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 multiple themes and categories. In 2024, the CDP is combining its three existing questionnaires (Climate, Water, and Forests) into one CDP Corporate Questionnaire. The new CDP Corporate Questionnaire is made up of 12 modules:
- Introduction
- Identification, assessment, and management of risks and opportunities
- Disclosure of risks and opportunities
- Governance
- Business Strategy
- Environmental Performance – Consolidation Approach
- Environmental Performance – Climate Change
- Environmental Performance – Forests
- Environmental Performance – Water Security
- Environmental Performance – Plastics
- Environmental Performance – Biodiversity
- Environmental Performance – Financial Services
Under each of these modules are a variety of questions based on your industry and size. Below are details on typical information to be included in each of the modules.
Module 1: Introduction
Data reported in the introduction module provides context for the rest of an organization’s disclosure. This includes the reporting year, reporting boundary, and currency that will be applied across all modules of the questionnaire. Other information collected in this module include:
- Language of response
- Description of organization
- Unique identifiers (ISIN etc.)
- Countries
- Financial services organizational activity selection
- Organizational activities (high-impact sectors)
- Commodity dependence
- Value chain mapping
- Plastics mapping
- Commodity mapping
Module 2: Identification, Assessment, and Management of Risks and Opportunities
This module determines if the organization has a system in place to identify, evaluate, and address environmental issues. This allows data users to assess the organization’s awareness of its environmental dependencies, impacts, risks, and opportunities throughout its direct operations, value chain, financed activities, and assets. Some of the information collected in this module includes:
- Definition of time horizons
- Process for identifying, assessing, and managing dependencies, impacts, risks, and opportunities (including biodiversity impacts/ dependency assessment)
- Priority locations
- Definition of substantive effects
- Pollutant management procedures
- Tailings dams management procedures
Module 3: Disclosure of Risks and Opportunities
This module delves into a company’s exposure to environmental risks and opportunities. Organizations will provide detailed reports on each risk or opportunity that could significantly impact their business, along with summary figures that capture their overall exposure. Additionally, this module includes disclosures of risks that have already materialized, with a particular emphasis on regulatory violations and compliance issues. Information collected in this module includes:
- Risks disclosure
- Risks exposure by River basin
- Compliance and fines
- Carbon pricing, emissions, and tax systems regulations
- Probable maximum loss (PML) attributed to insurance payouts related to natural peril catastrophe events
- Opportunities disclosure
Module 4: Governance
This module explores the governance frameworks established to ensure accountability and responsibility for environmental issues within the board and senior management. It includes detailed information on environmental policies, public commitments, engagement in public policy, and the communication of environmental information beyond a company’s CDP response. This module collects information on:
- Board oversight
- Board competency
- Management responsibilities
- Management competency
- Incentives
- Environmental policies
- Pension schemes
- External collaborative frameworks and initiatives
- Public policy engagement
- Communications/reporting
Module 5: Business Strategy
This module aims to explore how the organization’s strategy has been shaped by various risks and opportunities, as well as by tools like scenario analysis, transition planning, and carbon/water pricing. Furthermore, it emphasizes the importance of aligning capital expenditure (CAPEX) and operational expenditure (OPEX) decisions with the overall strategy and plans. Additionally, organizations will be required to explain how they engage with stakeholders across their value chain on environmental issues within this module. This includes collecting information such as:
- Scenario analysis
- Transition plans
- Influence of Risks and Opportunities on Strategy and Financial Planning
- CAPEX/OPEX/revenue aligned with strategy/transition plans (including Taxonomy alignment & trend in water-related CAPEX/OPEX questions)
- Low-carbon R&D investment
- CAPEX breakdowns & breakeven price
- CAPEX Trend
- Pricing environmental externalities
- Value chain engagement (including suppliers, smallholders (F only), customers, clients & investees)
- Collaborative Opportunities
- Environmental requirements for suppliers and asset managers
- Shareholder voting
Module 6: Environmental Performance – Consolidation Approach
In the past, organizations were asked to detail their consolidation approach for reporting environmental performance data within the introductory sections of each of CDP’s corporate questionnaires. Starting in 2024, this question has been relocated to immediately precede the ‘Environmental Performance’ modules specific to each environmental issue. This change aims to clarify that the chosen consolidation approach directly influences the performance data the organization needs to disclose throughout these modules. Moreover, the updated question will now enable respondents to explain the reasoning behind their selected consolidation approach, aligning with IFRS S2 standards.
