CDP is the only global non-profit disclosure platform for companies, cities, states, or regions to self-report (through responses to CDP’s annual requests for information) their climate change, water, and forest-risk impact measurements. Headquartered in London and having offices around the globe, CDP is funded largely by philanthropic (32.2%) and government (12.2%) grants and their service-based membership (30.4%), with the remainder made up in other fees, services, and sponsorships/partnerships.
The list of members behind all the CDP groups (Worldwide Trustees, North America Board of Directors and Europe Trustees) is impressive, spans many industries as well as academia and brings many years of experience to bear in driving the effort toward transparency and positive change in impact and its reporting. With professors and practitioners in banking, natural resources, investments, oil and gas, legal, politics, and others, there is ample representation and opportunity for such to instill confidence in the broadening list of participants.
CDP was established in 2000 alongside revelations by the IPCC scientists that climate change, left unaddressed, could warm the earth by six degrees Celsius within a century. Shortly thereafter (2002), the first of many requests went out from the CDP on behalf of 35 investors resulting in 245 companies disclosing carbon emissions. In the ensuing years, requests would expand to include disclosure regarding water security (2009) followed by forests (2011) from now cities (2011) and states/regions (2014) in addition to companies. The number of respondents has surpassed 10,000.
The platform was built primarily with investors in mind. As investors become increasingly concerned with these entities’ plans and ability to act and respond to requests and the issues at hand, the number of respondents continues to rise today. The investors are asking the respondents to measure these sets of indicators which cause concern so that they can be managed. “You can’t manage what you don’t measure.” The reasons include to ensure the global average temperature increase remains well below two degrees Celsius where human factors can be managed and to entice environmentally conscious investors to funnel their dollars in directions where best efforts are being made in those areas.
CDP, at a high level, provides uniform and easy access to broad environmental information across a growing number of respondents for like comparisons when investors are looking to achieve particular goals with their investment dollars as this reporting platform strongly aligns with TCFD indicators. The structure and homogeneity are qualities that are advantageous to both the investors and the respondents. For the respondents, these result in an ease and repeatability of reporting. For investors and other consumers of data, they result in more straight-forward comparisons across respondents and over time.
Companies might want to follow the GRI structure if they are based outside the US and have few areas of materiality. This is because the framework is recognized globally but has a robust set of reporting parameters so many areas would prove to be cumbersome. Companies wanting to cater largely to their investors may choose to go with a combination of TCFD and SASD vs the GRI structure. This partnership, with an implied sub-partnership between SASD and the GRI, is being touted by asset management groups (i.e., BlackRock).
…the SASB’s analysis shows that most industries are impacted by climate risk but in varying ways. This strengthens the value proposition of the industry-specific approach to metrics within the TCFD-aligned reporting. We view the SASB and TCFD frameworks as complementary in achieving the goal of more financially material information in the hands of investors, particularly as it relates to industry-specific metrics and target setting.
Meanwhile, the IFRS (International Financial Reporting Standards) Foundation will be working with the top five reporting organizations toward achieving convergence to a single standard, which would simplify reporting and homogenize results around the world. This initiative has the support of consulting and accounting firms as well (KPMG is one example).
Sustainability Accounting Standards Board (SASB) is a nonprofit that helps companies to self-identify and report along industry lines against a set of standards that are financially material from a sustainability perspective. The board has developed the Sustainable Industry Classification System (SICS) to assist corporations in aligning with others properly for in-kind reporting by their sustainability profiles within industries and sectors. Many large corporations use SASB in tandem with the Global Reporting Initiative (GRI) platform for non-financial ESG reporting to produce a more complete picture of their overall metrics regarding corporate responsibility.
Their materiality map has been organized by five sustainability dimensions (Social Capital, Human Capital, Business Model & Innovation, Leadership & Governance, and Environment) with 26 sustainability measures falling within the dimensions. Within these dimensions are specific, measurable metrics that are gathered and reported in a manner across corporations that makes them comparable (Miranda Partners, 2020). A few sample SASB topics are Energy Management, Food Safety, Supply Chain Management, and Labor Practices. Examples of a measurable metrics under Energy Management are “total energy consumed” in GJs, “percentage grid electricity” and “percentage of renewable”.
The SASB governance consists of a board of directors (the Foundation Board) who oversees the strategic, financial, and operational aspects of SASB and the Standards Board (appointed by the Foundation Board) that is accountable for the establishment and upkeep of the standards themselves.
SASB was founded in 2011 specifically to address ESG issues likely to affect corporate financials and thus be important to investors not only because they affect financials but because environmentally and socially conscious investors can easily see how the companies in which they’re investing are performing year on year against their peers. Investors and their money managers are making it increasingly clear that this is important to them and there needs to be transparency and clarity in the data when choices are being made. The data is crucial to investors and the standards and capability to report to investors is crucial to the companies catering to them.
On the way to becoming the codified standards setting and maintenance organization they are today, here are a few of the many bullet points struck along the way:
- developed provisional sustainability accounting standards for 79 industries across 11 sectors;
- engaged with 2,800 professionals representing $11 trillion in market capitalization and $23 trillion in assets under management;
- formally consulted with 141 companies, 19 industry associations, and 38 institutional investors;
- founded an Investor Advisory Group (IAG) comprised of 32 leading asset owners and asset managers collectively managing $26.2 trillion in assets; and
- launched the Fundamentals of Sustainability Accounting (FSA) credential along with other key products and third-party partnerships with providers of financial products, software, and data.