SEC Climate Disclosure Rules Are Finalized: Here’s What You Need to Know

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On March 6, 2024, the Securities & Exchange Commission (SEC) finalized and adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. Known as The Enhancement and Standardization of Climate-Related Disclosures for Investors, this disclosure is one of a number globally put forward to formalize and harmonize climate disclosures for the business community.

With the initial proposal released in March 2022, it has been a long road to get to these rules finalized. Here’s what you need to know about the finalized SEC climate disclosure rules.

Who Will Have to Disclose?

The SEC’s climate disclosure rules will apply to publicly traded companies operating in the U.S., including those in the retail, technology, oil, and gas sectors. Approximately 2,800 U.S. businesses are expected to disclose the required information, while around 540 foreign companies with U.S. operations will also need to report their climate disclosure data.

The final rules will be phased in for all U.S. publicly traded companies with the compliance date dependent upon the status of the business as an large accelerated filer (LAF), accelerated filer (AF), non-accelerated filer (NAF), smaller reporting company (SRC), or emerging growth company (EGC).

Why Is the SEC Mandating Climate Disclosures?

Sustainability reporting and ESG are not new for most publicly traded companies. The rising demand for this information from investors, stakeholders, and customers means that many companies already prepare some kind of annual sustainability report. In fact, 90% of S&P companies publish sustainability reports.

The aim of the SEC climate disclosure rules is to standardize these reports into a format and using data that can easily be accessed and interpreted by the SEC and investors. With so many different ESG frameworks out there, it can be hard to consistently compare data across reports. 

Some of the feedback on these climate disclosures is that the SEC does not have the authority to mandate this type of reporting. Yet SEC-registered organizations have been providing details on litigation and other business costs related to environmental compliance since the 1970s. Reporting on climate-related risks and opportunities can be seen as an extension of that 50-year-old mandate.

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Why Is Consistency So Important?

The demand for climate disclosures is only growing. Financial managers responsible for trillions of dollars in investments have called for reporting consistent with the Task Force on Climate-Related Financial Disclosures (TCFD) and GHG Protocol so they can make responsible climate-informed decisions.

Including climate-related financial disclosures is becoming standardized globally. The TCFD was part of the expert panel that helped develop standards for the International Sustainability Standards Board (ISSB). 

Businesses may be familiar with the ISSB’s parent organization, the International Financial Reporting Standards Foundation, which also administers the International Accounting Standards Board (IASB). IASB’s accounting standards are adopted around the globe and, with input from organizations like the TCFD, since the ISSB standards were finalized they are slowly being adopted too.

What Is Included in the SEC Climate Disclosure Rules?

The detailed climate reporting requirements will be discussed more broadly below, but in general, the rules will require organizations to disclose:

  • The role and responsibility of corporate governance in relation to identifying and managing climate-related risks
  • Potential and actual impacts of climate-related risks on business operations or financial performance over the short-, medium- and long-term
  • How climate-related risks have, will, or might impact business strategy and outlook
  • Processes for identifying, assessing, and managing climate-related risk and a description of how these processes are integrated into wider risk management systems
  • The impact of climate-related events, like severe weather, or transition activities, like changing business operations to mitigate climate-related risk, on financial statements
  • Scopes 1 and/or Scope 2 GHG emission metrics
  • Any climate-related targets, goals, or transition plans

Despite the fact that Scope 3 emissions can account for 50% or more of a company’s total emissions, the SEC removed this requirement after considering comments on the original proposal. The removal may dramatically impact the push for more reporting transparency and effectiveness of emissions reduction initiatives.

When Will the SEC Ruling and Disclosure Requirements Come Into Effect?

The finalized climate disclosure rules will become effective 60 days following publication of the SEC’s adopting release in the Federal Register, and compliance dates for the rules will be phased in for all registrants, with the compliance date dependent on the registrant’s filer status. Compliance will be phased in as follows:

Source: https://www.sec.gov/files/33-11275-fact-sheet.pdf

How Will SEC Climate-Related Disclosures Be Reported?

