CDP is one of the largest internationally recognised climate and sustainability reporting frameworks. During our recent webinar, we received lots questions about the 2021 disclosure cycle. In this post we aim to answer them to help you to prepare.
General questions about CDP Disclosure
1. Why disclose to CDP?
There are two main advantages to disclosing data to CDP: First, it supports communication to your stakeholders (especially investors), beyond mandatory emissions disclosures. It can help you to satisfy the increasing demand for transparency and action on climate and sustainability, which could help you gain competitive advantage and secure investment.
Second, disclosing to CDP provides a roadmap on how to act and report on climate change, water and forests. According to science we need to halt what is an unprecedented ecological crisis and achieve net zero global emissions no later than 2050 in order to avoid the most catastrophic impacts of climate change. CDP’s framework provides a guide to the key tasks needed for a business to undertake this challenge and protect itself from the risks of a changing climate. In turn, it will ready you for any future mandatory reporting requirements and drive forward progress across sectors towards a more sustainable and zero-carbon world.
2. How does CDP verify the data submitted by companies?
CDP is a platform for self-reported environmental data, and as such CDP doesn’t strictly verify data provided by companies, but there are systems in place that flag inconsistencies. Third-party verification of emissions is a relevant scoring criterion and an A list requirement. In addition, A list organisations are subject to additional layers of scrutiny, including reputational checks.
3. Is CDP disclosure as important for small or privately owned companies as it is for public listed companies?
There is not the same expectation to respond from investors for small or privately owned companies. However, there are still benefits to benchmarking your performance against other responses and using the framework to set a climate strategy.
4. Regarding CDP’s Non-Disclosure Campaign, what are the ramifications for target companies not responding to investors’ request to disclose information?
A company that declines to respond to an investor request will be displayed with an “F” on CDP’s website (indicating a failure to provide sufficient information to CDP to be evaluated). Investors and other data users will see that this company declined to respond to CDP which demonstrates a lack of transparency. Companies are encouraged to provide a partial response to CDP’s questionnaire(s) rather than no response at all. It sends a positive signal to them about the company’s intention to start the disclosure process, even when they don’t have all the data available to provide a full disclosure. Besides, as mentioned during the webinar, CDP is a key agent feeding into the ESG ecosystem: CDP data and scores are used by a variety of ESG research and ratings providers, as well as by a number of financial institutions. Declining to respond to an investor request might lead the company to be ranked lower than peers who do provide environmental information via CDP’s platform, or to be excluded from some financial indices that take our data into account.
For example, Euronext CDP Environment index calculates its environmental score based on the average CDP rating of a company across the three different themes (climate change, forests, and water security). If a company has not been requested to participate in a certain theme, the average will be determined based on the themes the company does provide data for. Yet, if a company declined to respond to the investor request, its Euronext Environmental score on that theme will be 0 and the company will not be selected as a component of the index. Link to Euronext CDP Environment RuleBook
FAQs on CDP scoring
5. How are CDP’s underlying scoring methodologies used, and how does CDP create consistency across reports?
CDP’s scoring methodologies reflect a clear set of steps companies need to take in order to achieve environmental stewardship. They are based on 4 different types of criteria: disclosure, awareness, management and leadership, and this approach applies to all of our programmes (climate, water, forests).
Methodologies are fully accessible and are published on the CDP website along with many other resources. They often reflect key recommendations or practices coming from other relevant frameworks, such as Task Force on Climate-Related Financial Disclosures (TCFD) or the Greenhouse Gas Protocol, thus providing alignment and coherence in the sphere of corporate environmental performance. As a result, CDP scoring is not only an assessment and indicator for their stakeholders, but also a comprehensive framework that supports companies in structuring and prioritizing their activities whilst providing a platform for proper benchmarking.
6. For the scoring under leadership, how can you tell if a company is advanced when compared to other companies?
Leadership points are used to score all companies that that are scoring an A- or A and are awarded for best practice. Less than 3% of companies received an A grade in 2020, meaning that any company in the A- List is advanced in their strategy. It is not possible to compare companies’ leadership performance for an individual question.
7. How are companies classified by CDP and what do I do if I do not agree with the classification?
Companies requested to respond are allocated a classification under the CDP-Activity Classification System (CDP-ACS). This system categorises companies by the diverse activities that they derive revenue from and associates these activities with the impacts across a company’s value chain from climate change, water security and deforestation.
