Carbon disclosure project: criteria and challenges

Here's how the Carbon Disclosure Project (CDP) helps businesses report strategic insights on their climate and environmental impacts.

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The Carbon Disclosure Project (CDP) may sound intimidating to businesses who have never calculated their CO2 emissions. But CDP reporting has so much more value than this. 

In fact, businesses that report via the CDP survey can start down a path of improvement that raises their reputation, save costs, reduce inefficiencies, and attract investment, talent and loyal customers. The business case for earning a positive CDP rating is undeniable. 

Remember: you can’t manage what you can’t measure. Until your business reports to the CDP’s worldwide database of business and climate insights, you won’t be able to unlock these benefits. 

❓ CDP: what does it mean ?

Carbon Disclosure Project’s core mission is to support a thriving economy for both people and the planet. CDP’s voluntary greenhouse gas (GHG) emissions database serves as a vital resource for transitioning to a safer low-carbon economy. 

Definition 📖

The Carbon Disclosure Project is a non-profit organization that collects self-reported environmental impact data from companies, cities, and other entities. CDP has one of the largest, most comprehensive databases on voluntary environmental impact data in the world. 

Established in 2000, CDP is one of the most popular and longest standing sustainability reporting frameworks worldwide. 

Unlike other voluntary environmental, social, and governance (ESG) frameworks such as the Global Reporting Initiative (GRI) or the Sustainable Accounting Standards Board (SASB), CDP solely specializes in the “E”: environment. 

Each year, the CDP worldwide survey opens in April for CDP signatories to submit responses by July. The questionnaire contains three primary sections: climate change, forests, and water security. 

Companies operating in certain high-impact sectors and financial services firms have unique questions material to their specific business structures. 

As of 2021, the total number of reporting companies reached about 10,400. CDP reports that 680+ financial institutions managing US$130+ trillion in assets requested the companies’ CDP data. 

The Carbon Disclosure Project supports its signatories in a number of ways. 

Leadership recognition: CDP accreditation is offered to companies with low impact operations, consistent improvements, and transparency. Each year, CDP recognizes the best environmental achievers on its “A-List.” Companies are scored on a scale of A to F. Its criteria evolves over time. 

Knowledge-sharing: CDP research gives policy-makers, companies, investors, and other stakeholders a broader understanding at the sectoral and regional commercial environmental activity. 

This decision-useful data offers valuable insights into the sources of environmental impacts. CDP also provides helpful guidance to companies on ways to mitigate their environmental impacts and engage their supply chains.  

Carbon Disclosure Project members: Apart from companies and cities who join the CDP as signatories, other entities benefit from CDP, too. Memberships are available for investors, suppliers, and reporter services. Each member type contributes to CDP’s overarching value. 

  • Investors benefit from access to the CDP database with thousands of records on companies. 
  • Suppliers can become preferred vendors within their industry by responding to the CDP questionnaire as a member.   
  • Reporter services membership helps companies access direct reporting support and dashboard access from the CDP. 

These Carbon Disclosure Project members can use CDP resources to research and influence signatory companies. 

Who’s concerned ? ✋

Governments: Around the world, governments are adopting mandates to identify climate risks in the financial system. 

Recently, both the EU with its Sustainable Finance Disclosure Regulation SFDR and the UK’s law for reporting under Task Force on Climate Related Disclosures (TCFD) will make environmental impact reporting mandatory. 

The US Securities and Exchange Commission (SEC) could make a similar requirement. It closed its period of comment on climate-related risk disclosure in 2021. 

By reporting to CDP early on, companies are better prepared to comply with new regulations and avoid fees, as it aligns with many of the new mandates. 

Investors:  More and more, investors use CDP data to guide their decisions. Sustainability is a major investing trend on the rise. In 2021, sustainable investments reached a peak of $120 billion, up from $51 billion in 2020. 

Companies reporting to the CDP usually do so upon the request of their investors. It provides them with clear, comparable data to use in assessing the investment value of their environmental impacts and strategies. 

Customers: Research shows about a third of customers (34%) will pay more for sustainable products, while nearly two-thirds (60%) consider sustainability important to their purchasing decision. 

