Introduction

At COP29, CDP (Carbon Disclosure Project) and EFRAG (European Financial Reporting Advisory Group) announced a strategic collaboration to simplify the sustainability reporting process and enhance the efficiency of environmental data management. This partnership aims to benefit from the high commonality between CDP’s questionnaire and the European Sustainability Reporting Standards (ESRS), particularly ESRS E1 on climate change. The comprehensive mapping is scheduled to be published in early 2025.

Commonalities and Differences Between CDP and ESRS

From our point of view, commonalities between CDP’s questionnaire and ESRS are not limited to climate-related disclosure. In both, there is a high emphasis on defining dependencies, impacts, risks, and opportunities. Also, both reporting systems encourage organizations to understand their dependencies and impacts on a wider scale by using value chain mapping and defining time horizons. To list some common features:

1. Double Materiality Principle: CDP and ESRS adopt the double materiality approach, requiring companies to report how sustainability matters affect their financial position (financial materiality) and how their activities impact the environment and society (impact materiality).
2. Value Chain Mapping: Both frameworks emphasize the importance of understanding the entire value chain. They require companies to access the ESG impact of both upstream and downstream activities.
3. Defining Time Horizon: Both can be used to assess their environmental, social, and governance impact (ESG) on a larger time spectrum by measuring actual and potential impact in the short, medium, and long term. CDP further specifies the need for companies to define these terms in their disclosures.
4. Integration with Financial Reporting: Both advise organizations to align their reporting cycle with their financial cycle. Thus, it would be easier for companies to compare and relate financial and non-financial data.
5. Stakeholder Engagement: To assess and address ESG impacts more effectively, both frameworks highlight the importance of engaging with stakeholders, such as employees, suppliers, and local communities.

Although companies can leverage these commonalities, the differences between the two frameworks should not be overlooked. To list some differences to consider:

1. Scope of Reporting: While ESRS offers a comprehensive framework covering various ESG factors, CDP focuses primarily on environmental data, such as biodiversity, climate, water, and forests.
2. Sector-specific Disclosure: CDP provides more detailed sector-specific guidance through its questionnaire, while ESRS adopts a broader and cross-sectoral approach.
3. Legal Importance: Under the EU’s Corporate Sustainability Reporting Directive (CSRD), ESRS disclosures are mandatory. On the other hand, CDP participation remains voluntary despite its widespread adaptation due to investor demand.

Climate Transition Plan Elements

CDP’s Climate Transition Plan framework aligns with global standards to help organizations achieve a credible 1.5°C-aligned future. It emphasizes key elements such as setting science-based targets for reducing emissions, engaging value chains to drive sustainability, and integrating climate risks and opportunities into financial planning. Climate transition plan disclosure is now required by several standards including ESRS.

There is a significant overlap between CDP and ESRS in terms of key indicators of climate transition plan. Both highlight the importance of aligning financial strategies with climate targets, particularly in a 1.5°C-aligned world. This alignment includes details on spending forecasts, revenue allocation, and capital expenditures related to decarbonization goals. By integrating these factors into financial planning, companies can demonstrate their progress and improve reliability. Additionally, comprehensive disclosure practices, such as scenario analysis and verified carbon emissions information, are vital for organizations to map their progress effectively and overcome challenges.

Advantages for Organizations

Despite these differences, companies can benefit from this strategic alignment.

Firstly, they can use common disclosure in both reports by leveraging the interoperability of CDP and ESRS. The reporting burden can be reduced by utilizing the mapping that CDP and EFRAG will jointly publish.

Secondly, the accuracy of ESG data can be improved by providing more robust and high-quality data. With simplified ESG data management, it would be easier to meet regulatory requirements, and investor demands by enhancing transparency and credibility.

Thirdly, organizations can gain a comprehensive understanding of their ESG risks and opportunities by utilizing both frameworks. By gaining more strategic insights, they can improve their strategic decision-making related to sustainability.

Lastly, participation in both systems can improve the reputation and competitiveness of companies since CDP scores are linked to better market performance and are increasingly used by investors and financial institutions.

Conclusion

The collaboration between CDP and EFRAG is a major step towards simplifying sustainability reporting and improving the quality of ESG data. By aligning the CDP Questionnaire with the ESRS framework, organizations can unify their reporting processes, reduce duplication, and focus on delivering consistent and reliable information. This interoperability helps companies meet both regulatory requirements and investor expectations while enhancing transparency and credibility.

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