The CDP (formerly known as the Carbon Disclosure Project) is an investor-minded global not-for-profit that encourages businesses to voluntarily report every year on various climate, supply chain, and environmental indicators. Not just for businesses and investors, the CDP also provides support and reporting opportunities to cities, states, and regional governments to demonstrate progress on their sustainability challenges and unique climate impacts. Reports are publicly available and included in annual aggregate reports on supply chains, water risk management, climate, forests, and other criteria.
What is CDP?
CDP is a UK-based not-for-profit operating since 2000 and has offices in 50 countries. Today, cities, states, regions, and companies report to CDP and represent over 90 countries worldwide. Globally, CDP reporting is the most widely used sustainability and carbon disclosure rating system.
By reporting to CDP, companies and governmental entities earn a Carbon Disclosure Rating that helps investors incorporate environmental, social, and governance (ESG) indicators into their investment portfolios and sustainable investment strategies. Scores are meant to encourage and guide reporters on their environmental disclosure journey to become industry leaders in transparency and environmental action. All environmental reporting to CDP is openly accessible via CDP’s website.
Who reports to CDP?
The number of cities, states, regions, and companies voluntarily reporting to CDP has grown yearly. From 2021 to 2022, there was a 38% increase in reporting organizations. Last year, over 18,700 companies representing half of the total global market capital—that’s $60.8 trillion—and 1,100 cities and governments disclosed their environmental performance, providing an invaluable method for data collection for investors and diverse stakeholders. While this sounds like a large scope of reporters, there are still roughly 29,500 companies that do not disclose to CDP but will be impacted by mandatory sustainability reporting requirements over the next three years. They represent a big missing link worth and estimated $24.5 trillion.
CDP sustainability reporting criteria will soon be required for federal contractors in the United States to protect federal supply chains from climate risks and achieve the Biden Administration’s climate targets. It’s a significant move because the U.S. government is the world’s largest purchaser of goods and services, amounting to $630 billion in 2021.
The White House’s proposal for a Federal Supplier Climate Risks and Resilience Rule was announced at the 27th Conference of the Parties (COP) at the United Nations Framework Convention on Climate Change (UNFCCC) in Egypt last year. Effectively, this measure will require companies to align with Paris climate targets. While roughly half of federal contractors currently report to CDP, a new rule will make CDP reporting mandatory to fill federal contracts. Contractors will have to report their environmental information—scope 1 and 2 greenhouse gas emissions and specific categories of their scope 3 emissions—via CDP and create science-based targets for emissions reductions.
How do CDP questionnaires and reporting work?
CDP releases guidance on its Online Response System (ORS) questionnaires every January. In April, the ORS is open for companies to input data and metrics. By late July—specific due dates are industry-dependent—companies must submit responses through the ORS for inclusion in that year’s reports. While most company data is self-reported to CDP, sometimes CDP will request a company to do a report.
CDP’s Carbon Disclosure Ratings are similar to the benchmarks we’re familiar with from school: A–F grades. Questionnaire responses are given grades on several criteria: if responses are verifiable, level of detail, engagement on value and supply chains, how companies identify and address climate risks, the level of ambition of emissions targets, and how complete reporting is for scope 1, scope 2, and scope 3 emissions. Responses also receive grades across industry-specific categories. The differences between a minus grade and a full letter grade depend on the level of engagement or awareness across different indicators:
- Leadership (A and A-): These companies show environmental leadership and report on climate, forests, and water indicators. They develop climate and environmental transition plans, consider environmental risks associated with their supply chains, and align with the TCFD, Science Based Targets Initiative, the Sustainable Development Goals (SDGs), and other ESG reporting frameworks.
- Management (B and B-): These companies address environmental impacts in their business but aren’t taking actions that would make them a leader in their industry.
- Awareness (C and C-): This measure shows how comprehensive a company’s self-evaluation is regarding activities and operations that impact people and ecosystems.
- Disclosure (D and D-): These companies answered every question but have not yet achieved core environmental indicators.
- Failure (F): Shows a failure to provide sufficient information for evaluation. Typically, these companies failed to answer every question or received requests to provide questionnaire responses but didn’t.
What are the CDP disclosure requirements?