These numbers could likely grow in the future, as younger customers show greater interest in actively supporting sustainable companies. 

Employees: Almost half of job-seekers between the ages of 18 and 25 (50%), and slightly less between ages 26 and 39 (44%) prioritize employment opportunities that align with personal ethics. Climate change topped the list of concerns for the younger group. 

Communities: The environmental impacts of companies have deep and long-lasting impacts on communities whose health, quality of life, and safety can be compromised by environmental risks. 

✅ What does it mean to be an accredited partner?

The Carbon Disclosure Project verifies accredited solutions providers that have the skills necessary to help businesses assess, manage, report and take action to minimize their environmental footprint. 

By hiring external support from an CDP accredited service provider, you can better integrate environmental assessment and management systems into your existing business solutions. 

Greenly is a silver accredited partner of CDP. 

💥 Main challenges of the Carbon disclosure project

Prevent global warming 🌎

The impacts of global warming are visible everywhere. Rising sea levels are reshaping our coast lines, droughts are impacting agriculture and water supplies, wildfires ravage our forests, heatwaves cause severe health risks, and hurricanes flood our cities with heavy rains. 

Not only are these impacts uncomfortable and unpredictable, they are costly. The NOAA estimates that a total of 310 climate-related events have exceeded a billion dollars in damages. The total damage of these events surpasses US $2 trillion. 

The safest means to slow these events is to rapidly reduce our global GHG emissions to “net zero” by 2050. This target would put us on a pathway to limit global warming to 1.5°C by the end of the century and fulfill our commitments in the Paris Agreement. 

The amount of GHGs in the atmosphere rose 90% from 1970 to 2010, according to the IPCC. The primary sources of greenhouse gas emissions are fossil fuel combustion (65%) followed by agriculture, deforestation, and land use change. 

The good news is we have loads of resources and plenty of reasons to make a positive impact and reduce these trends. 

CDP criteria and focus areas 📝

The Carbon Disclosure Project questionnaire asks questions in the following areas: climate change, forests, and water security. Using the principles of an ESG material assessment, CDP asks companies to respond to its questionnaire for areas core to its business operations. 

Climate change: The climate change questionnaire largely follows the format of the TCFD recommendations (see below), although it also contains questions directly related to energy, verification of emissions, and internal carbon pricing. 

Sector-specific questions in the climate change section apply to the following sectors: agriculture, energy, financial services, materials, and transport. 

Water security: Established in 2010, CDP’s water security questionnaire covers issues such as water dependence, accounting methods and metrics, risks, value chain engagement, and management strategies. 

High-impact sectors for water security include agriculture, energy, and some materials (chemicals and metals and mining).  

Forests: Recognizing the risks of biodiversity loss from deforestation, the CDP added a forests questionnaire in 2019. While this section specifically targets the agriculture and mining sectors, CDP asks questions related to key commodities in all industries driving deforestation around the world. 

The CDP also partners with a number of initiatives that companies can join to gain added prestige and recognition: 

Science Based Targets initiative: Companies can align their GHG emissions reduction strategy with the 1.5°C pathway by reporting under the Science Based Targets initiative

RE100: Renewable Energy 100 is a cohort of businesses who have committed to transition their energy to 100% renewable sources.  

We Mean Business: Companies can join the We Mean Business and the Business Alliance for Water and Climate initiative by reporting on certain water security questions to demonstrate corporate water stewardship. 

💡 Why is it important for companies?

Reporting to the Carbon Disclosure Project is a valuable way to gain strategic insights into your business operations. By reporting to CDP, companies can learn not only areas they need to improve, but also areas they excel within their industry.  

People mock the ESG industry for its “alphabet soup” of different frameworks. The lack of shared standards, metrics, and formats for reporting on environmental impacts creates a serious roadblock to gaining market-level insights on environmental impacts: unreliable data. 

CDP helps solve this problem with its standardized questionnaire and data collection formats. This helps businesses gain clarity on environmental impact issues and communicate their impacts in a way that investors and regulators find useful.   

