What Is CDP Reporting?

A beautiful photo of the iconic Spirit Island at Maligne Lake in Jasper National Park at the heart of the Canadian Rockies. Blue sky and white clouds are reflected in the blue green lake.

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:

  1. Introduction
  2. Identification, assessment, and management of risks and opportunities
  3. Disclosure of risks and opportunities
  4. Governance
  5. Business Strategy
  6. Environmental Performance – Consolidation Approach
  7. Environmental Performance – Climate Change
  8. Environmental Performance – Forests
  9. Environmental Performance – Water Security
  10. Environmental Performance – Plastics
  11. Environmental Performance – Biodiversity
  12. 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.

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

Pink cherry blossom branches in front of stone pillars in Washington, DC

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.

Learn How With FigBytes Ad - Worried About SEC Climate Disclosure? The FigBytes Sustainability Platform Can Transform Your Complex Data Into Simple Reporting.

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.