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CDP: Environmental Disclosure Platform Probing The E in ESG

Carbon Disclosure Project (CDP) is the not-for-profit charity which runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.

On the occasion of its recent 20th anniversary and ahead of the COP26 meeting in Glasgow, we interviewed Ateli Iyalla, Managing Director (MD) of CDP North America (CDP NA). A conversation on the nature of environmental disclosure and accountability, overcoming hurdles of non-disclosing companies, accelerated ambitions and why failing isn’t an option. An exchange about CDP or the formidable microscope of E in ESG.

You were recently appointed MD of CDP NA. What are your main strategic objectives, and what would success be in 5 years?

It’s a great honor to lead CDP NA, both driving and scaling environmental action. CDP is the world’s largest environmental disclosure platform collecting information on how companies, cities, regions, and nations measure and manage climate change, water security, and deforestation issues. 

CDP NA’s strategic priorities are translating science into business and societal imperatives, as well as leading the tracking and accountability effort from the front. Environmental justice and social equity, which are part of the environmental movement, are essential DNA to CDP’s work. The sustainable transition has to be the just transition. CDP has to ensure that vulnerable, minority, and indigenous populations have a seat at the table. CDP has over 1,000 cities disclosing, which connects the corporate world, the capital markets, and the policy world down to the people who live and work in these cities. So, CDP has to integrate social equity and environmental justice into our work. 

As to what success would look like in five years, I would argue that we need progress on a much shorter time frame. Based on the recent IPCC report, 2025 is the bellwether. By then, CDP needs to support the stakeholders we work with in understanding and implementing what is required to drive a fundamental transformation of how we live, work and operate.

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In what way has the theory of change altered for CDP over recent years, recent months? 

CDP’s initial concept in 2000 was what gets measured gets managed. In 2002, CDP gathered a group of 35 investors who signed our very first climate change questionnaire to 500 of the world’s largest companies. The collected data would be channeled to inform their investment decisions.  

Over time, CDP has evolved to focus more on broader transparency, accountability, and transformation. We work to leverage the collective power of CDP’s stakeholder base to drive impact as scale. For example, CDP’s supply chain program has been able to bring together certain industries such as automakers to discuss opportunities to collaboratively engage across the value chain and drive greater ambition and larger footprint reductions. As the landscape continues to evolve, CDP is now receiving more requests to collect data – for example, on biodiversity, oceans, pollution, and social issues. CDP is evaluating how best to respond to these emerging needs.

In light of the recent IPCC report, what will be CDP’s response to accelerate the overall decarbonization initiative?

CDP needs to increase its direct engagement with companies, states, nations, and policymakers. It is essential to educate all actors in the global economy on the existing issues as well as the topics on the horizon.  Another aspect is creating the next set of tools and insights to accelerate the low-carbon transition. 

Can you share the distribution of S&P 500 companies that voluntarily disclose through CDP? Which sectors are lagging? What do the numbers look like? 

Last year 75% of the S&P 500 disclosed through CDP. The oil and gas sector, along with the apparel sector, generated the lowest response rates. The best disclosing sectors are consumer-facing, like the technology sector and the food and beverage sector.

CDP evaluates and grades companies based on the quality of their responses. From more than 10,000 entities disclosing worldwide in 2020, CDP awarded 277 companies an A score for climate change, 106 companies an A for water security, and 16 companies an A for deforestation. Among the actions these leading companies are taking include incorporating robust risk and opportunity assessment frameworks, setting science-based targets, engaging with their supply chain, and executing toward reaching ambitious targets.

What has happened with the “shaming” initiative of non-disclosing corporations?

CDP launched its investor-led non-disclosure campaign in 2017; the intention was to increase disclosure around climate, water, and forest footprint from companies that never disclosed or may have dropped off from disclosing. 

In 2017, 57 investors with $3.6 trillion in assets participated in the campaign, with more than 450 companies targeted. In 2020 the number of participating investors increased to 108, and the number of targeted companies increased to 1,025. Of that sample, about 200, or 20%, responded. 

While we are still processing the 2021 results, a record 168 investors took part in the campaign, representing $17 trillion in assets. The targeted global company universe expanded to 1,300 companies, an increase of 27%. 

How can an investor get access to the companies not disclosing through CDP’s global platform? 

Institutional investors can find details regarding the non-disclosure campaign here. But in essence, companies that don’t disclose despite being requested to do so by investors or customers receive an F – the F grade is not a score but an indication of failure to disclose. So, investors scrolling through their Bloomberg ESG tab will identify companies there. 

Financial institutions (FI) are still underreporting their emissions in respect of their lending business? What could CDP change about this?

CDP recently launched a sector-specific questionnaire for financial institutions that goes beyond their operations and focuses on their lending and investment portfolios. This was the outcome of a three-year engagement with our investor signatory base and subject matter experts to ensure we were asking the most relevant and robust questions possible. About 330 institutions, representing $109 trillion in assets, responded to the financial services sector questionnaire last year. 

