What is a Carbon Disclosure Rating (CDP)?

A carbon exposure rating measures a company’s environmental sustainability based on voluntary disclosure by the company itself. The practice aims to help investors who want to involve ecological, social, and governmental factors in the investment decision-making process. The CDP performs the most widely used carbon exposure ratings. It is a non-profit organization based in the UK, formerly the Carbon Disclosure Project.

The carbon disclosure ratings collected by the CDP are comparable to the carbon disclosures contained by the Amsterdam-based Global Reporting Initiative. GRI works with both businesses and organizations. CDP works specifically with individual companies.

The critical framework involved in generating carbon exposure ratings is the use of questionnaires administered by the CDP. The companies are participating in this program, which will number nearly 6,800 by the end of 2020, send a series of questions tailored to the company’s industry each year. The responses are then analyzed, evaluated, and made available to institutional investors and other stakeholders. CDP metrics distinguish companies based on climate change, understanding, and application.

CPD Understanding

One criticism of the carbon emissions rating process is that its scores do not necessarily reflect the company’s actions to mitigate its impact on climate change or compensate for its carbon footprint. Conversely, the score may remember that the company could not disclose information in a timely or complete manner to the CDP. For example, by 2020, Amazon had an “F” rating by the CDP; Because it did not respond to the CDP’s request for information.

However, “F” does not mean that the company could not trace its carbon footprint. Conversely, the company failed to provide sufficient information to obtain a CDP rating. As a result, another criticism of the process is that the ratings are unconvincing. Many companies do not provide information to the CDP on their actions to mitigate their impact on climate change.

The CDP publishes an annual “A-List” of the companies that rank highest in carbon offset ratings. In 2020, 313 companies were represented on this list. Many of these are multinational corporations that dominate their industries. These include well-known American companies such as Apple, Bank of America, Ford Motor Company, Johnson & Johnson, Walmart, and Microsoft.