Every year CDP (formerly the Carbon Disclosure Project) invites firms around the world to respond to a comprehensive questionnaire about their risks and opportunities related to climate change, in their own firm as well as their supply chains. CDP undertakes this effort on behalf of 722 institutional investors, representing US$87 trillion of assets. Responding to the questionnaire is voluntary, but over the years an increasing proportion of firms respond, reaching 81% of the Global 500 in 2013. A recent project by a team of MBA students at the UCLA Anderson School of Management showed some unexpected insights into the benefits of using the CDP process.
The team used the data collected by CDP to support in-depth telephone interviews with 38 companies from 7 countries (Australia, Brazil, Germany, India, South Korea, the United Kingdom and the United States), focusing primarily on firms in the “materials” and “industrials” sectors, with some additional firms in the “financials” and “information technology” sector in the US. The structured questions focused on the reasons and benefits companies saw in disclosing.
The research shows that the strategic importance of climate change is recognised within the organisation with the CEO using the CDP-related information in 42% of the firms interviewed. In line with CDP’s origins, investor relations staff at 61% of responding firms use this CDP information.
The main benefits of disclosing are seen to be the management of the risks posed by climate change, and identification of potential opportunities. Branding and corporate reputation featured highly, signalling growing customer concern over these issues. And, as expected, the information is widely used in investor communications. Many firms also report on their climate change strategy and emissions to other organizations, or through their annual sustainability report. However, 31% of the companies specifically stated that the benefits they experienced could be directly attributed to the CDP process, with another 34% attributing the benefits partly to the CDP process.
One often hears the view that emission reduction activities are initially profitable, as firms pick the “low-hanging fruit”, but that after a few years there will be less and less attractive opportunities left. The companies in our study reported the opposite. They were asked if the opportunities for emission reduction activities were greater or less then when they started disclosing to CDP. 50% said that there were more reduction opportunities today (including 14% saying there were ‘far more’), and another 31% saying the opportunities were about the same. This suggests that either there is enough low-hanging fruit to last for quite some time, or that low-hanging fruit grows back quite quickly.
The two main drivers for successful emission reduction activities are management support and a strong business case. The focus of CDP responders is on projects with clearly positive Net Present Value (NPV). This resulted in some reduction projects, still with a positive NPV, being left on the table. We would expect these projects to move up the priority list in due course. With the engagement of senior management and the strong focus on financial analysis we can expect companies to benefit from more emission reduction opportunities in the future.
From the responses, it is also clear that achieving emissions reductions is often a joint effort, requiring collaboration with customers or suppliers. We asked the companies whether the implementation of emissions reductions initiatives that they had identified required collaboration with other stakeholders; 56% said they agreed with that statement (24% even agreed strongly), while only 24% disagreed. This indicates that tighter supply chain collaboration will be important for achieving further emissions reductions in global supply chains. The fact that firms discuss their CDP responses with each other is a sign that such climate-change-focused communication is occurring. We asked firms with which external stakeholders they discussed their CDP response, or their suppliers’. 53% said they had discussed it with their clients, and 32% said they had discussed it with their suppliers. For instance, of the 7 IT firms we interviewed, 6 had discussed it with their suppliers, and 5 with their customers.
The road towards sustainable supply chains will still be a long one, but these responses confirm that firms are increasingly taking a supply-chain-wide perspective to their climate change emissions and strategy.
 CDP: Global 500 Climate Change Report 2013.
 The team consisted of Kyriakos Bechrakis, Carme Casasayas, Anna Dickstein, Inês Figueiredo, and Charalampos Makrynikolas, all of whom earned their MBA in June 2013.