July 26^th is the deadline to submit responses to the annual CDP questionnaires. In 2022, over 18,700 companies responded, a 38% increase from the 13,000 companies that responded in 2021. Most companies that complete the questionnaires are responding because of customer or investor requests to complete the Climate Change, Water Security or Forests questionnaire. It’s a complex undertaking with hundreds of questions to answer and quantitative data to include. And the grading scale is rigorous. Most companies can expect a C rating or lower in the first year of completion.

While not all organizations are ready for CDP disclosure just yet, it’s important to consider its completion as it is a strong reflection on the company’s commitment to environmental transparency and accountability. Companies need to carefully consider their unique situation, especially if they received a request from a stakeholder, and decide if 2023 is the year to make CDP part of their corporate ESG journey.

What is CDP?

Formerly the Carbon Disclosure Project, CDP is an international non-profit that has been around for a decade. CDP offers a set of annual questionnaires and a rating system for entities that disclose. At the request of a company’s investors or customers, the organization issues one, two, or three different questionnaires: Climate Change, Water Security, and/or Forests. Investors widely consider CDP as sending a strong message about the company’s commitment to environmental transparency and reporting.

3 reasons to report with CDP in 2023

We strongly recommend completing the CDP Climate Change questionnaire to any company that has 2022 GHG emissions data on hand and is ready to talk about the oversight mechanisms in place at the company. Even companies with high emissions can be seen as industry leaders in emissions transparency by electing to complete the CDP questionnaire and formalize the organization’s commitment to tracking emissions data.

Disclosing with CDP is a smart step for any company looking to:

1. Boost ESG scores
   Because CDP is such a reputable and standardized sustainability framework, other ESG ratings agencies, including Institutional Shareholder Services (ISS) and EcoVadis, leverage a company’s public CDP submission as a common factor toward the company’s environmental score. Completing the CDP questionnaire may boost an organization’s environmental scores significantly.
2. Prep for the Securities and Exchange Commission (SEC) Climate Rule and other climate reporting regulations
   CDP forms the basis for several climate-related reporting frameworks, including the upcoming SEC climate disclosure rule and the International Sustainability Standards Board (ISSB) standards. Completing the CDP climate reporting questionnaire prepares companies for reporting aligned with multiple frameworks. Much of the information requested by CDP can be leveraged and repurposed for other reporting exercises.
3. Comply with a customer or investor request
   Many companies may have already received a notification from CDP along with an activation link to start the questionnaire and reporting process. This request can come from a business partner, investor, or customer. While complying with CDP requests is not mandatory, failing to comply can result in a strain on the relationship, a broken partnership, or a loss of customers. Additionally, failing to disclose to CDP after receiving a request will result in an automatic ‘F’ grade publicly disclosed on the CDP website.Remember that companies do not have to wait for a request from an investor or supplier to report aligned with CDP; organizations can self-select to complete the questionnaire and reap the benefits of elevated ESG disclosure.

Two reasons to hold off on CDP reporting

Completing the CDP Climate Change questionnaire is a major undertaking, especially the first couple of years as companies are understanding what is asked of them, educating themselves deeper on climate topics, and drafting responses with the rigor of CDP’s scoring methodology. Companies that are just beginning their ESG journey may do better by focusing on other initiatives first and taking the time now to lay the groundwork for successful CDP reporting in the future.

Specifically, companies may choose to wait on CDP this year if they need to:

1. Define an ESG strategy first. Companies that have yet to define ESG priorities need to complete this exercise before they can successfully align with any reporting framework, including CDP. Convene with company leadership to have the discussion and think through the organization’s rationale for reporting with CDP or other frameworks. Be sure to consider stakeholder interests. Companies that are uncertain about ESG priorities should complete a Materiality Assessment to gain clarity on internal stakeholder (employees, leadership, board) and external stakeholder (investors, customers, suppliers/business partners) concerns and expectations for the organization.
2. Collect GHG emissions data. CDP has a hard scoring submission deadline of July 26, 2023. Inventorying and then validating the results of a GHG emissions calculation takes time and resources, which may be better applied toward establishing an overall ESG program, setting up internal controls, or assigning teams to begin collecting data for the following year.

Additional CDP options for the undecided

Companies that are on the fence about reporting with CDP for the first time in 2023 have a couple of additional options worth considering.

• Complete the CDP minimum version of the Climate Change questionnaire. This option for first-year responders comes with an extended deadline. Responses are not scored and are nonpublic, so they will not impact a company’s ESG ratings in the same way the full, publicly available CDP questionnaire will. However, this reporting exercise gives companies and leadership teams the opportunity to better understand the types of questions within CDP and the granularity that is expected. Keep in mind that the minimum version is only available the first year and companies that complete it will be expected to complete the full version the following year.
• Keep CDP scores nonpublic in the first year of reporting. Companies may elect to keep CDP scores nonpublic for the first year of reporting. This is especially important for companies that are using the first year of submitting to CDP as an exercise to educate their internal teams on the information needed.

Take the next right step toward improved ESG disclosure

Deadlines for 2023 CDP submissions are quickly approaching. Whether this is the year to start reporting or to take steps toward establishing a stronger ESG foundation, Riveron’s ESG experts can help. The most important thing is to make progress. Our team helps companies assess and prioritize the reporting frameworks that make the most sense for their organizations and can provide expert advice and support as a trusted partner during every phase of the ESG disclosure and reporting process. Reach out today and get ready for the 2023 submission.

Sources:Nearly 20,000 organizations disclose environmental data in record year as world prepares for mandatory disclosureCDP reports record number of disclosures and unveils new strategy to help further tackle climate and ecological emergency