Regulators are increasingly mandating companies to make environmental disclosures (see here, here and here).
The CDP – a not-for-profit organisation aiming to encourage the disclosure of environmental risk – has measured and scored the effectiveness of companies’ 2022 environmental disclosures in their latest ‘A List’ Report (the “CDP Report”). The CDP Report shows that a mere 12 of the 18,700 companies that responded to the CDP’s questionnaires scored a ‘triple A’ for their environmental disclosures, whilst over 29,500 companies scored an ‘F’ after failing to provide any data to the CDP.
According to the CDP, over 680 investors with combined assets of US $130 trillion, and over 280 large purchasers with US $6.4 trillion in buying power requested over 48,000 companies to disclose environmental information through the CDP in 2022.
The CDP Report’s methodology
The results of the CDP Report are based on companies’ responses to three questionnaires, which focus on climate change, forests and water security. Companies were requested to complete these questionnaires by their investors and/or customers. Once requested, in each of the questionnaires, companies were asked to collect and submit data on their environmental impacts and opportunities and how they report such data. The CDP used this data to allocate scores to companies. Companies were given an ‘F’ score if they failed to complete the questionnaire upon request. Responsive companies were scored on a scale of ‘D’ to ‘A’ in respect of each questionnaire. The scores for each questionnaire were then combined to create an overall score. To achieve a ‘triple A’, companies must have, therefore, scored an ‘A’ in each of the three questionnaires.
To obtain an ‘A’ score in the questionnaires, companies must have demonstrated “environmental leadership, disclosing action on climate change, deforestation or water security” and “practice in strategy and action as recognized by frameworks such as the TCFD, Accountability Framework and others”. In addition, companies musthave “undertaken actions such as setting science-based targets, creating a climate transition plan, developing water-related risk assessment strategies, or reporting on deforestation impact for all relevant operations, supply chains and commodities”.
The CDP Report’s findings
Only 12 companies scored a ‘triple A’, which is down from 14 in 2021. Despite this overall decline in top scoring, over 280 companies scored an ‘A’ for their climate change disclosures, a 34% increase since 2021. This is evidence that more companies are factoring climate change impacts into their disclosures.
However, progress has apparently remained slow in terms of disclosures relating to forests and water security: there was only a 4% increase from 2021 levels in the number of companies achieving an ‘A’ score in respect of their forests questionnaire responses, whilst there was a 12.7% decrease from 2021 levels in the number of companies attaining a water security ‘A’ score. These discrepancies are perhaps understandable, given the comparatively more sophisticated climate-related disclosure frameworks and relatively embryonic nature and water-related disclosure frameworks.
It is striking that the CDP Report reveals over 29,500 companies worth at least US $24.5 trillion in market capitalisation scored an ‘F’ for failing to respond to disclosure requests from their investors and clients, whilst 66% of companies that scored between ‘D’ and ‘A’ did not improve when compared to their 2021 scores.. The CDP Report urges these companies to “accelerate their environmental transparency and action efforts“.
The CDP Report’s scoring highlights that many companies are struggling to meet the demands of the multiple disclosure frameworks used by regulators across the globe. Mayer Brown lawyers are available to help companies navigate these disclosure frameworks and meet these demands.
This blog post is intended to provide information for the benefit of global businesses and clients who may value knowing about this NGO initiative.