Similar to what has been proposed in other jurisdictions, climate-related disclosures to the SEC will be included in annual financial statements including Securities Act or Exchange Act registration statements and Exchange Act annual reports. Climate disclosures would go in a separate and clearly identified section of the report.

In addition to quantitative disclosures, reports will need to include a narrative assessment of climate-related risks and opportunities as part of management discussion and analysis (MD&A). 

What Climate Risks Will Be Reported to the SEC?

The SEC has defined two types of climate-related risks that should be considered and included in reporting. These are physical and transitional risks.

Physical risks are those that pose an actual tangible risk to business operations. These might be issues like facilities located in areas prone to drought, wildfires, or hurricanes, which continue to grow in intensity every year. 

Along with documenting the nature of the physical risk, the report will also need to provide details of the location where the risk exists or could exist. These details include the physical address for a facility, along with the size and number of employees who work there. 

Transitional risks are those that may occur as a result of efforts to reduce climate impacts or market changes resulting from a more climate-conscious economy. These might include production downtime as a facility is retrofitted or operations are relocated. They might also include changes in consumer buying habits that leave a company vulnerable until they can adapt.

Regardless of whether a risk is identified as being physical or transitional, organizations should disclose not only actual risks, but potential ones as well. As we’ve learned through the COVID-19 pandemic, market and business conditions can change nearly overnight, and companies need to be prepared to address potential risks quickly.

Identifying Material Risks

A critical element of risk disclosure is a materiality assessment. The scope and scale of ESG reporting can quickly get out of hand if boundaries aren’t clearly defined up front, and the payback for risk management declines rapidly if time and energy is spent on risks that may seem manageable but have little material impact on an organization’s operations.

A climate risk materiality assessment takes into consideration two elements: the importance of the risk to business operations and to external stakeholders. These stakeholders could be investors or the community at large.

Priority should be given to risks that are material to both business and stakeholders. If there is additional bandwidth to address them available, additional risks can be added to the disclosure too. 

Materiality also takes into consideration issues like time horizons. One risk might be high priority to stakeholders, but is only likely to become an issue over the medium term, while another may be lower priority, but with impacts that will be felt in the near future. In this case, the second risk might be more material initially while the first would be addressed at a later date.

Ultimately, the SEC—following Supreme Court rulings—views materiality as the degree to which a risk would influence an investor’s decision to purchase or sell securities, or how they would vote as a shareholder. 

If you’re not sure how to go about identifying material climate-related risks for your organization, check out our Materiality Workbook for additional guidance.

What Climate Impacts Will Be Reported to the SEC?

One of the challenges in disclosing climate-related risks is that they are largely hypothetical. A hurricane may impact operations at a plant near the Gulf of Mexico. Market demand for low-carbon products may accelerate dramatically in the next 1-5 years. 

It can be easy for companies to reiterate boilerplate scenarios in each annual report, without providing any meaningful information.

This is where it is important to also document known and quantifiable climate-related impacts, particularly carbon dioxide and other GHG emissions. This could include impacts on:

  • Business operations
  • Products or services
  • Suppliers or customers up and down the value chain
  • An organization’s ability to mitigate climate-related risks or adopt new climate-friendly technologies
  • Funding for research and development

By not only disclosing risks but also impacts, the reporting company will provide a narrative discussion of how these impacts have affected their financial statements, similar to what is already required for MD&A as described above.

What About Carbon Offsets or Renewable Energy Credits?

As part of disclosures on climate impacts, the report also needs to include details on carbon offsets or renewable energy credits (RECs) used, if any. This will not apply to organizations across all sectors, but is an important element to discuss because the use of these provides important context regarding how organizations are meeting their GHG reduction targets. 

While carbon offsets and RECs can be part of a broader approach to help balance climate-related expenditures in the short- or medium-terms, as carbon reduction targets become more and more stringent, they may not be an effective management strategy long term. These types of disclosures will help investors better understand future performance in a carbon-neutral economy.

