Sustainability reporting isn’t novel, and as more investors, consumers and employees demand transparency, public sustainability disclosure becomes a business imperative.
The CDP program is the most established sustainability rating system, with over 7,000 companies across the globe disclosing through CDP. With the mounting pressure from internal and external stakeholders, obtaining a positive CDP score is critical to most of these organizations.
However, when the 2018 CDP scores got released at the end of January, organizations experienced mixed results as only 140 corporates made it to one of the A lists. So "what's next?" and "how do we improve?" are questions that many organizations are asking.
We spoke to Ekaterina Tsvetkova, head of Schneider Electric's sustainability consultancy, to help answer those crucial questions.
Q: Ekaterina, the 2018 CDP scores were released recently. What are your initial findings when exploring the results?
One notable observation is that the number of organizations disclosing with CDP has seen another increase of around 11 percent over the previous year. This validates a trend that we have recognized when supporting our clients on sustainability reporting. Public disclosure is a must-have today. CDP–reporting companies now represent over 50 percent of global market capitalization. Investors, consumers and employees all demand for corporate transparency and CDP disclosure is almost mainstream to serve this need.
Q: How did most organizations score in 2018 on average? And what about Schneider Electric clients, how did they experience CDP disclosure in the past cycle?
In 2018, CDP initiated a process to evolve its approach to disclosure and updated scoring methodology in response to the rising urgency around sustainability. The mix of 2018 scores is an indication of the maturity of programs that organizations have implemented to act on sustainability challenges: 126 of 7,018 companies scored As for climate risk, only 27 among a possible 2,113 got an A for their action on water security. Each organization has an individual roadmap to sustainability, but the stringency of CDP scoring should send a message to all companies that they have to be even more ambitious to answer today’s environmental threats.
Among our European clients, we are happy that our support helped to obtain positive scores from A to B for all our clients. 50 percent increased score by at least one step and we have also seen no decrease in scoring in comparison to previous years, which tells us that our support provides constructive guidance. Particularly for 2018, “no change” in a company’s score is a huge improvement and even validation of their position. So those who haven’t managed to retain their score might want to re-visit their strategies and ask what change they want to see in 2019.
Q: How has the methodology evolved in 2018 and does CDP envision next steps for the coming year?
Companies that disclose to CDP are familiar with the extensive questionnaires covering climate change, water, forest and supply chain impacts. In 2018, some important topics were added to the questionnaires, such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. This includes questions on climate change-related scenario analysis, which asks companies to test how their business strategy fares given the transition to a 1.5°C or 2°C world. For example, CDP raised the bar considerably in its questions related to water security to comply with the metrics of the TCFD. CDP urges organizations to explain how increasing climate change risks and opportunities influence financial and overall planning.
The good news: There will be no significant changes to CDP’s existing questionnaires in 2019 to allow for consistency and year-on-year trend analysis. But many organization will feel a strong need to improve their scores in 2019 and act on recommendations.
Q: Can you explain what this journey looks like for an organization and what steps they should take to gain leadership in sustainability performance?
While the challenges are largely similar regardless of the industry sector, one of our clients from the financial sector struggled with a particularly low CDP score. Like the majority of financial organizations, the structure of the group was flat, and has not allowed for internal coordination and transparency in information flow. Schneider helped them to re-build their sustainability reporting system, re-visited their KPIs and supported them with creation of a response that reflected the true state of sustainability within the group. Using a top-down approach is as important in CDP as bottom-up since the new methodology places significance on the overall strategy, scenario and corporate action response questions.
Q: What advice would you give to an organization to prepare for 2019?
The detailed score cards are a helpful tool to understand strengths and areas for improvements. Once an organization receives them from CDP, it is wise to organize a meeting with the main internal stakeholders to debrief on lessons learned and discuss ways forward. With our clients, we would not wait until the scores are out; when we submit the report prior to the deadline, we usually have a good understanding of the client’s sustainability profile. We would share a gap analysis along with the submission report to enable the client to take actions well in advance. Ideally, when the official scores are out, our clients have a robust plan ready or have even started to implement actions to improve performance.
Another recommendation revolves around data: In addition to CDP, most organizations answer to many other voluntary disclosure or obligatory compliance schemes each year. We have clients participating in more than 30 schemes across the globe. Each of these programs require slightly different information and their tools have varying methods for collecting data. A joined data platform such as EcoStruxure™ Resource Advisor supports companies across the globe reporting to these frameworks with a single source of truth.
Q: Beyond CDP, what trends to you observe in sustainability reporting?
Climate action is a significant factor, but so are social, economic and governance initiatives. We have seen “plastics momentum” in 2018 and many experts see waste as the next frontier of sustainability. Without a doubt, stakeholders are challenging companies to take a holistic approach to sustainability. Organizations need an expanded set of key performance indicators (KPIs) — which extend the breadth and depth of reporting — to gain a complete, accurate view into their sustainability performance. This multi-dimensional approach represents a tectonic shift in sustainability reporting.
We are available to help our clients move from standalone sustainability reports to integrated reporting methods, highlighting what is material to their business including climate-related topics.
Learn more about the evolution of sustainability reporting and discover KPIs every company needs to track.