risks, opportunities and dependencies on forest-related activities.
Plastics
CPS enables companies to measure their plastic footprint by facilitating a robust disclosure for how their business model impacts plastic-related activities. In the questionnaire, the total weight and raw material content for their plastic products are disclosed.
Biodiversity
Companies can measure their biodiversity-related dependencies to better manage their impact, risks, and opportunities.
Also read: Supply chain risk management
What are CDP scores?
CDP scores are considered a snapshot of an entity’s environmental performance. They are published to showcase the organizations that voluntarily disclose their ESG data. The disclosures are a major tool for tracking progress over time as they illustrate where an organization stands on addressing climate change, deforestation, and water security. Stakeholders also consider CDP scores when evaluating investment opportunities or similar.
The CDP scoring methodology
Scoring methodology aligned with the Task Force on Climate-Related Disclosures (TCFD) and the 11 reporting requirements which the TCFD outlined, such as the need for disclosures to be clear and balanced, as well as consistent over time. Check the full list of TCFD reporting requirements here.
Score system
After the questionnaires are collected, answers are assessed by CDP before a score is assigned to the relevant organization. CDP scores run from D to A, and an annual A list is published, including the highest performing businesses and cities or governmental bodies.
- Leadership – A and A-: Organizations that demonstrate environmental leadership through their reports.
- Management – B and B-: Companies that address environmental impacts but are not taking the necessary actions to be leaders in their industry
- Awareness – C and C-: Companies that are aware of how their operations impact the environment
- Disclosure – D and D-: Companies that answer every question in the questionnaire but have not achieved core environmental indicators
- Failure – F: An F score is given if companies are asked to disclose the data, but fail to do so.
Reasons to disclose data to CDP
Be accountable through transparency
By disclosing environmentally beneficial initiatives to CDP, companies or entities strengthen their credibility as an organization who takes climate change seriously. They demonstrate their commitment to reducing emissions or strengthening their supply chain, which will improve their reputation and prove valuable to consumer and investor perspectives.
Attract stakeholders
As briefly mentioned above, investors who are conscious of ESG will use the Carbon Disclosure Rating to assess an organization's sustainable and responsible practices.
Promote corporate social responsibility
Corporate social responsibility (CSR) efforts go hand-in-hand with CDP disclosures. Why? Because they demonstrate the degree of responsibility taken by the organization and directly showcase how their actions have an impact on local communities. This builds trust among stakeholders as well.
How CEMAsys can assist you in CDP reporting
With over a decade as a CDP Silver Partner, we bring extensive experience through our ESG software solutions and advisory. Established in 2007 as one of the first specialized climate change and sustainability consultancies in the Nordics, CEMAsys has supported over 500 CDP responses globally. Our mission is to help take impactful environmental action through CDP alignment, among other things.
Our advice:
- Create a governance model
- Track progress on goals
- Create solid policies
In our CDP advisory services, our experts help you improve your CDP score by performing a gap analysis that evaluates the previous year’s CDP response to identify gaps that can be enhanced in the upcoming reporting cycle. Additionally, you can use our software solution to keep track of the progress and ensure compliance with policies. Feedback and quality check throughout the process will ensure full regulatory alignment.
Summary
CDP is a leading provider of environmental disclosures and operates with the objective of increasing accountability and transparency on environmental impacts. Available to both the private (businesses) and public sector (states or entities), organizations can voluntarily report on their climate actions and gain investor or consumer confidence and reputation boosts. Divided into three main programs, CDP is focused on helping organizations in bolstering their efforts within climate change, water security, and deforestation.
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