How CDP reporting helps companies hit multiple goals
CDP reporting can help organizations assess their climate risk strategy and more clearly align with emerging regulations and common frameworks.
Whether companies are managing growing investor requests, trying to get ahead of the Securities and Exchange Commission’s (SEC’s) proposed climate rule, or aligning reporting with the principles of the Task Force on Climate-Related Financial Disclosures (TCFD), one tool can help them achieve multiple goals: CDP’s Climate Change Questionnaire. CDP designed this questionnaire to align with and streamline TCFD reporting. The data that companies gather to complete the questionnaire can help them think through the practical application of climate risk reporting concepts that are key in the SEC’s proposed climate rule. In addition, collected data can be helpful when reporting under other standards, such as the International Sustainability Standards Board’s IFRS® S2 “Climate-Related Disclosures” standard.
CDP’s submission deadline for this year’s response was July 26. With the 2023 CDP reporting deadline behind us, now is the perfect time to start planning for the 2024 reporting period – and this is especially true for organizations that have not previously performed CDP reporting. Our environmental, social, and governance (ESG) specialists offer insight about CDP reporting and why it might be a useful tool for organizations.
What is CDP?
CDP is an international, not-for-profit organization (formerly known as the Climate Disclosure Project) that helps companies and governments disclose their environmental impact. By making environmental reporting and risk management a normal part of doing business worldwide, CDP helps organizations manage their environmental impact through gathering disclosures, producing insights, and suggesting action to support a sustainable economy. With a long-standing reporting tool and transparent scoring mechanism, CDP reporting is widely recognized and used across the ESG reporting ecosystem.
Companies can obtain CDP scores in three areas of focus via sector-specific questionnaires:
- Climate change. Companies disclose data on how climate-related issues are addressed, from governance, strategy, and risk management to metrics and targets.
- Water security. Companies explain how they handle a variety of factors, including available volumes, water quality, the degree of competition in the region concerned, and future scenarios for physical, regulatory, market, and technological changes.
- Forests. Companies report how they produce, source, and use four key forest risk commodities: timber, cattle products, soy, and palm oil.
CDP also offers organizational scoring for private markets (piloted in 2022) and supply chains.
Why report to CDP?
Although CDP reporting is voluntary, companies report to CDP for a variety of reasons. Voluntary reporting can be used to signal an internal or external ESG maturity milestone, provide an additional data point for benchmarking, systematically begin reporting in line with the TCFD and other frameworks, or establish a feedback mechanism. Reporting might be a response to direct requests from investors or other stakeholder groups, which can come via private channels or a public request made through the CDP platform.
Companies might also want to fulfill other reporting requirements associated with memberships, investor coalitions, and alliances (such as the RE100/Climate Action 100+). CDP’s Climate Change Questionnaire can be a streamlined way for investors and reporters to meet information needs as well as track and benchmark progress regarding climate-related issues. Because CDP issues a letter grade, it also makes it easier for reporters and information seekers to understand their performance by facilitating comparability among companies’ disclosures. CDP’s Climate Change Questionnaire is aligned with TCFD and, by extension, key aspects of the SEC’s proposed climate rule, so reporting can also help organizations prepare for future ESG regulatory reporting needs.
How does CDP align with TCFD?
CDP designed its Climate Change Questionnaire to align with TCFD in 2018, and the questionnaire has evolved over time with developments in global policy and TCFD recommendations. The questionnaire translates the TCFD recommendations and pillars, prompting companies to disclose information regarding their management of climate-related issues, including governance, strategy, risk management, metrics, and targets, while offering guidance on how to distill and present information in a standardized way. Because TCFD underpins other climate-related regulatory frameworks, such as the SEC’s proposed climate rule, this alignment creates opportunities for efficient and consistent cross-framework reporting.
Relative alignment between CDP and select frameworks
| Reporting requirements might be more extensive than those contemplated via CDP reporting | |
| CDP reporting topics might be more extensive than those contemplated via TCFD or SEC reporting |
| CDP climate change modules
|
TCFD alignment
|
SEC alignment
|
|---|---|---|
| Governance | High | High |
| Risks and opportunities | High | Moderate |
| Business strategy | High | High |
| Targets and performance | High | High |
| Emissions methodology | High | Moderate |
| Emissions data | High | High |
| Energy | Low | Low |
| Additional metrics | High | High |
| Verification | Low | Moderate |
| Carbon pricing | High | High |
| Engagement | Low | Low |
| Biodiversity | Low | Low |
Source: Crowe analysis, September 2023
High alignment indicates that a company responding to the CDP Climate Change Questionnaire should be positioned to address all reporting requirements of the cross-referenced framework or vice versa. Moderate alignment indicates some or most reporting requirements overlap. Low alignment indicates very little overlap exists between the frameworks.
Best practices to consider in CDP reporting
Preparation
Proper preparation requires companies to identify their primary goals with CDP reporting, assess key data needs, and determine whether the right processes are in place to enable the desired level of disclosures. For example, an organization will not be able to report on emissions data if an emissions estimation process does not exist, so companies might need to establish some critical processes before moving forward. In this stage, organizations should involve the right resources, including members from sustainability, financial reporting, environmental health and safety, legal and compliance, IT, and executive teams. Companies should aim to conduct planning and obtain buy-in from key resources far in advance of the CDP reporting deadline.
Data collection
Next, teams should review each of the reporting modules within the CDP questionnaire to identify data requirements. Companies can download editable questionnaires from CDP’s online response system (ORS), which should enable planning for data collection. This process can take time as teams work to identify reliable data sources to meet CDP reporting goals.
Data verification
Once all relevant data is obtained, teams should internally verify that data (consider an outside consultant to assist with this process), draft initial responses, and ensure draft responses are reviewed through the appropriate internal channels – a process akin to financial reporting. An additional consideration for CDP reporting entails third-party verification, which can be obtained for the entirety of the CDP report or specific topics such as emissions data, in which third-party verification is key to achieving a higher CDP score.
Data input
Finally, a designated team member should input responses using CDP’s ORS, which typically opens in May, with an end-of-July deadline. An appropriate member of management should then review and certify final inputs. Provided the right processes are in place, data collection, disclosure development, and review could take months – so setting aside ample time and establishing internal milestones can be critical. If the goal is to obtain a CDP score, submitting CDP responses at least a few days prior to the deadline can help avoid any last-minute setbacks, such as unexpected system outages.
Monitoring and improvement
At the conclusion of the CDP reporting cycle, establishing an ongoing monitoring process to evaluate current period results can help set the stage for the future. What progress does a company wish to demonstrate in the following months or years? What key processes and initiatives must be implemented or improved to enable such progress?
While CDP reporting won’t cover every ESG reporting need that organizations might encounter, the questionnaire process can be a great way to get started – and set the stage to meet future regulatory reporting needs.
Contact our ESG team
We can work with you throughout the entire CDP reporting process or assist with specific tasks on an as-needed basis. And if your organization is already reporting to CDP, we can help you enhance your reporting to meet increasing demands from stakeholders.
