There are many reasons to respond to CDP, but one objective tends to stand out. Simply put: Those that report do better. Companies that respond to CDP see a 67 percent higher return on equity versus their non-responding peers and orgainzations that participate have identified $53 billion worth of savings through the reporting process. Businesses not only satisfy customer and internal requests for transparency, and identify new business opportunities, but also improve investor relations. Which brings up the next point.
Companies either asked to respond to CDP this past year and didn’t, or those that failed to provide sufficient information, will see an ‘F’ next to their (very public) Climate Change, Water and Forest scores. While an ‘F’ technially means “failure to provide sufficient information to be evaluated,” it definitely brings back inner grade school fears.
Many investors use CDP data to understand risk, protect investments and capitalize on opportunities with companies. When investors see ‘F’ — or a below-average score — it can have an impact on confidence and growth. And there’s little hope of slipping under the radar; in 2017, 803 institutional investor signatories with a combined $100 trillion in assets requested companies to disclose to CDP. They’re paying attention.
Didn’t make the A-List this year? Or the B- or C-List? Here are three things to do next year to improve scores:
1. Identify Gaps and Benchmark
Before submitting a CDP response, companies should perform a gap analysis to determine their projected score. Identify gaps in previous years' responses that may have lacked sufficient detail, and compare results with main competitors and customers in a detailed analysis and roadmap. Rephrase and complete sections that were missing key data and infomation. Clearly list actions and priorities to reach higher scores, and help build a business case around sustainability to meet goals for responding next year and ensure a more desirable score in the coming year.
By performing a gap analysis and detailing clear actions for the year, companies have the opportunity to advance their sustainability programs, including recent concepts such as market-based calculations and Science-Based Targets (SBTs). This allows companies to be better informed on the risks and implications new practices would have on a CDP score.
2. Set Science-Based Targets
SBTs not only impacts CDP scores significantly, but enable companies to future-proof operations by reducing greenhouse gas emissions, helping to mitigate the worst impacts of climate change such as extreme weather, economic volatility and supply chain disruption. Unlike conventional carbon targets, which may fall short of the level of reductions required for climate mitigation, SBTs provide an accurate assessment of decarbonization progress based on economic productivity, carbon intensity or a combination of both.
According to a recent analysis, 89 percent of the world’s highest-emitting companies responding to CDP in 2017 reported emission reduction targets. Further, 14 percent of companies committed to SBTs, up from 9 percent in 2016, while 68 percent of companies are setting targets to at least 2020, with 20 percent planning sustainability actions to 2030 and beyond. Additionally, 30 percent of companies aim to set SBTs within the next two years.
Committing to SBTs not only helps safeguard future profitability, but provides companies with a long-term competitive advantage. For example, evidence shows that companies demonstrating leadership on climate action are more profitable. A CDP study of 500 S&P industry leaders found that organizations actively managing and planning for climate change secure an 18 percent higher return on equity or investment versus non-committed peers.
Many companies are now using internal carbon pricing as a tool in their financial decision-making process, which can help fund improvements in energy efficiency. There is a toolkit available from CDP and We Mean Business to assist companies in using carbon pricing that aligns with SBTs.
3. Collect, Assess and Verify Data
The first step for data certainty is to ensure full data management through a centralized management platform. By having one platform where all data lives, companies have a more coherent picture and are able to tell a better story when responding to CDP. (Watch this webinar to see how medical-technology leader Becton, Dickinson & Company relies on a centralized platform to accelerate and simplify its data strategy.)
The next step is to bring in a third party to verify greenhouse gas (GHG) inventories, and Scope 1, 2 and 3 emissions. CDP allocates a notable percentage of performance points to third-party verification, which can help improve a company’s overall score. CDP provides a list of acceptable third-party verifiers to ensure all related activities are comparable.
Third parties benefit a company’s score as they can determine if the data provided is adequate and can identify risks with how companies are accounting for carbon.
Schneider Electric is proud to be CDP’s global Gold Partner for Consultancy and Software and Silver Partner for Renewable Energy.
Contributed by Louis Christopher, Sustainability Specialist, Schneider Electric, Energy & Sustainability Services.