The pursuit of a favorable CDP score has become a defining element of sustainability programming in businesses worldwide. Now, CDP has grown to over 23,000 corporations disclosing their environmental data annually, which includes over 80% of the Fortune 500.
The factors fueling CDP’s becoming one of the most prominent sustainability reporting frameworks include a push for enhanced transparency in environmental reporting, companies setting ambitious sustainability goals and asking for support from their suppliers, an evolving landscape of ESG reporting regulations, and the growing climate-related risks.
This article aims to illuminate the importance of CDP scores in the modern corporate landscape. We present five pivotal reasons why your company should treat CDP reporting and a strong CDP score as a fundamental pillar of an effective sustainability program.
Deciphering the Impact of CDP Scores
From its roots as the Carbon Disclosure Project, CDP’s rise to prominence as one of the most important sustainability reporting frameworks and scores for gauging environmental performance is undeniable. Over two decades, it has become a cornerstone in the toolkit of investors and stakeholders for assessing sustainability metrics.
One of the major benefits of CDP reporting is that every other major sustainability reporting framework is either integrated with CDP or interoperable with it. In the case of the ISSB and the TNFD, they will both be integrated with CDP’s questionnaire in 2024, and the two other major frameworks, the GRI and the EU’s ESRS are interoperable with the CDP questionnaire. Because of this high level of compatibility with CDP and other frameworks, reporting through CDP will help you prepare for any other voluntary or mandatory reporting.
CDP Scoring: A Marker of Global Sustainability Engagement
From 2020 to 2023, organizations reporting to CDP and achieving a score witnessed a significant leap, with figures soaring from roughly 9,000 to 23,000 reporters across more than 100 countries. This growth is partly propelled by the actions of over 330 key players in the CDP Supply Chain, who have urged about 47,000 of their supply chain partners to measure and report on their environmental impact.
Why CDP Scores Matter to Supply Chain Partners
The focus on sustainability metrics is intensifying in the business world. Here is why more firms are requesting CDP scores from their suppliers:
- Higher Environmental Aspirations: Big businesses are heightening their environmental ambitions, necessitating that their suppliers also aim higher in their sustainability performance.
- Regulatory Developments: Upcoming regulations, such as the SEC’s reporting framework and the EU directives, are pushing companies to standardize environmental reporting.
- Understanding Supply Chain Environmental Risks: Corporations are keen on identifying and managing the environmental vulnerabilities within their supply chains. Crafting a comprehensive CDP report can be vital for that.
The Top Five Reasons to Integrate CDP Score Into Your Sustainability Framework
In 2024, the CDP disclosure process will be simplified with a new integrated questionnaire, and it will include a specialized version for smaller businesses. With these additions participation in CDP will grow again in 2024. If your company is new to CDP disclosure or hesitant about its value, here are five strategic benefits to get you on board:
- Solidifying Supply Chain Alliances: Over 330 multinational companies issued CDP-related queries to more than 40,000 of their suppliers in 2022, with a response rate of only 41%. Responding positively and disclosing environmental metrics to CDP requests for data can elevate your relationship with your biggest customers, giving you the status of a collaborative and reliable supplier and potentially lead to more favorable business conditions, such as increased sales, preferential pricing, or collaborative efforts. With corporates like Pfizer and Telstra prioritizing CDP reporting and scores when deciding which vendors to use, non-compliance may soon not be an option.
- Increasing Investment Appeal: In its essence, CDP reporting and the resulting score is a metric for investor confidence. A strong CDP score can sway investment decisions, drawing investors who prioritize corporate environmental responsibility. A transparent approach to CDP scoring can be the deciding factor for investors, as it indicates a commitment to sustainability and strategic environmental oversight. Investors increasingly seek out companies with effective sustainability strategies that mitigate risks and exploit opportunities related to sustainability, and a good CDP score is one way to demonstrate that. Investors have even said that a “D CDP score is a much more enticing investment than an F score, as it shows the company is willing to be transparent.”
- Competitive Edge: Beginning CDP reporting and working toward a high CDP score is a testament to a company’s proactive approach to sustainability and serves as a signal that a company takes its environmental risks seriously and wants to be transparent. Differentiating between your ESG performance and that of a competitor with a lesser score can significantly enhance a company's market position, drawing in customers and talent who prioritize corporate environmental responsibility.
- Preparedness for Compliance: With new sustainability reporting regulations and standards being released globally, staying ahead of the compliance curve is crucial. Many of the most common ESG reporting standards, such as the TCFD and ISSB, are integrated into the CDP questionnaire, ensuring that companies that report to the CDP are on the right track for wider ESG disclosure. Considering that the majority of global reporting regulations are built on the ISSB or TCFD, obtaining a CDP score prepares companies for future compliance. In addition to ensuring that their CDP questionnaire is integrated with the most important reporting standards, even when not integrated, other reporting standards like the GRI and ESRS work closely with the CDP to ensure their standards are interoperable to reduce the ESG reporting burden.
- Climate Risk Identification: CDP reporting requires companies to assess and disclose climate risks facing their businesses. Understanding environmental risks can help companies build strategies to mitigate and adapt to regulatory changes, better manage and mitigate physical climate risks, and shifts in market demand related to environmental concerns. By identifying risks early and reporting them to CDP, companies gain better visibility into their own performance and ensure they have effective strategies to minimize their risks and exploit sustainability-related opportunities.
CDP Case Study
How Global Biopharma Leader AstraZeneca Uses CDP Reporting to Reduce Scope 3 Emissions
AstraZeneca has consistently been on the CDP A-list for the last seven years. They have steadily made progress on their Scope 1 and 2 and are one of the first companies to have their emissions targets approved by the science-based target initiative (SBTi). Despite this, they found it difficult to reduce their Scope 3 emissions, which they also set targets to reduce.
To drive towards their ESG goals, AstraZeneca relies heavily on their CDP Supply Chain membership to make sure they are on track to meet those targets. Jenny Perrie, AstraZeneca’s Scope 3 leader, said, “We rely on our suppliers’ CDP submissions to gain consistent insight into our Scope 3 emissions.”
The information that AstraZeneca gains through CDP allows them to see how each of their suppliers is performing, and they can build engagement plans to support their suppliers based on their performance. They are now using the data they have to inform purchasing decisions and to shape future sustainability policies for their suppliers.
Takeaways
The significance of a robust CDP Score cannot be overstated in today’s business landscape. As environmental reporting becomes more integral to operations, companies worldwide are leveraging the CDP to showcase their commitment to the climate and environmental responsibility.
Not engaging with CDP could mean missing out on pivotal opportunities to improve relationships with your biggest customers, differentiating your products and services, and a whole host of other benefits.
By collaborating with a proficient CPA, you can begin the essential process of data collection and reporting. Our experts are on hand to help you advance from an initial D score toward the coveted A score and demonstrate true leadership in your sector.
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