Why you should answer the new CDP climate questions

The 2015 CDP Climate Change questionnaire contains two new unscored questions, and many companies are in the process of determining whether to answer them.

For practitioners who recognize that the value of sustainability reporting lies in the process, this decision should be easy. These practitioners understand that the stages of the reporting process — stakeholder conversations, data collection and response writing — all contribute to refining their company’s sustainability strategy.

CDP highlights the importance of this strategy formulation by launching its two new questions within the Strategy (CC2) section of its questionnaire. This year, responding organizations are asked whether they have an internal price on carbon (CC2.2c) and whether their board of directors would support an international agreement between governments on climate change (CC2.4). 

The question of carbon pricing

Carbon pricing may seem abstract and unnecessary to some, but 44 major North American companies, including ExxonMobil, Bank of America and Google, each have developed an internal carbon price, according to CDP’s report on global corporate use of carbon pricing (PDF). These companies and others have stated that carbon pricing enhances their strategic planning and risk management. 

Many companies engaged by CDP have stated the utility of an internal price on carbon, and many also aim to achieve more clarity on the specific price. According to Levi Strauss & Co., “Put simply, we can run our business better with the certainty of a price on carbon, and government policies and incentives to help us to maximize energy efficiency and draw our energy from renewable sources.”

Companies could achieve this desired price certainty through a global agreement on climate change, specifically the type of agreement that will be sought during the United Nations Climate Change Conference in Paris later this year. CDP asserts that a global agreement would enable clear carbon pricing and alleviate regulatory uncertainty. The Road to Paris initiative is asking companies to make commitments, such as one supporting carbon pricing, in advance of the conference.

The question of global agreement

In addition to reaping the benefits of clear carbon pricing, a company may be driven by investors to seek a global agreement on climate change. Within the 2015 CDP questionnaire, CDP points to the Global Investor Statement on climate change as one reason why they are asking companies to disclose what an effective agreement would mean for an organization.

The claim is that investors are “calling on governments to develop an ambitious global agreement on climate change by the end of 2015” because it would give them the confidence needed to “scale up investments in energy efficiency, renewable energy and in climate change adaptation.”

Once investors confidently can fund energy efficient technologies, companies that provide low-carbon solutions as a part of their product offerings will stand to benefit as well. But how much does your company stand to benefit?

For the practitioner looking to build a case for why Road to Paris commitments should be on your organization’s next board meeting agenda, question CC6 (Climate Change Opportunities) is a good place to begin. For companies who have identified climate change opportunities capable of generating a substantive change in business operations, revenue or expenditures, supporting an effective agreement could increase the likelihood of capitalizing on these opportunities.

According to CDP, another important outcome is that an effective agreement would “provide a stable regulatory environment” regarding climate change. If your company is one of the 385 that listed U.S. regulatory risk as a material risk in your Form 10-K filed in 2014, then stabilization of the regulatory environment would help mitigate that risk. To see whether your company or others in your industry are disclosing risks related to climate change regulation in the 10-K, we recommend using the Ceres SEC Climate Change Disclosure Tool released last year. 

Stability in the regulatory environment is seen by many executives as a critical factor in the success of a sustainability program. According to the Boston College Center for Corporate Citizenship’s report “The State of Corporate Citizenship 2014,” nearly 60 percent of U.S. executives surveyed cited the regulatory environment as a factor that helps the success of corporate citizenship (vs. less than 30 percent in 2012). Just over 20 percent said the regulatory environment hinders success in 2014 whereas nearly 40 percent thought it did in 2012. This research suggests that regulation is now seen as an opportunity to improve citizenship programs.

To build the case for why key leaders within your company should discuss Road to Paris commitments, looking at your company’s regulatory risk disclosures in CC5.1a will help determine how important an international agreement would be. If the magnitude or likelihood of your company’s risk driven by changes in regulation is uncertain, discussions with risk management teams may be in order. These discussions can be enhanced by using your company’s CDP disclosures and material risks identified in the 10-K, which may help identify the benefits of increased certainty in regulation and may prompt interesting answers to these new 2015 CDP questions.

What does your company gain?

Responding to the two new CDP questions will not win you points on your CDP disclosure score, but understanding your company’s position is in your best interest. The value of knowing what your company stands to gain from a global agreement on climate change is worth the time it takes to prompt this important internal conversation. Additionally, the process of answering these two questions can help inform strategy focused on risk mitigation and identifying opportunity areas within your organization.