This year marks the 25th anniversary of the establishment of CDP, the independent disclosure platform that has become the world’s leading benchmark for environmental reporting.
Earlier this year, the non-profit announced a strategic restructuring to ‘accelerate its mission of delivering actionable environmental data’, to support its customers and partners in driving positive impact.
SustainabilityOnline had the chance to catch up with Sherry Madera, CDP’s chief executive, at the recent Economist Impact Sustainability Week Europe event in Amsterdam.
Time for action
“I would say that it’s not a pivot, it’s an evolution,” she says of the CDP’s shift in approach. “We are the largest global platform for climate and nature data, comparable across all borders and jurisdictions.”
She points to data that indicates that after disclosing to CDP, a company’s emissions are typically reduced by 7% to 10% on average.
“That’s amazing, and an indication of what you can measure, you can manage,” she says. “However, we’re also 25 years into this journey. Obviously, there are certain markets, sectors, companies, and organisations that are leaders already, and they know that. But for those that aren’t, it’s about, ‘okay, what can we do to assist them?’
“Our old logo at CDP had three words underneath: disclosure, insight, action. While those words are still very relevant, it’s time to focus on action.”
As she explains, operating without environmental data – which is critical for managing risk, identifying opportunities, and ensuring long-term viability – is comparable to running a business without financial, operational, or HR data. This prompted CDP to increase its efforts to link disclosure to insights that drive corporate, government, and investment decisions.
“Essentially, we need to remind ourselves, why do companies disclose?” she says. “It certainly isn’t so that they can gather a whole bunch of data that sits in a pile. Or to simply tick a box, to say ‘phew, that’s done now’. There are only three reasons: access to capital, business efficiency, and compliance. It’s the ABCs.”
Risk mitigation
A recent CDP analysis of nearly 25,000 companies – “representing two-thirds of global market capitalisation,” says Madera – found that investments in addressing physical climate risks could return as much as $21 for each $1 spent.
“It’s really about risk mitigation,” she explains. “Our data shows that there is $6.5 trillion in climate-related risks, which could include top-line risks, profitability risks, physical risks, regulatory risks, fines – it’s across the board.
“The important question to ask is: if there’s $6.5 trillion of risk, what’s it going to cost to mitigate it? That’s where the ratio comes from – depending on the size of the business, it works out, on average, $21 saved for every $1 invested.”
At the same time, where there is risk, there is also opportunity. Madera notes that among the more than 4,000 European businesses disclosing to CDP, each company reports an average of $51.7 million in potential opportunities, requiring around $7.8 million in investment to realise them.
“That represents a 6.6x return,” she says. “If you’re an investor, a private-equity investor, a board of directors, or a CEO, you would be happy with that.”
The CDP A-List
Each year, CDP publishes its annual A-List, which last year scored more than 22,700 companies on environmental disclosure, of which 2% – some 515 firms – achieved an ‘A’ score. This indicates that said companies have excelled when it comes to transparency, ambition, and integrated actions. Achieving a coveted presence on the A-list can also be good for business – with firms achieving a 6% higher return, on average, than their peers, over the past decade.
But by elevating those that have achieved full disclosure, does this hamper progress for those that just fall short, or are at the beginning of their disclosure journey? Should more effort be made to make the A-List more inclusive, rather than exclusive?
“Well, we also have an ‘A-minus list’ and a ‘B list’, with more than 2,000 companies on the ‘B list’, so that depends on your definition of exclusivity,” says Madera. “I certainly wouldn’t be inviting more than 2,000 people to my house for dinner.”
Rather, the A-list (and A-minus and B lists for that matter) should be viewed more as a signifier, providing guidance on a business’ next steps, rather than simply being a cause for celebration.
“What we hear from CFOs, CEOs, and CSOs is that these scores allow them to start thinking, ‘what do I need to do next?'” she says. “As companies think about being A-listers, they ask us: ‘tell me more’. Our deep connection into the climate and scientific community allows them to think further.
“Take, for example, water and forests. Climate data, carbon-related data, and governance have been central for 25 years, and for the past 12 years, we’ve been working on water and forests specifically. People were initially slow to show interest, but water is now absolutely front and centre for investors, buyers, corporations, governments, and regulators. Businesses are looking for a bellwether for what’s coming next, and CDP can provide that insight.”
Earth-positive economics
A much-discussed phrase in CDP circles in recent months has been ‘Earth-positive economics’ – the need to integrate the economic value of natural resources, biodiversity, and carbon into business decision-making.
“This is not a new concept,” says Madera. “We have been hearing for many years about how nature, the planet, the economic inputs of the economy are something that we’re not accounting for properly. We’re not pricing things according to their true value. Earth-positive is a way of ensuring we are not talking about climate or nature separately – that when we make earth-positive decisions, the economics are there to support that.”
She uses the example of water, often priced according to utility cost rather than scarcity or environmental impact, which “doesn’t take into account the full value” of the resource.
“Looking at it from an Earth-positive economics standpoint, around 5% of companies that disclose to CDP are starting to build in an internal water ‘price’, that takes into account scarcity, how circularity could help reuse that water, and what the risks are. That’s a small percentage, but it’s growing.
“At the same time, there has been a 100% increase in requests through the CDP system from investors, buyers, and corporates asking about water. That’s an indication that Earth-positive economics might not be something that’s ten years away – we need to ‘price the priceless’ now.”
Madera is also keen to debunk the myth that companies are backing away from their climate targets, noting that while just 4% of companies that disclosed to CDP last year “changed some element, as they didn’t have a directional impact on how difficult they were”, more than half increased them, or made them “more rigourous”.
She advises businesses to be realistic about their climate ambitions – to set clear targets, establish baselines, and develop transition plans that are based on achievable goals rather than aspirational objectives.
“CDP coined the term ‘credible transition plan’ a number of years ago, which is still very insightful,” she says. “If you don’t have a credible transition plan, how are you going to expect to get there? We’ve identified 21 data points that every organisation with a climate or net-zero target should be disclosing. If you’re not measuring them, the world should challenge you about how you’re going to meet those goals.
“It doesn’t have to be a straight line. It may be that you see a slight increase in emissions this year, or next. But if you’re not measuring them now, how are you going to make sure your direction of travel is the right one? How are you going to implement the changes you need to make?”
Learn more about CDP at www.cdp.net.
