The earth has warmed by 1°C since pre-industrial times with current projections seeing increases of a further 3-4°C this century. Along with the well-publicised melting of ice sheets and increased flooding, wildfires will become increasingly common, quadrupling with every degree of warming. Oceans warming, droughts and water shortages will increase, effecting people, agriculture, and livelihoods 

Every degree of warming will decrease crop yields by 10%whilst the global population continues to grow. Diseases will travel away from the equator endangering regions previously out of reach. 

These changes will have dramatic impacts not only on people and livelihoods, but on businesses and entire economies. Climate change is projected to reduce per capita earnings by 23% by the close of the century, with countries such as the USA and China losing nearly half of their potential output. 

Businesses will face damage to buildingsinfrastructure, and agricultural land as well as disrupted supply chains. Insurance losses will continue to increase with some risks becoming uninsurable and a combination of losses and economic instability will pose significant risk to the global banking system. 

Businesses will need to adapt to the growing number of risks however there will also be opportunities for those organisations that can pre-empt changes in societal values and customer expectations.  

The effects of climate change are serious and real. CDP (formally known as the Carbon Disclosure Project) is a not-for-profit organisation that runs a global disclosure system to encourage the reduction of environmental impacts. For 20 years CDP has helped investors and key business stakeholders to understand the climate-related risks and opportunities facing their portfolio businesses and suppliers. 

Driven by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the CDP climate change questionnaire changed last year, raising the bar ever higher, and rewarding those taking genuine action. 

Whilst some businesses view responding to the CDP as a mechanism to satisfy investor demands, increasingly leading businesses are using the CDP response process to shape their entire climate change strategy and governance approach. The benefits of doing so are clear: 

  • Drive business decision-making on climate-related issues from the top 
  • Embed your approach to climate-related risks and opportunities 
  • Differentiate your climate strategy from your peers 
  • Strengthen confidence in your business as a leader on climate-related issues 
  • Set targets with a meaningful and proportionate climate impact 
  • Deliver transparent and relevant climate disclosures showcasing your progress on emissions reduction 

 

Here is a roundup of key initiatives to consider in 2021 – 

Climate-related scenario analysis 

To align with TCFD recommendations, CDP asks companies to disclose their use of ‘scenario analysis’ in determining their organisations’ response to climate change. Such thinking has been central to the strategic planning of energy companies for decades. However, the expectation from investors is now that all sectors should provide clarity on the climate-related impacts they face. 

Consider using climate-related scenario analysis to: 

  • Establish processes for managing climate-related risks over different time horizons, enabling informed decision-making; 
  • Identify potential new markets, products and services in advance; 
  • Communicate to stakeholders on how the company and its operations may need to evolve over time. 

It is important to take a ‘learning-by-doing’ approach when it comes to undertaking climate-related scenario analysis. 

Beginning with qualitative narratives, or ‘storylines’, will help your senior management explore the potential range of physical and transitional climate impacts facing your company. Once your company has built experience in using basic scenarios, this approach can then be combined with more quantitative modelling. By ‘costing’ alternate realities, informed financial decisions can be taken to ensure your company thrives throughout the low-carbon transition. 

Science-based target setting 

Science-based targets (SBTs) – emissions reduction targets which are aligned with the levels of decarbonisation required by the goals of the Paris Agreement – have been something of a buzz phrase across the past 3 years. From big brand names receiving approval for their SBTs by the Initiative (such as IKEA, Nestlé, Vodafone and PepsiCo to name a few) to name a couple), to the release of the IPCC’s special report warning of the perils of global warming of more than 1.5 °C, the necessity to evidence that your company is doing its ‘fair share’ is growing.  This trend will continue in the 2021 CDP questionnaires. 

Besides improving your CDP score, setting and delivering on an SBT can ensure that your company also: 

  • Builds resilience ahead of the future regulatory and market shifts that will be brought about by the low-carbon transition; 
  • Fosters innovation in new products and practices amongst your employees and suppliers; 
  • Drives resource efficiencies across your value chain. 

Last year the SBTi (SBT Initiative) published new guidance on setting SBTs aligned with a 1.5 °C scenario, alongside additional sector-specific target-setting methodologies. To ensure that your company is not late to the SBT-party, you should begin by assessing your company’s ‘readiness’ for an SBT. 

A company’s SBT readiness is reflected by both the ambition and capabilities in place to set and subsequently deliver a stretching emissions reduction target. 

Quantifying and seizing low-carbon market opportunities 

According to IFC analysis, the economic transition spurred by the Paris Agreement will offer nearly $23 trillion of opportunities in emerging markets between now and 2030. As a result, investors are increasingly demanding to know the processes your company has in place for quantifying and capitalising on these opportunities. 

Whilst new products and services represent the most exciting climate-related opportunity for many companies, CDP identifies a host of additional benefits for businesses to seize upon, including: 

  • Improved resource efficiency across supply chains; 
  • A shift towards low-carbon energy sources; 
  • Increased capacity to adapt to the negative consequences of climate change. 

You should ensure that thorough climate-related opportunity assessments are central to your company’s risk management and strategic planning processes. 

Opportunities should be considered over the short-, medium- and long-term horizons, and should account for both the physical and transitional impacts of climate change. 

Understanding sector-specific climate responses 

Over the past few years, CDP has expanded its sector-specific questions, including an increased focus on the financial services sector. This trend has been driven by investors’ desire for a more meaningful comparison between sector competitors. 

But this approach also benefits the reporting companies themselves. Sector-focused reporting can: 

  • Enable comparison of your company’s performance against peers across a range of relatable metrics; 
  • Helps customers and suppliers prepare for adverse climate impacts; 
  • Generates consensus and thus strengthen the political capital of your sector;  
  • Offers additional opportunities for differentiation from competitors through improved CDP score. 

For companies in sectors not already required to provide additional disclosures, it is important to ensure that you remain informed of changes to the CDP questionnaires. You can do this by reading our FAQS page or by downloading our CDP Guide to achieving a high CDP score in 2021. 

Regardless of CDP requirements, consideration should always be given to how climate change may impact the sector beyond your own business. 

Preparing for CDP in 2021 

The clock is ticking on taking the actions required to boost your CDP score in 2021. Progress on these four key areas offers an opportunity to improve your company’s sustainability disclosures whilst simultaneously benefiting your overarching business approach to climate-related issues. 

Avieco works with companies to undertake climate-related initiatives in an affordable, bespoke and effective manner. We also have more than ten years of experience in delivering sustainability disclosure for companies across a range of sectors. 

To understand more about CDP’s reporting process, scoring categories and best practice to achieving high CDP score, download our CDP 2021 guide. 

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We get that change is not easy. But we must be brave, challenge old ways, set new habits, embrace new thinking.

sustain-ability.
more than a word.

We get that change is not easy. But we must be brave, challenge old ways, set new habits, embrace new thinking.