What Isn’t Included in the SEC Climate Disclosure Rules?

Words like environmentally-friendly, sustainable, low-carbon and climate-conscious often get used interchangeably when they aren’t in fact the same thing in many contexts. In relation to the SEC rules on climate disclosure, it’s important to understand both which terms are used and which aren’t relevant.

The climate disclosure reporting requirements reference various ways to reduce carbon intensity and emissions through approaches like:

  • Transitioning to lower carbon economies, both in terms of production and also using low emissions modes of transportation and supporting infrastructure
  • Renewable power generation and use
  • Producing and using low waste, recycled or other low-carbon-intensive consumer products and production methods
  • Setting conservation goals and target to reduce GHG emissions
  • Providing goods and services to support other efforts in the transition to the low carbon economy

In addition to tactical steps and strategies to achieve goals and manage financial performance during transitional business activities, the rules also required documented details of sustainability governance and a narrative review of how all of this integrates into large business operations and strategy, similar to the MD&A.

But what isn’t included in the rules are other elements of environmental and sustainability reporting that you may be familiar with. For example, forestry stewardship may be top of mind for some companies based on where they are located or their industry sector but not explicitly called out in the SEC’s climate disclosure requirements. 

This may require some organizations to set new targets when they were previously focused on other elements of sustainability, while others will have to look more closely at how carbon reduction is tied to other sustainability efforts.

As discussed above, the SEC’s finalized climate disclosure rules also left out Scope 3 emissions reporting due to pushback on the difficultly and cost of collecting this data from a company’s supply chain.

Ready to Start?

There is a lot of overlap between the carbon and climate reporting requirements in the SEC’s climate disclosure rules and other ESG standards, but they will not be fully interchangeable. If you’re already reporting to other frameworks, it won’t simply be enough to attach a copy of that report to SEC filings. 

To avoid unnecessary duplication, you need to know exactly how the SEC’s final ruling and requirements are similar to other ESG programs and where it differs. A software tool like FigBytes powered by AMCS can be a critical element of streamlining your reporting efforts and managing staff and resources effectively and efficiently.

If your organization is likely to be impacted by the SEC’s new climate disclosure requirements, the time to start compiling information is now. To begin on the right foot, speak with a FigBytes advisor today. 

Everything You Need To Know About GRESB

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When it comes to sustainability reporting, it can be easier to envision what that might look like in resource-heavy industries like mining or oil and gas, or in manufacturing sectors like chemical production. And while those sectors may bear the brunt of environmental protection, they aren’t alone in having environmental and social impacts in the business community.

Investors are looking for transparency in sustainability performance across their portfolios, regardless of sector. With looming Net Zero deadlines in 2030 and 2050, there is increased urgency among investors to show their investments are doing their part to meet reduced carbon emissions. 

If you’re in the real estate and infrastructure sectors, you may already be a part of sustainability initiatives in your industry. Maybe your buildings have LEED accreditations, or your fleet vehicles have switched to greener energy sources. You’ve worked to find more water efficient options or you’ve implemented safer waste management practices.

The challenge in every industry is reporting your sustainability efforts in a way that is meaningful and useful for investors. They need to see not only your progress over time, but also be able to benchmark you against other similar organizations within their portfolio.

Environmental Social and Governance (ESG) reporting is one tool investors use to track sustainability among portfolio companies. It looks not only at a company’s environmental performance, but also social aspects like diversity and ethics, as well as governance concerns like board composition and executive compensation.

One option if you’re receiving requests for ESG data in the real estate and infrastructure sectors is the Global Real Estate Sustainability Benchmark, or GRESB reporting program. This is just one of many ESG standards available to the business community, but tailored specifically to real estate and infrastructure.

Why Use ESG To Report on Sustainability?

