Around 10,000 companies globally have now received their climate change, water, forests and supply chain questionnaires and will be busy allocating internal resources to help gather the latest information on their environmental performance. For many, CDP is a time-consuming disclosure exercise that takes place once a year and ends with the final submission on July 29th.
Our experience shows that there is much to be gained from taking a more strategic approach to CDP. The annual disclosure and scoring process gives organisations a critical checkpoint to understand where they stand against rapidly rising expectations from investors, regulators and the public. It allows the right questions to be asked of the right people internally. And it generates the impetus for renewed ambition and action on climate change.
Read on for our 5 Rules for taking a strategic approach to CDP in 2020, focusing on the climate change questionnaire.
1. Use CDP as an annual barometer of your climate performance
As you are working through your response, take note of the areas where you are falling short.
CDP asks organisations to provide detailed information on climate change governance, strategy, and performance. The questionnaires have evolved to reflect fast moving expectations from investors. For example, in 2018 the questionnaires were overhauled to reflect the recommendations from TCFD. This year, further updates have been made. Importantly: financial services, construction, real estate and capital goods are now in the spotlight and will need to provide much more detailed information on their climate performance.
Developing the response to the wide ranging questions in the questionnaire allows you to take stock, on an annual basis, on how external expectations are being met. Ask yourself: where are we struggling to provide enough detail? Where are the gaps in our response? Would our peers have more to say? Use the insights you gain from this to map out next steps - at a strategic level - for stepping up your climate strategy (see Rule # 5).
2. Form a cross-functional working group at the outset
Key in unlocking the internal resources you need for building your CDP response is forming a working group at spans the likes of risk, finance, operations, supply chain, IR, and executive management. As noted in the latest TCFD Status Report, climate change won't be mainstreamed unless there is understanding and buy-in from across the organisation - and CDP is a great way to set this in motion.
Often, the environment or corporate responsibility team are given responsibility for driving forward the climate agenda across the organisation. As you embark on the CDP response, ask yourself: Are there any internal stumbling blocks? Do you feel internal stakeholders are sufficiently briefed on the topic? Are there certain parts of the response you struggle with each year? For example - and a common stumbling block - are you really able to communicate the financial implications of climate risks and opportunities to the business, as TCFD requires?
Use the working group to assign clear responsibilities & accountability at the outset. Importantly: make the working group broader than CDP and disclosure. This is about climate change, risk, and core business strategy.
3. Revisit your stakeholder engagement strategy
Engagement across the value chain is the key to unlocking the emissions reduction potential beyond your Scope 1 and 2.
If you find yourself repeating the same content year after year in the 'Engagement' section (C12) of the questionnaire, it's probably time to reassess your climate programs with suppliers, customers, and other value chain partners. Building collaborative initiatives across the value chain is becoming more and more important as companies set Science-Based Targets and ambitious goals for Scope 3.
Of course, investors are 'the' key stakeholder as the ultimate users of the information gathered through CDP. However - your engagement with investors should not stop when you hit submit on the response. It is important to understand what information your investors are looking for, and how the information will be used. Make sure your Investor Relations team is involved in the process and can leverage the CDP response for further discussions tailored to investors' needs.
4. Identify your gaps against TCFD
Because CDP is so closely aligned with TCFD, companies can make significant progress with their TCFD disclosures through their submissions to CDP. This is particularly true of the TCFD 'target sectors' - highlighted in the TCFD's Implementation Report - each with their own set of TCFD-focused sector-specific questions.
TCFD is a voluntary disclosure framework – for now. Whilst over 900 organisations (representing a market capitalization of US 11 trillion +) have endorsed the TCFD, the disclosure of climate-related financial information is deemed 'insufficient for investors'. And with the UK Treasury and BEIS - amongst others - warning of making TCFD mandatory if disclosures don't improve, it is only a matter of time before this becomes a compliance issue. Make sure you identify where you are falling short in your climate disclosures so you can make plans to address these gaps (Rule #5).
5. Use momentum from CDP to kick-start your next initiative
Having hit 'submit', pull together an action plan for the next 12 months that will help to elevate your climate strategy to the next level. Whilst CDP is fresh in people's minds, use the working group to map out specific plans, programs and initiatives and assign these to the different teams - clearly linking objectives and outcomes to CDP, TCFD and broader corporate governance objectives.
As we enter the 'Decade of Action', CDP (through its close alignment with TCFD) offers a valuable opportunity to reassess your organisation's climate performance against fast-moving expectations from investors, regulators and consumers.
Much more than a standalone disclosure exercise, CDP should be used as a way to reflect on and improve climate change management and performance, and to integrate climate into core business strategy.
As you embark on this year's questionnaires, take the time to reflect on how you approach CDP more strategically to make sure you are getting maximum value out of the process.
For more information read our dedicated CDP disclosure page.