CDP
CDP was established as the ‘Carbon Disclosure Project’ in 2000, asking companies to disclose their climate impact. Since then, CDP has broadened the scope of environmental disclosure, to incorporate deforestation and water security, while also building its reach to support cities, states, and regions. By shortening our name to ‘CDP’ (in 2013), it has been able to both preserve the global brand we were known for and address the necessity of understanding wider environmental impact. In 2021, CDP launched a new strategy that expanded its horizons further to cover all planetary boundaries. Their ambition continues to grow, expanding to new areas such as biodiversity, plastics, and oceans, and recognizing the interconnectedness of nature and earth’s systems1.
The CDP collects data on companies’ environmental practices and performance, which serves as a reporting standard on environmental topics. CDP gives a score that confers a total ESG rating for the subjected enterprises to assess their environmental impact. In order to shed some clarity on CDP’s particularities, it is worth exploring the following definitions of the aforementioned key concepts:
- Questionnaires = Collect information on a company’s, in this case, ESG policies, processes, metrics, and performance.
- Standard = Standards are a set of specific, replicable, and detailed guidance for what should be disclosed.
- ESG Rating = Rates companies based on their ESG policies, systems, and measures, and it can be a performance-based or risk-based rating.
Some key aspects of CDP
- Environmental Reporting: CDP collects data from thousands of organizations worldwide regarding their environmental performance. This includes information on carbon emissions, water usage, climate risks, and deforestation-related impacts.
- Information Disclosure: Organizations that choose to participate in CDP’s programs voluntarily disclose their environmental data. This data is typically shared in response to CDP’s annual questionnaires or surveys.
- Ratings and Scores: CDP evaluates and scores the environmental disclosure and performance of participating companies and entities. These scores can be used by investors and other stakeholders to assess and compare environmental practices.
- Climate Change: CDP is particularly well-known for its work in climate disclosure. It provides insights into how companies and governments are addressing climate change risks and opportunities, including their efforts to reduce greenhouse gas emissions.
- Water Security: CDP also collects data on water usage, management, and risks. This information helps assess water security and sustainability practices across different sectors and regions.
- Forests: CDP’s program on deforestation aims to understand and address the impact of corporate activities on forests and the preservation of natural habitats.
- Investors and Financial Markets: Many institutional investors, asset managers, and financial institutions use CDP data when assessing investment opportunities, portfolio risk, and environmental impact. CDP’s data is considered valuable for responsible and sustainable investing.
- Supply Chain Engagement: CDP encourages companies to engage with their supply chains to assess and improve the environmental practices of their suppliers. This approach extends environmental responsibility throughout the value chain.
- Cities, States, and Regions: In addition to corporations, CDP works with cities, states, and regions to help them measure and manage their environmental impacts, including efforts to reduce emissions and adapt to climate change.
CDP plays a significant role in advancing corporate and government transparency and accountability in addressing environmental issues. The information collected by CDP helps stakeholders make more informed decisions and encourages organizations to reduce their environmental footprint and contribute to global sustainability goals.
CDP implications for Businesses
Following the United Nations Climate Change Conference from November 2021, there is growing pressure on businesses, financial institutions, and investors to live up to their Glasgow obligations. Environmental regulations are becoming more stringent, and governments require companies to align their operations with national and international sustainability goals. In addition, consumers are becoming more conscious of their environmental impact. When it comes to the products and services consumers purchase, they expect transparency and rigor. Hence, CDP represents the perfect opportunity for companies willing to meet contemporary sustainability standards and set carbon targets and action plans. Moreover, the information encompassed by the CDP is essential for businesses since institutional investors utilize publicly available data to drive their decision-making, and large firms use it to analyze and interact with their supply chain2.
Beyond innovation, companies must identify opportunities amid the risks posed by various environmental concerns. These risks may be transformed into opportunities for the company and incorporated into its fundamental strategy. For instance, CDP includes a question on how respondents transformed challenges into feasible business opportunities as part of the questionnaire. Therefore, businesses must understand whether particular hazards associated with climate change might have a meaningful impact on their operations, how big of an impact this would have on their bottom line, and what efforts must be made to avert these risks in the first place.
To know more about the governance of CDP, please see the link, here.