As we’ve said, companies in the real estate and infrastructure sectors may already be participating in some type of homegrown or industry-specific sustainability initiative. Issues like energy efficiency are top of mind for most businesses these days as rising costs and inflation put a dent in everyone’s bottom line.

But these in-house and other industry initiatives may not include a standardized reporting requirement which means while they might be valuable at the organizational level, they don’t provide much transparency to investors and financial institutions. 

Anyone can claim to be a sustainable business, but without data to back it up, investors aren’t able to make informed decisions and report back to their stakeholders. ESG looks at three areas of a business’s or investment fund’s sustainability. These are:

  • Environmental
    • Climate Change 
    • Greenhouse Emissions
    • Water Stewardship
    • Forestry Management
    • Waste Management
    • Materials Handling
    • Energy Efficiency
  • Social
    • Diversity and Inclusion
    • Hiring and Labor Practices
    • Privacy and Security
    • Ethics and Human Rights
  • Governance
    • Leadership
    • Board Composition
    • Compensation and Incentivization

The exact reporting requirements under each heading will depend on the standard being followed and what your organization does. But the important thing is rather than stopping at policies and mission statements, ESG aims to make sustainability quantifiable.

Data is the name of the game in ESG reporting. ESG standards use verified quantification methodologies, so the data presented can be compared over time and across industries. More and more, investors are requesting organizations within their portfolio, or those seeking investment, to complete some kind of ESG reporting.

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Which ESG Standards Are Available?

There are a number of ESG standards for companies to choose from. These include: 

  • International Sustainability Standards Board or ISSB. Similar to the International Accounting Standards Board, the ISSB prescribes ESG reporting for financial statements to meet the information needs of investors and capital markets
  • CDP – the CDP is widely used, but focuses specifically on climate reporting
  • Science Based Targets Initiative or SBTi – this program was developed for private sector organizations with Net Zero pledges
  • Task-Force on Climate-Related Financial Disclosures – The TCFD is developing standards on disclosures to investors, lenders and insurance underwriters, with many of their recommendations driving disclosures to the American SEC
  • BSSR – this new standard prescribes ESG reporting requirements for the 1000 largest companies in India
  • CSDR – another geographic standard, this one is being rolled out for EU-based companies
  • Global Real Estate Sustainability Benchmark or GRESB – an industry specific standard developed for the real estate and infrastructure sectors

Many investors will have a particular standard they want portfolio companies to use, since comparability is so important. But if you’re free to choose your own standard, one of the key considerations is materiality.

What Is Materiality in ESG?

Materiality helps organizations understand which elements of ESG are most relevant to their operations and most valuable to the investors and other stakeholders. If you’re using a broad standard, you’ll need to complete a materiality assessment to make sure your report is complete.

For example, your investors may be very concerned about climate change. Even if you’ve already made significant efforts to cut energy use and reduce greenhouse gas emissions, this element may still be material to your report to satisfy investor requirements. 

On the other hand, your organization may have specific diversity targets when it comes to your hiring practices. Documenting and quantifying your progress for your own internal purposes may make this element material, even if it’s not part of the investor’s request.

To make things simpler though, rather than taking the time to go through each of the elements of an ESG standard and determine which are material to you and your investors, you could choose an industry-specific standard like GRESB where that work has largely been done for you.

How GRESB Works for the Real Estate and Infrastructure Sectors

Choosing an ESG standard designed specifically for your industry helps immediately address some of the questions around materiality. By using an industry-specific standard, you will only have to provide quantifications and disclosures relevant to your operations. For the real estate and infrastructure sectors, the standard of choice is GRESB.

GRESB gives asset managers an established and verified framework to complete their ESG reporting. It allows reporting organizations to:

  • Identify risks and opportunities
  • Standardize ESG data collection
  • Benchmark your performance against the industry
  • Engage with investors

Currently there are over 140 institutional investors managing over $47 trillion in assets that use GRESB to monitor their portfolio’s sustainability performance and make informed investment decisions when evaluating new companies.

