Insights > CDP VS. TCFD: Make Your Climate Risk Reporting Strategy A Win-Win

CDP VS. TCFD: Make Your Climate Risk Reporting Strategy A Win-Win

When it comes to climate-risk reporting, the various ESG standards and frameworks, including CDP and TCFD, along with the new climate rule proposed by the SEC, can make the entire issue feel a lot like alphabet soup. To bring clarity to the situation, Riveron put together a side-by-side comparison of the two main voluntary reporting structures for climate-related information and data to help you prioritize which framework is right for your company at its current stage of sustainability reporting, taking into account each framework’s focus, structure, and level of support by institutions and other stakeholders.

Both frameworks matter.

Current best practice dictates that companies report climate-related information in line with both the CDP Climate Change questionnaire and the Task Force on Climate-related Financial Disclosures (TCFD) framework. While the two entities overlap significantly—both frameworks require companies to disclose their greenhouse gas emissions, identify and manage climate-related risks, and demonstrate oversight of climate-related issues—there are some important differences to note. Perhaps most significantly, each has importance to a different set of critical stakeholders, and that importance only continues to grow. Indeed, CDP reported a record number of responses in 2022 and TCFD also continues to gain popularity among large-, mid-, and small-cap companies alike.

Here’s a snapshot of the key differences between the two.

CDP TCFD
Focus area: Heavily focused on greenhouse gas (GHG) emissions, energy consumption, and emissions reduction targets. Covers additional topic areas not addressed by TCFD, including energy use, carbon pricing, supplier engagement, and biodiversity. Climate-related risks, scenario analysis, and the management of those risks within organizations. Includes scope 1 and 2 GHG emissions and relevant scope 3 emissions, emissions reduction targets, and progress against targets.
Why it matters: Every year, more and more major companies ask or require their suppliers to fill out the questionaires. The White House recently made CDP a requirement for all federal contractors.

Failure to comply can lead to a failing grade reported on the CDP website and ensuing public embarrassment.

ESG rating agencies often factor public CDP responses into scoring methodology because of the standardization of responses.

TCFD recommendations form the basis for the proposed SEC climate risk disclosure rule.

The framework is garnering increasingly wider support from the investment community with major investors, including BlackRock, Vanguard, and State Street, looking for companies to disclose climate-related risks within the TCFD framework.

BlackRock’s updated 2023 Stewardship Priorities continue to encourage companies to align with TCFD, as it provides investors better clarity on how companies are assessing and managing climate risks.

Vanguard likewise advocates for effective disclosure, focusing on governance and risk management, encouraging companies to report to TCFD.

How it’s structured: A rigid questionnaire contains a combination of open text responses, pre-populated dropdown lists, and numerical entries.

Designed to standardize the climate-related data and information reported by companies.

Open-ended recommendations are organized into four main pillars: governance, strategy, risk management, and metrics and targets.

Allows for more flexibility than CDP and gives respondents the opportunity to develop a narrative approach to the organization’s identification and management of climate-related risks and opportunities.

How it’s scored: Companies are scored on the robustness of answers. Respondents receive scores ranging from A (for demonstrated leadership) to D- (companies that are just beginning to disclose).

An F score is given when a requested company fails to disclose.

Unlike CDP, TCFD does not have any assigned scores.
How to report: Companies can complete the CDP questionnaire voluntarily or be requested to submit by their business customers. The questionnaire must be submitted by a deadline, usually in late July, to be scored and published publicly near the end of the year.

Companies use the CDP Online Response System (ORS) beginning in April to access and complete the questionnaires.

Companies can choose to develop a response in accordance with TCFD at will. There are no deadlines.

Many companies choose to include a TCFD index in their corporate sustainability reports or in the ESG section of their corporate website.

How it’s viewed: Formerly the Carbon Disclosure Project, CDP is a non-profit organization that provides metric-heavy questionnaires for companies to disclose environmental impact. In addition to the climate change questionnaire, CDP offers questionnaires on forests and water security. CDP is one of the oldest ESG reporting structures and as such, is the largest global repository of environmental metrics for organizations.

