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Disclosure lays the foundation for Performance, and it’s time to build

As my colleague mentioned in a previous post, CDP recently released their S&P 500 2014 Climate Change Report–the first of this year’s series of reports analyzing the 2014 Climate Change responses and ranking companies for their climate change disclosure and performance. But what does CDP leadership really mean—to those that are (and are not) on the leadership lists as well as to the future of our planet?

The Climate Disclosure Leadership Index (CDLI) recognizes companies scoring in the top 10% based on their disclosure score (which focuses on the extent to which they disclose climate change related information and data). As CDP shows in Figure 1 of its 2014 S&P 500 report, the bar for the CDLI continues to approach the perfect 100. (Click on image to enlarge.)

CDP2014 S&P500 report figure 1

This steep increase in the minimum score for inclusion on the CDLI (from 61 to 97 in 7 years) may be a result of a more mature CDP questionnaire (with fewer major changes year-on-year), companies being more familiar with answering the questions and/or companies developing more mature greenhouse gas emissions management programs. These scores reflect how much information a company discloses in its response, but not what it may (or may not) be doing to mitigate and adapt to climate change.

In contrast, the Climate Performance Leadership Index (CPLI) recognizes companies that are making and reporting positive actions with respect to climate change. Are they meeting their reduction goals? Are they investing in renewables? Are they achieving absolute reductions in their emissions (within their operations, from their products, or in their supply chain)? The number of companies on the CPLI this year is disappointingly similar to last year (36 in 2013 and 34 in 2014) but is twice the number of companies on the 2012 CPLI. The number of companies demonstrating Performance Leadership is increasing, but certainly at a slower rate when compared to the Disclosure Index trend.

While CDP is right to champion that the overall performance of companies is improving (e.g. the number of companies scoring an A, A- or B has increased over the last 3 years from 30% to 48% of all responding companies as shown below in Figure 2 from the 2014 S&P 500 report), the number of companies that make the CPLI (those that receive an A score by realizing significant absolute emissions reductions, as reported in CC12.1a) is less than 10% of the S&P 500 respondents.

CDP2014 S&P500 report figure 2

Performance as it is measured by CDP considers a range of activities that a company might engage in, not only whether they are achieving meaningful absolute reductions. However, the majority of companies fall into the “B” category. While we recognize the efforts that it takes to achieve this score (and more importantly the meaningful programmatic activity that this score represents), we may be giving ourselves a false sense of security: companies are on the right track, but are they moving fast enough to achieve improvements in performance that translate to the real emissions reductions required to avoid a 2°C degree change?

To address some of this, CDP will continue to evolve the questionnaire by rolling out a sector-based scoring approach that will add more rigor and recognize those companies that are setting and achieving greenhouse gas emissions reductions in line with science-based targets.

It is true that much of the focus and fanfare around CDP over the past 10 years has focused on the Disclosure score with Performance being introduced only a few years ago and sometimes considered an afterthought by companies. But as the clock ticks closer to 2020 and discussions shift from climate mitigation to adaptation, we need to focus on achieving Performance improvements over Disclosure improvements and specifically setting and achieving real emissions reductions. CDP has been instrumental in driving this forward and is right to have pushed first for transparency. Now that companies have demonstrated they can talk the talk, it’s time to walk the walk in a meaningful way. In 2014 of the nearly 348 responding companies, nearly 50% scored an 80 or better on Disclosure but also scored below an A on Performance. That’s 174 world-class companies that are poised to take even more significant steps and actions that tackle even greater emissions reductions projects. And that is inspiring.

As the margin for disclosure leadership continues to decrease, companies should rightly focus their efforts, time and capital on activities that demonstrate real change and bottom line (let alone triple) value. These are the harder decisions to make and more complicated business cases to prove. They take more than just (re)telling a story; they are the components and successes of that story.

The private sector will need to play a significant role in staying below a 2°C increase threshold set by climate scientists. The absolute reductions at the scale needed (as outlined in the CDP-WWF 3% Solution Report) may seem daunting, but they also represent a potential present value net savings of US$190 billion in 2020 (or net present value as high as US$780 billion) for US corporations, excluding utilities.

Quite simply, it could save money, lots of money, to reduce emissions over this period. The longer that we wait to take these steps, the harder and more expensive it will become to avoid the 2°C increase. Are we (still) willing to take that risk?

 

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