In addition, CDP has developed a temperature rating tool, which allows a financial institution to use CDP data to measure the temperature rating of their portfolio and understand hotspots.

Did CDP partake in the request for public comment to the SEC Climate Change disclosures effort? 

CDP pioneered environmental disclosure and considers itself well placed to make recommendations to this new regulatory initiative given the way climate change data have been collected by CDP over the past 20 years. Company disclosures can be found here.

Rainforest Alliance Network conveyed that since the 2015 Paris Agreement, the bank industry advanced $4 trillion to the oil and gas industry, with JPMorgan Chase JPM leading the pack. Is CDP using a different tactic?

CDP wants to work with companies across the entire economy, including companies in high-emitting sectors. CDP intends to do this as an honest partner in the room, stating with where companies need to head and what it will take. And this is not greenwashing. CDP wants their data to sit at the heart of the conversation. CDP feels strongly about the data-driven decision-making component, so positive or negative, CDP wants that accountability story to be told. 

How did CDP’s cooperation with TCFD and the Science Based Target TGT s initiative shape CDP’s questionnaires? What have been the most striking changes?

CDP updated its climate change questionnaire in 2018. The CDP disclosure questionnaires are now fully aligned with the TCFD recommendations focusing on Governance, Strategy, Risk Management, and Metrics and Targets. The TCFD metrics pillar includes Scope 1, 2, and 3 GHG emissions. Through years of data collection, CDP also garnered deep insights into scenario analysis. 

Regarding science-based targets (SBTs), CDP requests companies to share their SBTS in their disclosure. The Science-Based Target initiative (SBTi) can verify the disclosed targets and validated targets will receive credit in CDP’s scoring system. This fluidity is an outcome of CDP’s core partnership in SBTi. To date, more than 1,809 companies have committed to set, or have an approved science-based target. 

CDP just released its first-ever Water Impact Index in a bid to improve investor understanding of water-related risks? What are the take-away recommendations? 

The Water Impact Index was recently launched, a first of its kind. It ranks about 200 industrial activities according to their potential impact on both water quantity and quality. Initial rankings emerged with sectors like apparel, cotton industry, livestock farming, oil and gas having the most significant detrimental impact on water resources.  

Looking at individual companies within those sectors, you can identify, for example, Exxon Mobil XOM and Chevron CVX , which failed to disclose. Engaged investors could work on shareholder resolutions to obtain more detailed data regarding water usage by type of oil and gas activity (exploration, deforestation, fracking, transportation…) and demand meaningful efficiencies, changes, or divestments.

Do we still have time left to negotiate about disclosures? 

From CDP’s perspective, we pioneered environmental disclosure 20 years ago and have mainstreamed it. CDP would like to evolve more towards tracking and accountability, and that requires regular and robust disclosure. The latest IPCC report was a final wake-up call. A 1.5-degree Celcius world is not attainable unless both baseline transparency and disclosure can be collected from all sectors of the economy. This baseline requires involvement from all companies, all cities, regions, and nations. Many of these constituencies already release substantial parts of the required information as part of their voluntary sustainability disclosures or annual reports. It would not be that challenging to export those data in a more comparable and standardized formats that CDP provides. The disclosure tells us where we’ve been; we need to focus on where we’re going.

Personally, what would be your three desired outcomes out of the COP26 gathering?

There must be sufficiently strong ambition paired with a closer time horizon. The science is clear; it’s telling us we’re not moving fast enough. We have touched on disclosure and transparency, which are necessary but insufficient conditions. We need to move to tracking and accountability and identify whether we are on track to meet global targets. What does the net-zero trajectory look like? What will it take to get there? And what are the tangible commitments from the government in the form of updated nationally determined contributions (NDCs)? I fail to see sizeable investment in innovation and in R&D.  

Let’s look at some industries which have fundamental blockers in their ability to decarbonize. We can mention the cement or the airline industry, which will require sizeable investment to create sustainable cement or jet fuel generated from renewable energy sources with sufficient thrust.

It is not only a question of leaving the oil and gas in the ground but is also being able to lay down the gauntlet. If we don’t face this problem now, it will cost trillions of dollars in damage and, more importantly, millions in lost lives.   

Is there something specific you would like to add to the above?

With our recent 20th anniversary, CDP has been reflecting on its footprint and impact. We now look towards the next ten years, with the intermittent goals of 2030 in sight and the next 30 years, with the net-zero ambitions in 2050. We want to make sure that we steer our stakeholders towards timely and required transformation. The next three years will be very critical in this respect. It’s our opportunity to deliver tangible value to the environmental movement by accelerating the transformative action. 

CDP wants to remain that honest partner that holds policymakers, companies, cities, regions, and nations accountable. At the same time, CDP wants to procure a comprehensive and bespoke data toolkit to support the mass transformative investment process.

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