Why does CDP score matter?
For 15 years CDP (formerly the Carbon Disclosure Project) has helped investors understand the climate-related risks and opportunities faced by the businesses that comprise their portfolios.
Today the CDP released their 2018 rankings, allowing investors to benchmark the performance of more than 7,000 companies.
Driven by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the CDP climate change questionnaire may change once again in 2019. One thing we can be sure of, however, is that the demand from investors for evidence of concerted climate action will only grow.
But the benefits of performing well in CDP rankings go well beyond satisfying investor demands. Taking the actions required to boost your CDP score can also:
- Enhance your companies’ reputation and ESG-rating
- Drive business decision-making on climate-related issues
- Strengthen confidence amongst suppliers and customers
- Build resilience to climate-related risks
- Create climate-related opportunities
- Differentiate you from your peers
Here is a roundup of key actions to consider taking in 2019 –
Climate-related Scenario analysis
To align with TCFD recommendations, CDP required companies in 2018 to disclose their use of ‘scenario analysis’ in determining organisational responses to climate change. Such thinking has been central to the strategic planning of energy companies for decades. Now the expectation from investors is that companies across all sectors provide clarity on the type and extent of climate-related impacts they face.
Fortunately, scenario analysis offers benefits in addition to enhanced investor disclosures. This is because scenario analysis provides a basis for companies to:
- Establish processes for managing climate-related risks over different time horizons;
- Identify potential new markets, products and services in advance; and
- Communicate to stakeholders on how the company and its operations may need to evolve over time.
It is important to take a ‘learning-by-doing’ approach when it comes to undertaking climate-related scenario analysis.
Beginning with qualitative narratives, or ‘storylines’, will help your senior management explore the potential range of physical and transitional climate impacts facing your company. Once your company has built experience in using basic scenarios, this approach can then be combined with more quantitative modelling. By ‘costing’ alternate realities, informed financial decisions can be taken to ensure your company thrives throughout the low-carbon transition.
Science-based Target setting
Science-based targets (SBTs) – emissions reduction targets which are aligned with the levels of decarbonisation required by the goals of the Paris Agreement – have been something of a buzz phrase in 2018. From brands such as Ikea and McDonald’s receiving approval for their SBTs by the Science-based Target Initiative (SBTi) to the release of the IPCC’s special report warning of the perils of global warming of more than 1.5oC, the necessity to evidence that your company is doing its ‘fair share’ is growing. It is likely this trend will continue in the 2019 CDP questionnaires.
Besides improving your CDP score, setting and delivering an SBT can ensure that your company also:
- Builds resilience ahead of the future regulatory and market shifts that will be brought about by the low-carbon transition;
- Fosters innovation in new products and practices amongst your employees and suppliers; and
- Drives resource efficiencies across your value chain.
This year the SBTi will be publishing new guidance on setting SBTs aligned with a 1.5oC scenario, alongside additional sector-specific target-setting methodologies. To ensure that your company is not late to the SBT-party, you should begin by assessing your companies ‘readiness’ for an SBT.
A company’s SBT readiness is reflected by both the ambition and capabilities in place to set and deliver a stretching emissions reduction target.
Read about how our Smart Approach can help your company get started.
You may also like to read: What does the IPCC’s latest Special Report mean for SBTs?
Quantifying and seizing low-carbon market opportunities
According to IFC analysis, the economic transition spurred by the Paris Agreement will offer nearly $23 trillion of opportunities in emerging markets between now and 2030. Resultantly investors are increasingly demanding to know the processes your company has in place for quantifying and seizing these opportunities.
The automotive industry is regularly highlighted as being well positioned to capitalise on the new market opportunities presented by a low-carbon transition, with demand for electric and other ultra-low emission vehicles due to increase dramatically within a generation. Tainted by the emissions testing scandal of 2015, carmaker Volkswagen just this month announced a new low-carbon road transport partnership with Ford.
Whilst new products and services represent the most exciting climate-related opportunity for many companies, CDP identifies a host of additional benefits for the business community to seize upon, including:
- Improved resource efficiency across supply chains;
- A shift towards low-carbon energy sources; and
- Increased capacity to adapt to the negative consequences of climate change.
You should ensure that thorough climate-related opportunity assessments are central to your company’s risk management and strategic planning processes.
Opportunities should be considered over the short-, medium- and long-term horizons, and should account for both the physical and transitional impacts of climate change.
Understanding sector-specific climate responses
For the first time in 2018, CDP incorporated sector-specific questions for 12 sectors across agriculture, energy, materials and transport. CDP has promised to extend this approach to additional sectors in 2019. This trend has been driven by investors’ desire for an easier and more meaningful comparison of company progress against competitors.
But this approach benefits reporting companies also. Sector-focused reporting can:
- Enable comparison of your company’s performance against your peers across a range of relatable metrics;
- Help customers and suppliers prepare for adverse climate impacts;
- Generate consensus and thus strengthen the political capital of your sector; and
- Offer additional opportunities for differentiation from competitors through an improved CDP score.
For companies in sectors not already required to provide additional disclosure, it is important to ensure that you remain informed of changes to the CDP questionnaires in 2019.
Regardless of CDP requirements, consideration should always be given to how climate change may impact the sector beyond your own business.
Preparing for CDP in 2019
The clock is ticking on taking the actions required to boost your CDP score in 2019. These four initiatives offer an opportunity to improve your company’s sustainability disclosures whilst simultaneously benefiting your bottom line or business continuity.
Carbon Smart works with companies to undertake climate-related initiatives in an affordable, bespoke and effective manner. We also have more than ten years of experience in delivering sustainability disclosure for companies across a range of sectors.