Companies that report to GRESB get access to a number of features to help them better understand their ESG performance. These include: 

  • A scorecard so you can compare your efforts and success to that of your peers
  • A benchmark report to better understand the industry
  • A portfolio analysis tool so you can slice and dice data and compare across geographic regions
  • A data exporter so you can incorporate it into other modeling and reports

GRESB reporting also integrates with other ESG standards and frameworks, so you can streamline your efforts if you’re required to report to more than one program. For example GRESB is currently working on integration solutions with the SFDR in the EU, and the TCFD in the US.

There are three assessments conducted by GRESB, which generate four benchmarks. The assessments are:

  • Real Estate Assessment (generating the Real Estate and Real Estate Development Benchmarks)
  • Infrastructure Fund Assessment (generating the Infrastructure Fund Benchmark)
  • Infrastructure Asset Assessment (generating the Infrastructure Asset Assessment)

Real Estate Assessment

The 2022 Real Estate Assessment included reports from over 1,820 property companies, REITs, funds and developers. Together, these make up $6.9 trillion in assets over 66 countries. The assessment includes three components covering Management, Performance and Development.

The Management Component considers the organizational level and measures elements like strategy and leadership. It requires documentation on policies and processes, as well as details on risk management and stakeholder engagement.

The Performance Component looks across the organization’s portfolio performance. This highly quantifiable component looks at environmental considerations like energy consumption, GHG emissions, water consumption and waste. 

The Development Component considers ESG risks and opportunities during design, construction and renovation. As such, it may not be applicable to every location each year, but can significantly impact performance from one year to the next, depending on how many projects are undertaken.  

Infrastructure Fund Assessment

Infrastructure funds typically include businesses from a wide variety of sectors. The GRESB Infrastructure Fund Assessment looks at the performance of sectors including:

  • Energy generation
  • Energy transmission
  • Water resource management
  • Transportation
  • Social infrastructure

Unlike the Real Estate Assessment, the Infrastructure Fund Assessment only looks at two components. The Management Component looks at ESG management and investment related to:

  • Leadership
  • Policies
  • Reporting
  • Risk management
  • Stakeholder engagement

The Performance Component looks at ESG performance across the fund’s underlying assets. Participation in reporting to the Performance COmponent is optional for these assets, but a fund needs to have a minimum of 25% participation or else they will not be given a GRESB Score or qualify for Benchmarking.  

Infrastructure Asset Assessment 

The Infrastructure Asset Assessment is available to both single and multi-asset operators. If your assets are part of a larger infrastructure fund, using the Infrastructure Asset Assessment is one way you can help the fund meet their 25% minimum participation target for the Performance Component of the Infrastructure Fund Assessment. 

The Infrastructure Asset Assessment measures ESG performance for a wide variety of infrastructure sectors, and weights considerations differently based on your sector. Applicable sectors include: 

  • Data Infrastructure
  • Energy & Water Resources
  • Environmental Services
  • Network Utilities
  • Power generation (excl. Renewables)
  • Renewable Power
  • Social Infrastructure
  • Transport

Like the Infrastructure Fund Assessment, the Infrastructure Asset Assessment includes two components: Management and Performance. 

As with the other assessments, the Management Component measures strategy and leadership management, policies and processes, risk management and stakeholder engagement approach. It assesses ESG performance at the organizational level.

The Performance Component measures ESG activities at the asset level. It is designed for infrastructure companies with operational assets. In total, the Performance Component comprises twelve aspects including:

  • Implementation
  • Output & Impact
  • Health & Safety
  • Energy
  • Greenhouse Gas Emissions
  • Air Pollution
  • Water
  • Waste
  • Biodiversity & Habitat
  • Employees
  • Customers
  • Certifications & Awards

When Are GRESB Reports Due?

Regardless of which assessment your organization or fund is reporting to, reports are due each year in the spring, with the reporting window open between April 1 and July 1. Once data is submitted, it undergoes a multi-level validation process before it is scored and benchmarked. 