CDP questionnaires vary by industry, company size, and additional CDP commitments companies and governmental entities choose to respond to. CDP questionnaires align with the Task Force on Climate-related Financial Disclosures (TCDF), which requires reporting on sustainable and environmental finance, and climate risks associated with finances for companies and governments. Most reporting entities share climate information, but companies can also supply additional information on water, forests, and supply chain criteria.
- Climate: Companies share information about how they address climate impacts, risk, emissions management, and decarbonization opportunities.
- Water: Roughly 20% of all companies also report on water-related issues and risks.
- Forests: Companies can elect to share what they do to verify and manage forest commodities and identify supply chain risks associated with deforestation.
- Supply chains: These criteria give companies that are a part of the supply chain of other companies a chance to identify climate risks, decarbonization opportunities, and scope 1, 2, and 3 emissions.
What makes CDP sustainability reporting different from other reporting requirements?
While many emerging regulatory disclosures are mandatory, like the EU’s CSRD and SFDR, CDP’s requirements are strictly voluntary. Many governmental reporting requirements focus on financial or non-financial disclosure requirements almost exclusively. They may include or exclude scope 3 emissions depending on the company size or the scope of the regulation. CDP reporting covers both financial and non-financial disclosures, along with scope 1, scope 2, and scope 3 emissions.
CDP questionnaires are malleable, allowing companies of diverse sectors, sizes, and revenues to report on sustainability indicators. Reporters identify risks and respond to different criteria across multiple indicators for said risk. In comparison, other sustainability disclosures via the mix of recent EU policies are more rigid depending on company size and revenue or are limited to geography. CDP reporting touches over 90 countries, and unlike current mandatory reporting, CDP allows cities, states, and regions to also report on their climate and carbon indicators while providing decarbonization advice.
Shortfalls of the CDP
While there are multiple benefits to CDP’s unique and customizable reporting criteria, there are notable shortfalls. The CDP questionnaire provides a window into what is reported in questionnaires, not what companies actively do to address the climate crisis through decarbonization initiatives.
For example, Amazon received an F rating several times from CDP. Why? Well, namely because, as a company, Amazon has been reluctant to share its carbon data, despite its transition toward electric delivery vans and other sustainability actions. By omitting key responses in CDP’s questionnaire, companies risk undue scrutiny of their sustainability goals and actions. Even if a business cannot show an action or progress-oriented response, rather than leave a response blank, it is better to state that the work has not been done or hasn’t progressed.
CDP provides a flexible reporting structure for companies and allows them to get started or improve their sustainability disclosure reporting before it becomes a requirement. By 2030, $4.3 trillion in assets will face climate risk. Companies that elect to commit to CDP standards stand to gain an estimated $53 billion in collective savings while averting financial risks associated with climate disasters.
With a need to curb global emissions, the writing is on the wall. There are many EU regulations—both financial and non-financial—around sustainable reporting, new proposed requirements for U.S. government contractors, and a potential U.S. Securities and Exchange Commission (SEC) policy in the works. It is becoming increasingly imperative that companies report on their emissions and share how they account for different ESG indicators and the climate and ecological risks associated with their supply chains.
- CDP. “Who we are.” https://www.cdp.net/en/info/about-us Accessed February 15, 2023
- CDP. “Research.” https://www.cdp.net/en/research Accessed February 15, 2023
- CDP. “Nearly 20,000 organizations disclose environmental data in record year as world prepares for mandatory disclosure.” https://www.cdp.net/en/articles/media/nearly-20-000-organizations-disclose-environmental-data-in-record-year-as-world-prepares-for-mandatory-disclosure Accessed February 15, 2023
- The White House. “FACT SHEET: Biden-Harris Administration Proposes Plan to Protect Federal Supply Chain from Climate-Related Risks.” https://www.whitehouse.gov/briefing-room/statements-releases/2022/11/10/fact-sheet-biden-harris-administration-proposes-plan-to-protect-federal-supply-chain-from-climate-related-risks/ Accessed February 15, 2023
- CDP. “Guidance for companies.” https://www.cdp.net/en/guidance/guidance-for-companies Accessed February 15, 2023
- CDP. “CDP scores explained.” https://www.cdp.net/en/scores/cdp-scores-explained Accessed February 15, 2023
- The Seattle Times. “Amazon gets an ‘F’ from the Carbon Disclosure Project.” https://www.seattletimes.com/business/amazon/amazon-reluctant-to-share-carbon-emissions-data/ Accessed February 15, 2023