A Guide to Carbon Disclosure Project (CDP)

Dec 16, 2021 | by Yosy Christy Natalia

Dec 16, 2021 | by

ESG evaluation framework series: A guide to Carbon Disclosure Project (CDP)

The world of sustainable investing and reporting has always been in pressing need of robust evaluation frameworks, necessitating the formulation of ESG evaluation criteria. Environmental, Social, and Governance propositions or frameworks act as a tool for assessing organizations for prospective impact investing. Under the framework, companies share information about various aspects of their operations concerning their leadership, environment, and society. All in all, ESG frameworks judge and gauge the investment worthiness of an organization. 

Previously, we briefly talked about some of the top ESG evaluation criteria. To provide more in-depth and holistic knowledge of ESG frameworks, we decided to start a series of blogs dedicated to each of the top evaluation frameworks. This blog is dedicated to the Carbon Disclosure Project (CDP).

Understanding CDP

As the name suggests, CDP takes under its purview water conservation, curbing water wastage and emissions, and promoting afforestation. The framework helps corporates in their decarbonization effort, carbon reporting, and emission disclosures. CDP standards primarily stand for three broad things – water, deforestation, and greenhouse emission.

CDP is a not-for-profit charity with a focus on running a global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. The CDP is known to lead sustainability reporting for two decades now with its presence spanning across 50 countries and companies across 90 countries disclosing through it every year. 

“The world’s economy looks to CDP as the gold standard of environmental reporting with the richest and most comprehensive dataset on corporate and city action,” the official CDP website states.

Specialization and relevance

CDP works on the premise of ‘disclosure, insight, action’ and aims at helping companies manage their risks and opportunities on climate change, water security, and deforestation. 

Environmental concerns – primarily climate change, water security, forests, and emissions – are at the heart of CDP’s operations. As per its release, so far, more than 13,000 companies across the globe have reported through it on climate change, water security, and forests while over 1,000 cities, states and regions disclosed environmental information through it. 

How it works

“Each year, CDP takes the information supplied in its annual reporting process and scores companies and cities based on their journey through disclosure and towards environmental leadership,” the CDP website states. It measures corporate and city progress with the help of its independent scoring methodology and incentivizes action on climate change, forests and water security.

CDP has multiple disclosure programs in place that address a specific environmental concern such as its climate change program, climate action, water program, supply chain program, among others. 

The benefits

  • CDP’s reporting system is standardized and globally recognized. It saves companies from the hassle of data collection, enabling easier measurement and comparison.
  • CDP’s ‘disclosure, insight, action’ philosophy, enables companies to disclose data, provide them with rich insights and arm them with the knowledge that aids their future course of action towards sustainability and profitability. 
  • Besides helping companies measure and manage their environmental risks, CDP also helps in improving brand reputation, operational efficiency and reducing operational costs. 

Pitfalls and challenges

  • Climate-related disclosures, per se, come with a few challenges, therefore, those participating in voluntary climate disclosures with the CDP may also come across some of them. A lot depends on the information provided in these disclosures. Disclosures may lack relevance, clarity, and quality. 
  • Then there are corporate confidentiality concerns that may hinder complete and transparent disclosure on the company’s part. 
  • Complexities in combining contextual, financial, and non-financial information, lack of a business case for disclosure are some of the key challenges.

Our take

CDP provides a range of online guidelines, methodology, and tools for standardized sustainability reporting to a range of stakeholders such as governments, investors, besides corporates. Its services are aimed at promoting transparent and accountable disclosures. The data gathered from these disclosures facilitate the planning and implementation of results-oriented actions to benefit the environment, mitigate risks and pave the way for a better, more sustainable future apart from ensuring a financial boost.  

Companies with better CDP performance enjoy enhanced brand reputations and are more attractive to sustainability-conscious consumers.

With CDP disclosures, companies can convert environmental risks into business opportunities. Effective and efficient assessment, management of risk promises increased efficiency, profitability and can help cut costs.

Read also:

ESG evaluation framework series: A Guide to GIIN IRIS

Artemis Impact is a network of corporate, donors &  non-profits. With our corporate enterprise solution, we aim to empower companies to build human-centered impact stories and create sustainable impact with their CSR programs & core business.

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