We recently hosted a webinar on “Maximising your 2019 CDP Disclosure”. We invited Mark Evans, from Jupiter Asset Management, who offered insight into how investors use the CDP, Sonya Bhonsle, from CDP, who shared the supplier perspective, and myself and Richard Tarboton, from Carbon Intelligence, provided a view of how companies can maximise their disclosures in 2019 and beyond. Despite an 11% increase in the number of companies responding, in the UK there was a 4% decrease in the number of companies achieving an A grade. This could be due to the significant changes to the 2018 CDP questionnaires, such as the introduction of sector-specific questionnaires. A key trend we’ve discussed is that CDP is being used more and more to drive performance. Access the webinar recording.
Investors use CDP to identify climate change leaders and laggards.
How physical risks affect company assets as well as exploring emerging regulatory risks.
Mark highlighted the value of the CDP database and said that it was unparalleled as a resource for investors, many of whom use it as a single point of reference when researching a company’s response to climate risks. He also picked up on the fact investors have noticed a trend of companies stopping their reporting to CDP and how this impacts investor decision making. Firms such as Legal & General have even voted against reappointing the Chairman of specific companies who fail to take strategic action against climate change, as well as name and shame companies on their website who do not disclose their emissions Investors look out for companies that approach relevant issues, and risks & opportunities associated with climate change through a materiality lens. In particular, looking at how physical risks affect company assets as well as exploring emerging regulatory risks.
What matters to a mining company will be very different from an office-based business and investors want to see clear evidence that a company understands these nuances and responds accordingly. Jupiter Asset Management urges companies to detail their strategy, targets and how they are investing for the future within their CDP response. Carbon emissions data is very useful but is backwards looking so this section vital for understanding trends and greatly influences the investor decision-making journey.
The CDP Supply Chain programme has 115 members representing $3.3trillion in procurement spend.
The CDP Supply Chain programme has grown over the last 10 years. Large companies noticed that there was a lot of risk & opportunity in the supply chain and that their suppliers were not being required to disclose by governments or investors. On average, a company’s emissions in their supply chain are 5.5 times larger than that of their own operations (scope 1 & 2). For the likes of some of the big retailers such as Tesco or Walmart, this can be up to 10 times larger. Sonya shared the top supply chain member requests, hot of the press of the Supply Chain Launch in the US this month:
- Set a science-based target – this will have a ripple effect that cascades up and down the value chain
- More action on emissions – large suppliers actively track whether suppliers are taking action year on year to reduce emissions
- Report emissions reductions – to move to a 5-degree world we need to change business as usual
- Encouraging renewable energy purchasing – this year Sonya saw over 30 members write to their suppliers indicating that is an active KPI for them
When asked which issues contributed to their 2018 CDP score not being as high as it could have been we saw a range of responses.
Actions and quick wins to help overcome these common pitfalls
Richard Tarboton addressed these problems and presented:
Quick Win 1: Conduct a peer review and develop a case for change
At the board level, there must be a roadmap that outlines how you will achieve your future targets or direction/ambition, with a business case attached, a clear trajectory and a clear way to engage both at the senior level and with employees across the organisation. Understanding your position relative to your peers is key to senior-level buy-in. Overall the purpose of this strategy needs to be about delivering impact. This will not only get climate change on the agenda of board meetings but will also be a key step towards committing to science-based targets.
Quick Win 2: Develop your scope 3 reporting and undertake a scope 3 screening
Scope 3 can often be a difficult subject, particularly if it hasn’t been fully or accurately evaluated. For science-based target-setting, Scope 3 can be the elephant in the room and a screening exercise provides a key first step to understanding this often-overlooked part of a company’s greenhouse gas footprint. Within the CDP response points are awarded for a full evaluation and explanation of the relevance for the 15 categories. A Scope 3 screening looks at all the Scope 3 emissions categories, whether they are relevant to the company and indicates which ones are expected to be most significant.
Quick Win 3: Conduct a Risks & Opportunities workshop with senior stakeholders from across the business
The 2018 CDP questionnaires aligned closely with the TCFD recommendations. Within the questionnaire, there are a significant number of points available for questions associated with risk. A Risks & Opportunities workshop brings together key stakeholders from across the business to work together to determine which risks and opportunities have the highest impact and likelihood and prioritise which areas to focus on. Utilising the TCFD framework is a good way to understand the transition and physical risks and opportunities, and these can be easily used within the CDP disclosure.
Understanding the CDP scoring methodology
We find that one of the key areas companies fall down is understanding the CDP scoring. 2019 will be a consolidation year, meaning that there will be no significant changes to the questionnaire itself, with most changes being around correcting errors and bringing together the Climate Change, Water and Forests questionnaires. This provides a great opportunity for companies to improve their responses and increase their scores in 2019 after a challenging 2018. An easy way to overcome this is through an initial gap analysis of a company’s 2018 response against the updated scoring methodology. This provides a projected score if a company were to submit the same response against the updated methodology. In 2018 87% of our clients achieved an A or B grade compared to 48% of other companies. If your company could benefit from a gap analysis or you would like to discuss how you can optimise your CDP response please contact the team at email@example.com.