What is CDP’s main ESG focus and who does it serve?
We focus on the E of ESG by asking companies, cities, states and regions to disclose their environmental impacts, approaches, commitments and mitigation efforts through our global environmental disclosure platform. We do this on behalf of investors and corporate and government buyers, as well as global networks of mayors, such as the Global Covenant of Mayors for Climate & Energy.
We also work on behalf of other policymakers, such as cities, states and regions – for example, the 40 cities that are taking a lead on environmental issues as part of the C40 group – to provide them with comparable and decision-useful data.
How did you develop your methodology, and what exactly does it assess?
We break down the reporting information into three key environmental issues – climate change, forests and water security – that affect non-state organizations such as businesses, cities, states and regions, and ask disclosing organizations to report through questionnaires. These are designed to elicit the organizational approach to each issue, and to provide a structure to give disclosure that is clear, relevant and comparable, both between organizations and year on year. The structure includes:
- Governance: who owns the issue, and are staff incentivized on environmental performance?
- Strategy: how are short, medium, and long-term strategy and financial planning influenced by these issues?
- Risks and opportunities: the process of risk/opportunity identification and management, and disclosure of current significant risks and opportunities
- Targets: what environmental impact mitigation commitments have companies made? For example, do they have a science-based emissions reduction target to keep emissions in line with the Paris Agreement? Do they have water-use targets and net-zero deforestation targets for specific commodities like cattle, timber, soy and palm oil?
- Metrics: specific measures of progress.
The responses are then assessed and scored to give a rating from D (disclosure) through to A (leadership) based on the level of approach:
- Disclosure: measures the completeness and transparency of response
- Awareness: an understanding of how the issue affects the organization
- Management: measures in place to manage the impacts and risks
- Leadership: reflects those that are taking a lead in managing their organization’s performance on environment.
What advice would you offer to Corporate Secretary readers to help them formulate their own ESG reporting actions?
If you have not disclosed on ESG before, the process can be illuminating in helping to identify risks and costs to your organization.
If you are not new, the evolution of reporting has moved on from pure disclosure to helping organizations understand how they may need to adapt in the future. Business as usual will be changed by ESG issues. Environmental effects are starting to have a massive impact across industries – provision of cleaner energy, farming and how to feed the world without destroying our ecology, sustainable finance – as well as on our rural and urban environments.
It’s not easy, but the process of reporting can really help shape preparation for future changes. Analyzing your business according to future scenarios, such as water availability changes due to climactic changes and deforestation, are a key step in preparing you. This will naturally create challenges that need organizational resilience.
Reporting will not only help you shape your approach but, as more investment decisions are shifted by future resilience, we already see evidence that the actions you report will also help you demonstrate your preparedness and hence gain access to cheaper capital for investment.
This interview appeared in Corporate Secretary’s special report on ESG engagement, reporting and integration