Corporate action on environmental issues has come a long way. Our scoring is changing to reflect that.
The growing momentum on environmental issues that has been building over the past few years has clearly spilled over in many areas of society. From the historical Paris agreement, to investment research firms creating ESG scores for funds globally, to a continued increase in sustainability reporting from companies; these are all indications that environmental issues are moving away from being marginal to entering the spotlight.
As attention and interest around company’s environmental performance has evolved, so too has CDP’s scoring.
The way we score companies has come a long way since 2007, from being a measure of how complete a response is to, more recently, an evaluation of a company’s actions to address their environmental impact. Every year the methodology and questionnaire are adjusted to best represent the advances in science, the overall understanding of how environmental issues and business interlink and to match how the business approach and actions to these issues have evolved.
Through these various incremental transformations, CDP scores have become a way for companies to benchmark themselves against others in terms of actions to address climate change, water security and deforestation. These scores also enable investors to get an overall sense of a company’s performance, which can then be supplemented with CDP’s dataset.
In 2016, CDP’s continuous improvement has once again brought some changes in scoring, particularly how the scores are presented.
The new scores
After numerous discussions with internal and external stakeholders, CDP is moving to a banding system for all programs to represent a company’s progression towards environmental stewardship.
The main idea is that a company goes through four main steps starting with disclosure of their current position; moving to awareness which looks at whether a company is conscious of its environmental impact; to management, so if a company is managing these overall impacts and the risks and opportunities related to these; and finally leadership, which is a measure of whether a company is implementing best practices in this environmental realm.
Let’s take the fictional Acme Corporation, a manufacturing company with a very large array of products, as an example.
First of all Acme Corporation will need to determine what their current situation is, for example looking at their GHG emissions, water-related impact and exposure to deforestation. This first level of information will enable it to provide information to internal and external stakeholders.
Once they have achieved the necessary level of information, they can start evaluating the impact that they have on the environment and how the environment, and potential changes to it, affects their business. In establishing a level of awareness on these issues Acme Corporation can start to manage them and take actions to reduce their impact and potential risks associated to it.
These first three levels roughly equate to the idea that for something to be managed it needs to be measured. Finally, as Acme Corporation keeps on improving its management of these issues and implements best practices in the environmental realm, it establishes its own leadership and becomes an example to other companies.
The four levels represent the steps on a company’s journey to being a good environmental steward. Every question of CDP’s questionnaire provides information on each one of these levels, as described in the scoring methodology.
Once all of the questions have been scored, CDP will be able to calculate a final letter score. The idea of providing the final score as a letter is to create an intuitive, useful measure of progression that provides enough granularity for companies to be able to benchmark against their peers and to see progression over time.
Ultimately, the CDP score will give a clear picture of what a company’s current level is with respect to environmental stewardship and importantly, what action to focus on next. Hopefully these changes will be a good reflection of the progress in environmental reporting and that by raising the bar it will, once again, drive further necessary action towards a low-carbon and sustainable global economic system.