CDP 2023 Score Release & Rising Need for Transparent & Comprehensive ESG Reporting
In early February, the much-anticipated CDP scores for 2023 were released, marking another milestone in the journey towards environmental accountability and transparency. But what exactly is CDP, why does it matter in today’s corporate landscape, and what do changes in CDP reporting regulations mean for corporations around the globe? Below we go into a recap of CDP, how its measured, and the takeaways in preparation for 2024 CDP reporting.
What is CDP?
CDP, formerly known as the Carbon Disclosure Project, has been a beacon for environmental transparency since its inception in 2000. Operating globally across 50 countries, CDP serves as a platform for companies to voluntarily disclose their environmental impacts, particularly concerning climate change, forests, and water usage. This year saw a record-breaking response, with over 23,000 companies participating. This is a 24% increase from the previous year and a staggering 140% increase since 2020.
Why do companies subject themselves to CDP’s scrutiny?
CDP grows in importance especially as regulatory requirements regarding environmental disclosures continue to evolve. Companies face increasing pressure from stakeholders, including investors and supply chain partners, to demonstrate their environmental performance. With regulatory frameworks tightening globally and the urgency of the climate crisis growing, transparency through platforms like CDP becomes paramount for achieving net-zero targets and aligning with international agreements such as the Paris Agreement.
The Importance of CDP Scores
CDP scores serve as a crucial indicator of a company’s commitment to sustainability. Investors, representing trillions of dollars in assets, rely on these scores to assess climate risks within their portfolios. Achieving a high score reflects a company’s integration of sustainability into its business strategy and practices, signaling to investors its resilience in the face of climate-related challenges.
CDP’s survey based mechanism is unique – companies submit to questions on a survey and are scored on their response. There are 3 big frameworks to disclose against; climate change, deforestation, and water security, CDP has worked to align with sustainability reporting protocols such as the EU’s European Sustainability Reporting Standards (ESRS) and TCFD. Companies get an overall letter grade score.
Trends & Insights
While the number of companies disclosing to CDP is increasing, fewer are responding with the high-quality and comprehensive data necessary to be considered environmental leaders. We see this from how only 400 companies managed to achieve an A grade which means top performance across CDP’s 3 questionnaires. These companies are recognised as global leaders in environment transparency and they represent only 2% of all CDP respondents. Only 10 companies of all disclosed companies were awarded the highest score of triple-A.
The increase in the number of companies requested to disclose against all three questionnaires tripled from the previous year. This surge can be attributed to financial institutions and major buyers urging companies to adopt a more comprehensive approach to environmental issues and strategies. Instead of segregating these issues into distinct disciplines, there is a growing emphasis on a holistic approach. It’s likely that this shift in perspective influenced CDP’s decision for the 2024 reporting cycle to merge all questionnaires into a single survey.
What does this mean for companies?
Companies should anticipate that reporting standards will become more rigorous annually. For instance, during this reporting cycle, prominent climate change-focused companies were obligated to divulge 100% of their scope 1 & 2 emissions, with full verification required for all emissions. This marks an escalation from the previous year, where leaders in the field were only required to verify 70% of their emissions.
As verification rules evolve over time, companies need clear solutions for calculating emissions and meeting CDP requirements. It’s important to choose systems that show how emissions are calculated and avoid hiding data. The goal is to improve clarity, openness, and accountability in reporting, and ultimately, be ready for a global regulatory frameworks tighten, and for when disclosure emerges as a crucial pillar for achieving net-zero targets.
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