The CDP Activities are mapped to the questionnaires. A company must earn at least 20% of its revenue in an Activity to be mapped against it. If no sector questionnaire exists, the company will only be required to respond to the general questions.
CDP-ACS is a three-tiered system comprised of (from bottom-up) Activity, Activity Group and Industry. See the full list of CDP-ACS.
If you wish to change or question your categorisation, please get in touch with your point of contact in CDP, or email the generic disclosure inbox: [email protected]
8. As a first-time responder, is it possible to get a score with a minimal disclosure? Can we disclose just our emissions?
There is an option to keep your response and score private for the first year. This does mean you are then committed to responding and disclosing the score in future years (the response itself can remain private). If only minimal disclosure takes place you would likely score only for disclosure (0-44% which equates to a D-).
If you are apprehensive about your first disclosure, we would suggest undertaking a gap analysis. This would identify where you are, quick wins that could improve your score this year and provide you with a clearer roadmap for improvement into future years. If you would like help with this, please reach out to us!
9. My organisation disclosed to CDP for the first time last year, and we only considered energy consumption data in our emissions estimate. This year we will include other non-energy emission sources, but that means that our emission baseline might increase. Will that be an issue?
Increasing the scope and transparency is always advised, both for CDP and your wider strategy. For example, to set a science-based target you need to ensure 95% of your scope 1 & 2 emissions have been captured under your target. The more information you have and disclose, the better.
10. How do I plan for progress when the questions and methodologies are changed annually?
We would recommend that a gap analysis should be conducted each year to analyse your progress and planning against the latest methodology.
If you are going for the more ambitious initiatives like setting science-based targets (SBTs) or tackling governance, it is unlikely that these measures will be redundant in the coming years. While CDP will continue to review the measure of best practice it is not every year that the questions undergo major changes and if you are tackling these ambitious actions, you will be in a good position to deal with future evolutions of the framework.
11. When a company decides to disclose with CDP, do most companies use consultants to help them with the process?
As there are many thousands of companies that respond to CDP. We do not have visibility on any statistics, but the reasons why companies use consultancies include:
- Not having the expertise in house
- Not having enough resource internally to dedicate to the process
- They need support on specific areas of the questionnaire
- They want a partner with detailed knowledge of the scoring and requirements in order to maximise scores in current year
- They wish to improve scores but are not sure where to start or what the priority areas should be.
- It would be of benefit to them to gain an understanding of best practice and knowledge of what others in their peer group/other sectors are doing.
12. My company has received a C for a few years. Would publicly disclosing increase our score?
If you are including the same information publicly then you would not score more points. If there are questions that you haven’t been answering in full, it could be that there is a potential to gain more points. However, at a C score you will need to be improving your awareness points.
We would advise that you target the criteria for the awareness questions. Check that you are answering these questions in full and ascertain what actions you need to take in these areas to improve.
CDP questionnaire specifics
13. According to CDP, what certificates are allowed to be sure electricity is 100% green?
Markets differ as to what contractual instruments are commonly available or used by companies to purchase energy or claim its specific attributes, but can include:
- Energy Attribute Certificates (RECs, GOs, I-REC, etc.);
- Power Purchase Agreements (PPAs) with energy generators; and
- Green electricity products from energy suppliers.
The following certificates are currently recognized by CDP: Australian LGCs, Chinses GECs, European Gos, Indian RECs, I-RECs, J-Credits, Taiwanese T-RECs, TIGRs, UK REGOs, US-RECs
You can find more information on Scope 2 Accounting here: CDP technical note: Accounting for Scope 2 Emissions.
14. How far back in the supply chain would companies be held responsible for in terms of carbon footprint? For example, if a company needs to source a product with 10% palm oil, what percent of the carbon footprint is the company held accountable for?
We are seeing an increasing trend from companies conducting life cycle assessments for their products to fully understand the carbon footprint associated. In the given example, the products footprint would include all emissions associated with all materials that are needed for the product. Companies have limited control over their value chain beyond direct suppliers, which is why it is usual to see a focus on the emission ‘hot spots’ in the supply chain.
15. Some organisations are claiming that they can go on a green tariff and declare zero emissions. This has never been the case before – has anything changed that has given rise to these claims?
Using the market-based approach, Scope 2 emissions can be zero when electricity is sourced from green tariffs. However, location-based Scope 2 emissions will not be zero as energy usage will use the relevant country’s grid emission factor.
If you have any other questions about CDP or would like support with your future submissions, please do contact us.