If you are able to submit your report before June 1, you can request a Response Check from GRESB. This is a high-level review of your report to look for errors and ensure the submission is complete. While organizations are not required to complete a Response Check prior to submitting their final report, this can greatly reduce mistakes and wasted time filing updates later, while increasing overall data quality.

How To Make ESG Reporting Work for You

If you need to report to GRESB or other ESG frameworks this year, you’re already on the clock. Preparing a baseline ESG report can be a time consuming task, not to mention the fact that once you’ve provided data to GRESB and investors once, the expectation is you’ll provide ongoing updates for the benchmark each year.

It can be a steep learning curve. You’ll need to gather information at both the organizational and asset level. This means pulling data from leadership, HR, purchasing, operations and maintenance, and funneling through a central sustainability team to build the report. It’s not uncommon for this team to also have other responsibilities, so they can’t spend all their time reading up on the latest ESG standards and chasing after information requests.

A software solution like FigBytes can help make ESG reporting work for you. It’s designed to comply with the standard requirements of the GRESB assessments. It also uses a cloud-based data collection platform, so each team can enter data directly, rather than information getting lost in a tangle of spreadsheets and emails. FigBytes will even integrate directly with utilities and internet-of-things connected equipment to pull the data it needs.

By using a platform like FigBytes, you’ll be able to streamline and customize your reports to share with programs like GRESB, as well as other investors and stakeholders. You’ll also be able to update data each year or as you need to to provide comparable results to track your progress. If you have ESG deadlines looming, or if you’ve already started building your report and need help tackling the workload, FigBytes can help. Reach out to one of our advisors today to get started.

What Is CDP Reporting?

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These days, integrating environmental considerations with everyday operations has moved beyond good corporate citizenship to a critical part of managing both legal obligations and investor relations. Identifying proactive environmental performance is a key part of how investors make their decisions, and more and more they expect standardized environmental disclosures as part of annual financial reports.

Knowing where to start with environmental reporting can be daunting, and the landscape is a tangle of acronyms and competing standards designed for organizations across a multitude of sectors and regions.

Using a framework like the CDP can help streamline your efforts, and provide reporting in an internationally-recognized format that is useful to investors while also creating transparency for other stakeholders, leadership, and customers.

Who Does CDP Work With?

Many climate, sustainability, and ESG standards and frameworks are designed with specific industries in mind. They may support the oil and gas industry, or be designed for carbon emissions reporting in the real estate sector. The CDP works with organizations and groups across private, public, and institutional sectors, including:

  • Companies
  • Cities
  • Governments
  • Supply Chains
  • Investors
  • States and regions
  • Public authorities
  • Private markets

This makes it one of the most comprehensive programs out there, with resources and information available regardless of where you’re coming from.

What Is Reported to CDP?

CDP is an environmentally-focused reporting framework. Originally called the Carbon Disclosure Project, the change to the CDP acronym reflects the way the program has shifted to now include reporting under three categories:

  • Climate 
  • Water
  • Forests

Under each of these headings are a variety of questions based on your industry and size. The CDP has customized questionnaires to complete for each category, and these are updated regularly. Below are details on typical information to be included, but these will vary and should be verified before you begin data collection and reporting.

Climate Disclosures

When thinking about climate reporting, many people go immediately to carbon emissions quantification, and while this is an essential part of a CDP report, it’s not the only factor to consider. Other elements to report are:

  • Governance – Reporting organizations need to provide details on leadership commitment and competence related to climate-related issues. This includes information on who has expertise and responsibility for climate-related policies and action items, and what incentives are provided to employees to improve climate-related performance.
  • Risk and opportunities – Organizations should be prepared to discuss their processes for identifying and addressing climate-related risk and opportunities. This includes identifying the people responsible, as well as the risk to any investments or portfolios, and how these risks are mitigated.
  • Business Strategy – World governments and the business community have made pledges under the Paris Agreement to reduce carbon emissions to the point where global temperature increases will not exceed 1.5℃ by 2030. Under the CDP, reports need to include strategy details on how businesses will transition to meet this goal and eventually reach carbon neutrality.
  • Targets and performance – Once climate change targets are set, CDP reports will need to include annual updates on how those targets are being met, what is impeding performance, and what changes will need to be made in the coming year to ensure targets are reached.
  • Emissions methodology – In order for investors to make informed decisions using emissions data, they need to know they’re comparing apples to apples. CDP reports need to include information on the methodologies used to calculate emissions, any changes from previous years, and how changes to business activity might impact data quality.
  • Emissions data – Reporting organizations will need to provide gross numbers for global Scopes 1, 2, and 3 emissions, as well as information on any excluded emissions including a rationale for this exclusion.

Depending on your sector, you may also be required to complete disclosures on topics like energy use, carbon pricing, or biodiversity.

Water

Water quality and water scarcity are critical concerns for businesses, governments, and everyday people around the world. The CDP’s water disclosures help companies understand and reduce their dependence on freshwater sources, including throughout their value chain. These disclosures include:

  • Current state – Reporting organizations provide information on the volume of water withdrawn, discharged, and consumed over the year, including how much of that comes from scarce sources and where data gaps exist, including in the value chain.
  • Business impacts – If business or organizations have experienced any actual detrimental water-related impacts or been involved in any compliance or legal actions related to water use or discharge, these are reported here.
  • Procedures – Under this disclosure, organizations report their procedures for water-related risk assessments both in their operations and within their value chain. Additional questions are asked for water-intensive or higher-risk industries like chemicals, food & beverage, and oil & gas.
  • Water risk and opportunities – Since CDP is often used as a decision-making tool for investors, organizations need to report not only real business impacts, but also potential risks and opportunities and how these are identified and managed. Facility-level accounting may be required if risks are identified.
  • Governance – As with climate disclosures, water disclosures require documentation on leadership responsibility and competence. This includes information on how C-suite employees or board members are incentivized to address water management, and how water risks are documented in financial reports.

Forests

Forests disclosures document an organization’s use and dependence on forest commodities and the risks and opportunities related to this. Disclosures include:

  • Current state – Reporting organizations will need to document the forest-related products they buy, produce, use and sell, as well as the percentage of revenue that is dependent on these products. If they own forestry land, this will also need to be documented.
  • Procedures – Here, organizations document their procedures for forests-related risk assessments for both their own products as well as within their value chain.
  • Risks and opportunities – Under this disclosure, organizations report the identified forests-related risks and opportunities that pose a substantive impact to their operations. If none are identified, a rationale as to why is to be included. In either case, the report defines what is a substantive financial impact.
  • Governance – As with climate and water disclosures, the forests disclosure requires details on board-level oversight on forests-related issues, including leadership competence in this area and how executives are incentivized to include forests considerations in their policies and strategies.
  • Business strategy – Since the CDP report is meant to be forward looking, under this disclosure, organizations will document how forests-related issues are incorporated into their business strategy going forward.

The level of detail in the forest disclosures will vary significantly by industry or the companies within an investment portfolio.

How Is CDP Reporting Used?

While conscientious and detailed environmental reporting is critical to slowing the effects of global warming and protecting fragile natural resources, the impact of the CDP goes beyond the efforts of the companies that report to it.

CDP data is a tool used by investors and purchasers when making business decisions. Low carbon opportunities and climate risks reported to the CDP are evaluated by 680 institutional investor signatories with a combined US$130 trillion in assets and more than 280 major purchasers with over US$6.4 trillion in procurement spend.

The CDP meets the requirements of the Task Force on Climate-related Financial Disclosures (TCFD). Programs like the CDP and organizations like the TCFD aren’t simply about compliance or good corporate citizenship. They’re actively shaping the future of business and how investment decisions are made.