Investors care deeply about ESG information given the fast-growing interest by institutional investors, shareholder activists, and even retail investors in climate-friendly investment products. Businesses can attract investors based on their CDP accreditation and performance. 

The trend towards greater regulation on climate-related impacts will only increase over time. Businesses who report to the CDP get a headstart on these regulations and avoid fees or compliance issues down the line. 

💫 How is CDP linked with the TCFD? 

The Carbon Disclosure Project aligns with another widely-adopted reporting standard that supports climate resilience: the Task Force on Climate-Related Financial Disclosures (TCFD). Questions on the CDP questionnaire help companies align with TCFD in a practical way. 

What is TCFD? 📕

Climate risks are not only caused by businesses, these risks also impact businesses and the economic system overall. ESG reporting failed to capture this dynamic for a long time. 

To respond to this gap, the Financial Stability Board (FSB) established the TCFD in 2015. FSB is a global financial monitoring organization formed by the G20 countries in 2009. 

TCFD aims to expose the financial risks and opportunities of climate change for businesses and investment portfolios in the short-, medium, and long-term time horizons. Roughly speaking, the short-term is 1-3 years, the medium-term is 3-10 years, and the long-term is 10-20+ years ahead.  

TCFD recognizes two main types of climate-related financial risk: physical risks and transition risks. 

Physical risks are the sudden and slow-moving environmental impacts caused by climate change. They include heat stress, drought, floods, tropical storms, wildfires, and other geophysical changes. 

Transition risks are the societal risks associated with climate change such as policy, litigation, reputation, and technology changes which could impact businesses and investors.  

In addition to risks, climate change can lead to business opportunities. These could include tax incentives to switch low-carbon technologies, new markets for sustainable products, or other opportunities.  

TCFD recommendations 👍

The TCFD recommends businesses report for four main areas: 

Governance: Companies should describe their board oversight and management activity related to climate risks and opportunities.

Strategy: Companies should describe the company risks and opportunities related to climate change in the short-, medium-, and long-term. They should also describe the impacts to their business in quantitative and qualitative terms. 

They should also provide something called a “scenario analysis.” This reports how the company’s risks, opportunities, and strategies change according to different levels of climate change, including a 2°C or less scenario. 

Risk management: Companies should describe how they’ve identified and assessed risks, their methods for managing the risks, and how they’ve integrated climate-related risk management into their main risk management approach. 

Metrics and targets: To support transparent and thorough data collection, companies should declare which metrics they’ve used in their risk assessment. 

They should also report their Scope 1 (direct emissions), Scope 2 (emissions from the purchase of heating or cooling services), and Scope 3 (value chain emissions from suppliers and customers using an organization’s products or services) for certain sectors. 

The definitions of these scopes were created by the GHG protocol, a globally recognized framework for quantifying GHG emissions. 

Lastly, companies should describe their baselines and performance targets for lowering their climate-related risks. 

😎 5 main benefits of carbon disclosure project

Carbon Disclosure Project reporting is much more than another administrative hoop to jump through. It gives organizations recognition from stakeholders across the spectrum of business. It’s also a way to gain decision-useful insights for business. 

Here are the strategic advantages of disclosing under CDP: 

  1. Get early mover advantages: Progress towards a low carbon economy may still seem far-off, but early movers gain key competitive advantages. 

Not only will their businesses be considered more resilient and attractive to investors and consumers, they will help spur greater ambition among their competitors. 

  1. Shed light on risks and opportunities: The environmental impacts of climate change are very serious. So serious, in fact, that insurance companies could downgrade credit ratings of companies with climate risks in the future. Companies need to be aware of these risks.  

  1. Create a positive feedback loop: Given the business value of sustainability, CDP helps companies become more environmentally sustainable. This helps them attract the best talent and retain loyal customers.  

  1. Stay on good terms with regulators: CDP reporting helps companies avoid future fees and avoid an administrative bottleneck when regulations catch up with voluntary reporting standards.  

  1. Promote a safer future: Environmental risks have dangerous consequences for our health, long-term economic stability, security, and well-being. Carbon Disclosure Project reporting helps businesses become part of the solution.  

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