CDP reporting: What it is & why it matters
Rising temperatures, melting glaciers and natural disasters are just a few of the potential impacts of climate change — and that’s before considering the financial risks. Climate change could reduce global economic output by as much as 14% by 2050, cutting $23 trillion from the world economy. Effective CDP reporting can help organizations fight back.
Environmental, social, and governance (ESG) issues have long been a priority for companies and their shareholders, but climate change has upped the ante. Shareholders now expect that companies not only increase profits but do so while minimizing environmental impacts.
Consistent CDP reporting ensures organizations have the year-over-year insights they need to do just that while protecting their competitive edge.
What Is CDP Reporting?
CDP reporting is the process through which companies disclose their environmental impacts to CDP, formerly known as the Carbon Disclosure Project. Investors, companies, cities and states alike look to CDP to report their environmental impacts and manage the risks and opportunities related to climate change, deforestation and water security.
Through the CDP reporting framework, companies can help build a better economy for both people and planet, an approach that more and more investors and clients expect. In 2022, more than 680 investors with $130 trillion in assets and more than 200 purchasers with over $5.5 trillion in spending requested that the companies they work with disclose through CDP.
Companies can report to CDP on their own, or they can do so at the request of investors or clients. Once this request has been made, companies can complete a CDP questionnaire on climate change, forests or water security, which CDP uses to develop a sustainability score and feedback on environmental risks and opportunities.
What Is CDP Reporting for Suppliers?
CDP reporting for suppliers involves disclosing key environmental data from all suppliers. This disclosure may sound daunting, especially for organizations with countless suppliers in regions all over the world, but much of this process can be managed through CDP. Organizations that become CDP supply chain members can use their memberships to request questionnaires and other critical data from their suppliers.
With supplier data in hand, CDP will provide annual reports and insights so organizations can achieve their environmental targets with the support of their suppliers. CDP reported that, in 2021 alone, suppliers that disclosed through CDP reported more than $29 billion in savings while reducing emissions by 1.8 billion tCO2e.
How Is CDP Data Used
CDP uses environmental data to inform their own research, but that’s just one of many ways CDP data is used.
Investors use CDP data to make decisions about stocks since CDP data can help reveal which companies might be better long-term investments. CDP data can also allow investors to find and manage the environmental risks within their portfolio and gauge their investments' carbon footprint.
Outside of investors, many different institutions use CDP data; it’s the basis for environmental policies, the source for third-party data integrations, the foundation for investment products and even the information used to rate funds.
Benefits of CDP Environmental Reporting
The CDP global environmental reporting system isn’t just about being accountable to investors and clients; it’s about benchmarking progress towards a company’s climate targets. While making progress against these targets can reassure shareholders, four business benefits tie back to the bottom line.
1. Boost Reputation: Transparency creates trust. Organizations that develop a culture of transparency around their environmental impacts will earn the confidence of investors, shareholders and the public, creating a more positive image for the business.
2. Benchmark Progress: CDP uses the environmental disclosures to create a sustainability score and provide feedback against an organization’s science-backed climate targets. Companies can use these scores to benchmark themselves against industry peers to understand how their environmental impact adds up.
3. Stay Ahead of Risks: Environmental risks can be easy to overlook. Consistent CDP reporting ensures that organizations won’t miss risks that can impact their business and can use this data to inform future environmental strategies.
4. Align With Regulations: Regulations are always evolving and will likely continue to feature mandatory disclosure. CDP reporting ensures businesses stay ahead of any disclosure regulations and TCFD requirements.
How to Improve My CDP Reporting
CDP’s reporting system grades business from ‘D-’ for those who disclose, all the way to an ‘A’ for those who exhibit environmental leadership. Improving CDP reporting and therefore improving the CDP score isn’t just about lessening the environmental impact; it’s about clearly communicating everything an organization already does.
Improving how the business communicates its environmental impact starts with ensuring everyone is on board. All teams, from the board of directors and the C-suite to the employees, should buy into the company’s vision for sustainability. This includes explaining why and how the business will track ESG metrics, then integrating that process in all levels of the company.
Once the entire organization is on board, the organization should set goals. These goals can create a framework for CDP reporting; each CDP report tracks progress against ESG goals, giving shape to the disclosure process. Goals should be long-term and detail-oriented and stack up to a business’s financial goals. Some data is more challenging to track than others, which is why an effective reporting software can help.
CDP Reporting and ESG
CDP reporting is a vital part of broader ESG reporting. The push for ESG reporting dates back to the UN’s “Six Principles of Responsible Investing” from 2006, the third of which is:
“We will seek appropriate disclosure on ESG issues by the entities in which we invest.”
Meaning that, within ESG, companies are responsible for disclosing their activities related to ESG, one of which is their climate impact. Investors and clients are also empowered to seek out those disclosures, which is why so many shareholders now expect transparency from the businesses they invest in.
But CDP reporting also touches on all ESG issues to varying degrees. CDP reporting is, on the surface, all about the environmental “E” in ESG; it’s about measuring and managing the environmental impact of all business activities. But, in doing so, organizations can help create a better world for all people (the social “S”) and develop more effective and compliant processes (the governance “G”).
Stay Ahead With Modern ESG
Seventy-six percent (76%) of companies said that CDP disclosures boost their competitive advantage. Though CDP data alone may help businesses get ahead, streamlining ESG activities can compound that impact.
Whether a business is just now disclosing or is already on its way to being an environmental leader, ESG software solutions can streamline data collection, benchmarking and reporting so that it evolves along with the business.
With Diligent ESG, businesses can easily map ESG data and track progress. Whether they’re reporting to CDP or providing data to an investor, up-to-date insights and information will always be on hand.