In addition, reports submitted to the CDP are publicly available through the CDP website. This helps meet transparency requirements within governance disclosures and may also meet further public reporting requirements in broader ESG programs. To view reports, one needs to register an account, but even without one, anyone can search for reports based on geography and view submissions along with CDP Scores.

What Is a CDP Score?

No one likes a failing grade, but the CDP Score is an important part of tracking a reporting organization’s progress to achieving their environmental goals and improving their overall sustainability performance year-over-year.

The CDP assigns a score to each submitted report by category, so an organization’s climate change report may have a different CDP Score than their forests report. And while scores can (and hopefully should) improve over time, the CDP stresses that achieving an A grade does not mean the organization has achieved its environmental goals, only that it has the policies, awareness, and competences in place to achieve them and demonstrate leadership over time.

Scores are given to each disclosure and are, broadly speaking, as follows:

  • F – This is a Failing score where the necessary information has not been disclosed.
  • D-/D – This is the Disclosure level score. A D- or D score indicates that a disclosure has been made, but that it perhaps doesn’t include the level of detail needed to show a real awareness of the implications of the disclosure on a business’s operations or organizational strategy into the future.
  • C-/C – This is the Awareness level score. Here, the organization has moved beyond simple disclosure and shows a better-documented awareness of how the information disclosed has real implications for both the current state of operation and future planning.
  • B-/B – This is the Management level score. Moving beyond awareness, now the reporting organization has taken real action to manage its environmental impacts. The company has moved past data gathering and is now actively managing risks and seeking opportunities to improve its environmental performance.
  • A-/A – This highest score is the Leadership score. The organization is showing true environmental leadership. Their disclosures show best practices and how environmental considerations are fully integrated into strategy and policy. The definitions for leadership follow the recommendations of the TCFD Accountability Framework.

As mentioned above, CDP scores are publicly available for anyone searching for reports on the CDP website. This is meant to incentivize reporting organizations to strive toward higher grades as new annual reports are filed.

Benefits of Reporting to the CDP

As climate and environmental-related disclosures become an increasingly important consideration in investment decisions, reporting to the CDP and programs like it are a standardized way of documenting your environmental performance for investors and may even be mandated by capital partners and financial institutions. 

Beyond investor requirements though, there are a number of additional benefits for organizations submitting public environmental reports. These include:

  • Improved reputation – Whether you’re a corporation or government entity, showing conscientious environmental performance and particularly improvement over time improves your reputation with customers, stakeholders, and even your own employees.
  • Greater competitive advantage – One of the major benefits of improved reputation and more access to investment is business growth and greater competitive advantage.
  • Documented progress and benchmarks – Claims to sustainability are a de facto feature of most corporate and institutional websites these days. Having a well-documented and independently-verified and scored environmental report validates these claims and documents your successes.
  • Future-proof your operations – The term “future-proof” comes up in many environmental reporting frameworks, but the truth is completing the CDP’s environmental risk assessments helps uncover previously unknown risks within an organization and in the value chain.
  • Proactively manage regulatory obligations – New environmental regulations are emerging all the time, particularly as we approach the 2030 date to limit global temperatures to a 1.5℃ increase. Building a CDP-compliant reporting program proactively reduces the workload when new legal obligations arise.

Fully embracing a program like the CDP takes reporting organizations beyond vague and largely unquantifiable claims of sustainability and moves them toward real documented action that can only benefit them over time.

Need Help?

Reporting to the CDP can be a labor-intensive undertaking. There is a lot of information to collect from multiple parties, departments, offices, and even from customers and suppliers. If your organization is new to environmental reporting and you need to manage your learning curve, or if you want to streamline your data collection, a software partner like FigBytes can help.

FigBytes is a CDP-accredited partner. Our platform will help you keep track of the data you need to compile, use verified methodologies to quantify environmental impacts like carbon emissions and water discharges, and provide a report that is CDP-compliant and can be customized as you need. If you’re ready to get your CDP reporting program off on the right foot, contact a FigBytes team member today.