As CDP gains popularity, its reputation as a repository of high-quality environmental data increases. In a recent survey, it was ranked at the top by both corporate and investor participants for both the usefulness and quality of the information it provides.

TCFD is an index-based reporting framework established after the adoption of the Paris Agreement. It provides information to investors and the public about what companies are doing to mitigate the risks of climate change.

Build your climate-reporting game plan

While aligning with two separate frameworks can feel like a lot of extra heavy lifting, much of the work you will do will apply to both frameworks. Here’s how to optimize the synergies and get the most value out of your reporting efforts:

1. Start with CDP. Companies often start on their climate reporting journey by collecting data and calculating GHG emissions, which is a key ask on the CDP climate change questionnaire. Determining and disclosing where a company currently stands is a first step in building robust climate disclosures and risk reduction plans. After all, as the CDP website points out, you can’t manage what you don’t measure. Completing the CDP climate change questionnaire also takes companies through the steps of reviewing their governance practices and business strategy and assessing potential climate-related risks. Companies must pull together information including the board- and management-level oversight of climate-related issues.

2. Map TCFD pillars to the CDP modules. For a company that already discloses climate data to the CDP, the move to TCFD disclosure should not be overly burdensome. The four TCFD pillars can be mapped directly to modules from CDP that cover very similar topics. So, in many cases, aligning to TCFD merely requires modifying CDP responses to a more narrative format that fits the TCFD guidance.

CDP VS. TCFD: Make Your Climate Risk Reporting Strategy A Win-Win

3. Conduct a climate risk assessment. Though TCFD and CDP have significant overlap, there are gaps to fill if a company wishes to be fully TCFD-aligned. The most notable gap exists in assessing exposure to climate-related risks and opportunities of the organization. Though CDP requests this information, there is flexibility to the extent which a company may disclose it. TCFD, on the other hand, is much more focused on climate risk management and integrating those risks into business strategy.

A climate risk assessment that is both qualitative and quantitative and includes a scenario analysis will help companies glean the additional insight they need to fully align with TCFD on this point. The scenario analysis ideally needs to consider a least one high-emissions scenario as well as a 2-degrees Celsius or lower scenario to help companies develop credible transition plans. This scenario work allows companies to better understand the current and future impacts on assets across a range of potential climate change futures.

4. Do the financial analysis. TCFD guidance recommends expressing the impact of climate risks and opportunities in terms of their potential financial impact on an organization. This recommendation is in line with the proposed SEC climate rule and will help prepare companies for future climate disclosure in the 10-K and proxy. However, it is important to note that the SEC is already scrutinizing topics in corporate sustainability reporting that are not yet reflected in the annual report and sending comment letters to companies to note discrepancies.

The trends clearly point to the growing need for investment-grade climate reporting. Companies can fully anticipate that, going forward, the risks highlighted in a climate risk assessment and scenario analysis within a TCFD response must be aligned with the risks identified in a company’s financial reporting. For many organizations, this means that the teams involved in ESG and reporting on TCFD will need to work closely with the legal, finance, and risk management teams to ensure alignment in public disclosures. Ultimately, this leads to a more integrated and effective corporate risk management framework overall.

5. Come full circle. In some cases, there will be additional work necessary to make up for the differences between CDP-requested data and TCFD disclosure guidance. Companies that report to both frameworks can use TCFD disclosures to build stronger CDP disclosures the following year, and potentially enjoy a CDP score improvement that may influence other ESG ratings as well.

Take your climate reporting next steps today

There’s no question that both CDP and TCFD are becoming increasingly important for public companies of all sizes. Whether it’s a major business customer, a key investor, or federal legislation that dictates the framework priority for your organization today, ultimately both frameworks will play an increasingly central role in most companies’ ESG programs and goals. And there are clear benefits to tackling both at the same time.

Whether you are reporting climate related disclosures for the first time or taking additional steps in response to a request or in preparation for potential reporting requirements, our team of climate experts can help.  We bring together the skill sets required for end-to-end climate reporting in a way that works for your investors and your executive team. And we can help you get the full value from assessing and disclosing your climate information across today’s most important frameworks.

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