Understand Your CDP Scores— And Plan to Improve Them for Next Year

On February 5^th, more than 23,000 companies, representing at least two-thirds of global market capitalization, received their CDP scores —the largest number to date—representing a 24% increase in corporate responses to CDP questionnaires over 2022 and a 140% increase since 2020. Formerly the Carbon Disclosure Project, CDP is now considered the gold standard for environmental disclosure, transparency, and accountability, and CDP has become the largest repository of corporate environmental metrics in the world.

As customers and investors seek out companies that are prepared to address the climate-related risks and opportunities of today and tomorrow, there is no doubt that the annual CDP questionnaires on climate change, water security, and forests are becoming increasingly important tools. Here are a few tips on how companies can best use the questionnaires within their overall reporting strategies.

Use CDP as the foundation for all climate-related reporting

One reason why CDP has become one of the most recognizable ESG reporting tools globally is that the questionnaires and rating system offer an efficient way for customers and investors to compare environmental disclosures across industries and locations. Indeed, most companies complete the CDP Climate Change, Water Security, and/or Forest questionnaire because a customer or investor requested it. In many cases, requests from corporate customers are tied to that company’s own climate-related commitments.

Of course, companies can elect to disclose before they are formally asked to do so. While responding can be a complex undertaking, particularly in the first year, the effort greatly benefits the company’s overall reporting initiatives. It can enable companies to meet mandatory regulations from multiple regions worldwide, especially as the trend toward consolidation of ESG-related frameworks continues.

While CDP has always closely aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework, the organization announced last year that its questionnaires will also align with the European Union Corporate Sustainability Reporting Directive (EU CSRD) as well as the new sustainability disclosure standards released by the International Sustainability Standards Board (ISSB). The Science Based Targets initiative (SBTi) accepts CDP disclosures as a method to provide evidence that a company is making progress towards science-based targets. Further, the CDP Climate Change questionnaire provides a roadmap for complying with the California climate disclosure rules and the pending final SEC climate rules.

Understand the meaning behind the scores

Companies receive a rating from A to F for each of the three annual environmentally-focused CDP questionnaires completed. A is the strongest score and indicates that a company is a leader in its industry. In 2023, less than 2% of companies earned an A for their climate disclosures.

Companies that achieve the coveted high score generally have:

• Taken action on science-based targets
• Are aligned with frameworks such as TCFD
• Have a transition plan in place
• Have developed climate and nature-related risk assessments
• Are reporting on impacts for all relevant operations within the company’s value chain

C is a much more common score. A C score indicates that a company has an awareness of climate and nature-related risks, but also has room for improvement.

A company will earn the lowest score of F if it fails to comply with a stakeholder request to disclose to CDP.

Start now to improve 2024 CDP scores

Any company discouraged by this year’s CDP score still has plenty of time to make improvements before the 2024 submission deadline this summer. To bring up a suboptimal score:

• Consider the score breakdown. Total score is based on scores in each different area. It is important to note that to score above a C in any section within the CDP, companies need to score enough points across all areas. This means that companies should work to address all low scoring areas, regardless of the weights of the sections.
• Make a realistic improvement timeline. Based on needed areas for improvement, determine what can feasibly be accomplished this year, what the company can achieve over the next two years, and what are the longer term “nice-to-haves.” Keep in mind that the CDP submissions portal opens in June and the deadline for 2024 submissions is September.
• Set priorities within the context of other legislation. When determining improvement areas, take into account applicable climate reporting regulations, such as legislation and rules in California and the European Union. Areas including scope 3 emissions, assessing the financial impact of climate change, and assurance around greenhouse gas (GHG) emissions data may be required for many companies in the United States. Prioritizing these issues can help companies achieve compliance and improve CDP scores at the same time.
• Enhance governance. Implementing strong governance structures around key areas can streamline a company’s regulatory reporting while further improving CDP scores. This involves having appropriate oversight mechanisms in place at the management and, potentially, board level.
• Keep nature-related disclosures on the radar. Disclosures addressing water, forest, biodiversity, and plastic reporting may currently not be as high a priority as climate reporting, but these topics are becoming increasingly important. Most companies respond first to the CDP Climate Change questionnaire, however water-related disclosures increased by 23% in 2023 while 66% of companies receiving CDP’s new and fourth questionnaire, related to plastics, submitted responses. This trend aligns with the World Economic Forum’s latest Global Risks Report, which included “biodiversity loss and ecosystem collapse” and “natural resource shortages” within the top four risks over the next 10 years.

Take the next right step toward improved ESG disclosure  

While not all organizations are ready for CDP disclosure just yet, every company should be thinking about when they will start disclosing. Investors widely consider CDP as sending a strong message about the company’s commitment to environmental transparency and reporting. Some companies cannot afford to ignore direct requests to complete the questionnaires, and even companies that haven’t been approached by their stakeholders should be discussing their disclosure strategies internally.

Need some help with CDP disclosures? Whether this is the year to start reporting or to take steps toward establishing a stronger ESG foundation, the most important thing it so make progress. Riveron’s ESG experts can help. Our team supports companies in assessing and prioritizing the reporting frameworks that make the most sense for their organizations and can provide expert advice as a trusted partner during every phase of the ESG disclosure and reporting process. Reach out today and get ready for the 2024 submission deadline.