The major disruptions and urgent challenges of the COVID-19 pandemic highlight the global interconnection of buyers, suppliers and capital providers. The stark reality of dislocation in one area quickly ripples through many others.
In today’s global economy, people and organizations are linked in myriad ways. The building blocks of a thriving business are the relationships between purchaser and supplier, investor and investee, brand and consumer, or employer and employee.
Environmental risks, impacts, responsibilities, and opportunities run through these connections in the value chain. This means that your stakeholders care about your environmental performance.
The transparent sharing of comparable, reliable data is essential for managing global challenges effectively – just as this is the case for the current global health crisis, it also applies to tackling environmental crises.
Transparency of corporate risk allows other actors in the economy like investors and purchasers to develop clear and effective plans of action, and data-driven decisions.
From marginal to mainstream
Over the last two decades, we at CDP have seen an extraordinary rise in the number of investors and purchasing organizations demanding transparency from companies about their environmental risks and impacts.
In 2020, 515 investors with US$106 trillion in assets are requesting thousands of companies to disclose to them through CDP. This is a staggering increase from the 35 investors who signed CDP’s very first disclosure request back in 2002; at that time, the concept of environmental disclosure was all but unheard of.
Similarly, purchaser demand has exploded. 19 trailblazing companies started working with CDP as our first supply chain members in 2008.
Now, 147 are calling on their suppliers to disclose in 2020. These include some of the biggest buyers in the world, such as Walmart, Microsoft and Nissan Motor, wielding over US$4trillion in purchasing power.
In the most powerful boardrooms in the world, environmental action is going from a niche luxury to a mainstream requirement.
How the data is used – and why it pays to be transparent
One disclosure through CDP’s platform reaches hundreds of investors and buyers and informs a whole ecosystem of ratings, indices and research.
For example, Euronext bases its set of CDP Environment indices entirely on companies’ average CDP climate, forests and water scores.
Similarly, CPR Asset Management, owned by Amundi, uses CDP climate scores to select stocks for the CPR Invest - Climate Action fund.
“At CPR Asset Management, we’re convinced that investing in climate leaders today is set to bring long-term value to our clients. We need to know how exposed a company is to environmental risks and their long-term strategy for the low carbon transition, in order to identify future market leaders. Thanks to their unique and longstanding leadership in the climate field, the highly respected CDP ratings are at the heart of our investment process.” - Gilles Cutaya, Deputy CEO at CPR Asset Management
Transparency and leading action on climate change correlate with financial success. Data from STOXX has shown that the CDP ‘A List’ has outperformed its global benchmark by an average of 5.3% per annum over a 7-year period.
On the procurement side, 95% of supply chain members reported using environmental metrics, including CDP data, in their supplier relationship management processes in 2019, or are planning to within the next two years.
Most commonly these environmental metrics are used alongside cost and quality in supplier appraisals, as well as in contracting and tendering documents.
“We have aligned our supplier spend with the trillions of investor dollars who also leverage CDP data. This alignment of market signals drives our suppliers to focus on disclosing their GHG emissions and setting emission reduction targets in line with climate science” – Lucas Joppa, Chief Environmental Officer, Microsoft Corporation.
Driving action and accountability
Each year, CDP scores thousands of companies on their environmental transparency and action, and celebrates those leading the way on the prestigious CDP ‘A List’. This year, over 200 companies were named as leaders based on their 2019 disclosures.
Six pioneering companies went further and managed to achieve a triple A score across climate change, forests and water security: Danone, FIRMENICH SA, HP Inc, L'Oréal, UPM-Kymmene Corporation and Unilever. Though a tiny cohort, this is three times the number of triple A companies in previous years.
Those companies are the standout leaders, but many others are ramping up action too. Take PUMA SE for example. The third largest sportswear manufacturer in the world discloses on climate change, forests and water security to its investors through CDP.
PUMA scored a C on climate change in 2017, before moving up to a B in 2018 and 2019, as its management of climate risk has developed.
In 2019, PUMA set a science-based climate target. By 2030, it aims to reduce its direct GHG emissions 35%, and to reduce indirect GHG emissions from purchased goods and services 60% per million euro sales.
What your stakeholders want to see
When it comes to a company’s disclosure, there are three things that investors and purchasers value the most:
Your stakeholders want consistent year on year disclosure, with data that is comparable to other companies, aligned with the best practice TCFD recommendations.
Be specific and concrete, and demonstrate your company’s understanding of impacts in measurable terms. e.g. report dollar amounts for revenue at risk.
3. Progress over perfection:
Most investors and purchasers are looking for steady year on year improvement, rather than immediate perfection. Show them that you have realistic, robust targets and are making progress towards them.
These three principles are key to meaningful environmental reporting, and ultimately to the environmental stewardship we urgently need.
The calls for transparency and action are loud and clear. It’s time to respond to your customers and investors.
Disclose through CDP in 2020.