Module 7: Environmental Performance – Climate Change
When thinking about climate change 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:
- Emission methodology and exclusion
- Scope 1, 2, and 3 Emissions Inventory
- Biogenic Emissions
- Emissions Data- Agricultural commodities
- Emission Breakdowns
- Energy Related Activities
- Electricity Transmission and Distribution
- Production Data
- Intensity and Efficiency Metrics
- Other Climate-Related Metrics
- Targets
- Emissions Reduction Initiatives
- Best Available Techniques
- CCS/U
- Land Management Practices
- Life-Cycle Emissions Assessment
- Product-level emissions
- Low-carbon products and services
- Project-based carbon credits
Module 8: Environmental Performance – Forests
Forests disclosures document an organization’s use and dependence on forest commodities and the risks and opportunities related to this. The level of detail in the forest disclosures will vary significantly by industry or the companies within an investment portfolio. Some of the information collected in this module includes:
- Exclusions
- Commodity breakdown
- Own land usage and location (production volumes)
- Commodity sourcing locations (sourced volumes)
- Biofuels
- Commodity-specific targets
- Traceability
- Deforestation and conversion free (DCF) status metrics and methods to determine DCF
- Status and progress towards Deforestation and Conversion Free (DCF)
- Certified commodity volumes sold
- Emissions
- Legal compliance
- Landscape and Jurisdictional approaches
- Initiatives/activities
- Ecosystem restoration projects
Module 9: Environmental Performance – Water Security
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:
- Exclusions
- Company-wide water accounting
- Facility-level water accounting & verification
- Water efficiency and Water
- Products and services
- Water-related targets: water quantity, water quality, WASH, other
Module 10: Environmental Performance – Plastics
The annual increase in plastic production presents serious threats to global ecosystems, economies, and communities. Enhancing the visibility of plastic footprints through comprehensive corporate disclosure is crucial. This transparency serves as a vital foundation, enabling companies to develop effective strategies to reduce their plastic usage and mitigate the associated pollution. This module aims to address this need for transparency around plastic usage. Some of the information collected in this module includes:
- Plastics targets
- Plastics activities
- Plastics metrics for plastic polymers
- Plastics metrics for durable goods/products and durable components
- Plastics metrics for plastic packaging
- Metrics for end-of-life management
Module 11: Environmental Performance – Biodiversity
CDP acknowledges the interconnectedness of biodiversity, climate change, and all nature-related issues. Consequently, starting in 2024, all corporate disclosers, except for SMEs and public authorities, will be required to report basic biodiversity data points. Some of the information collected in this module includes:
- Exclusions
- Actions on biodiversity-related commitments
- Biodiversity indicators
- Land resourced and land disturbed
- Areas important for biodiversity
- Artisanal and small-scale mining (ASM)
- Biodiversity Action Plan (BAP)
- Impacts on biodiversity
- Strategic business plan
- Biodiversity-related targets
- Mitigation hierarchy
- Additional conservation actions
- Closure and rehabilitation
- Engagement activities
Module 12: Environmental Performance – Financial Services
The module remains dedicated to addressing questions specifically pertinent to the financial services sector, including topics like financial products and services, portfolio valuations, portfolio emissions, and the broader environmental impact of investment portfolios. Some of the information collected in this module includes:
- Environmental impact of portfolio and emissions breakdown
- Portfolio values
- Environmentally sustainable products/services
- Portfolio targets
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). As of 2024, CDP disclosure will be aligned with the ISSB climate standard (IFRS S2) as well as partially aligned with the European Sustainability Reporting Standards (ESRS), the TNFD recommendations, and the the United States SEC’s climate disclosure rule. Programs like the CDP and organizations like the TCFD and TNFD 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 disclosure may have a different CDP Score than their forests disclosure. Plastics and biodiversity will remain unscored as CDP wishes to empower more companies to begin disclosing these environmental issues before starting scoring. 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.