The Top 100 companies on the JSE are requested to submit annual CDP (formerly Carbon Disclosure Project) reports to the international investment community. Alex Hetherington answers whether the effort, time and cost are worthwhile.
We are often asked whether, in an environment of complex non-financial reporting, is submitting to the CDP worth the time and effort that is demanded of some of our clients – especially as a nominal submission fee of US$975 has now been attached to the exercise!
While we are never prescriptive as to whether a company should or shouldn’t submit to CDP, the benefits appear to be indisputable.
The greatest value derived is that of awareness – both from internal and external perspectives.
The deep-drilling insight that the CDP demands results in meaningful focus on the quantitative nature of greenhouse gas emissions, and their underlying causes, in a business. Companies are forced to understand where these emissions take place in their operations, and the CDP requests information on the potential financial benefits of appropriate mitigation initiatives. If a company is serious about managing bottom-line costs to its operations, then this has to be a good thing. We refer to this as the business case between environmental sustainability and corporate profit!
The request by CDP for emission reduction targets, and performance against these targets, allow analysts to quickly understand companies’ management abilities in dealing with carbon emissions.
From a qualitative perspective, arguably the greatest benefit is responsiveness to climate change impacts on a business. The CDP forces companies to analyse the physical, regulatory and reputational risks and opportunities that a changing climate imposes on their current and future operations. By default this also means the impact climate change will have on their profitability. This makes for good business practice and strategic thinking at an operational, business, economy and society level. It, also, opens up internal discussion on future scenario planning.
The challenge, however, is to lift the analysis and thinking, that the CDP demands, from compliance in reporting to actual business strategy.
A number of drivers can help this process, including leadership at an executive level that understands the long-term impact of climate change and a low-carbon economy to business operations. Also important is proof of analysis by the investment community – especially here in South Africa – of a company’s climate change strategy. Together, these will ensure that the efforts in submitting the CDP are justly rewarded with real and appropriate response from decision-makers.
It must continually be demonstrated that stakeholders intelligently use the CDP as a tool of meaningful business insight. And, therein, will lie the rub of CDP efficacy!
For further discussion on the pros and cons of CDP reporting, please contact email@example.com.