‘We can’t keep asking more questions’: CDP acknowledges it needs to do more with less ESG data

23 years on, this theory that increased environmental, social and governance (ESG) disclosures would lead investors and other stakeholders to reward companies with strong sustainability performance, and punish those who lagged, has gained widespread market acceptance.

However, evidence to support this dominant theory of change has been mixed, with global emissions continuing to climb alongside corporate disclosure rates over the last two decades.

“It’s simpler to say it’s not working, than actually digging out the examples where it is,” argued Sherry Madera, CDP’s new head as of last October, citing how the United States retail giant Walmart hit its 2030 target to slash a gigatonne of emissions from its supply chain six years ahead of schedule by giving suppliers better financing terms if they received a high score from CDP.

Madera, who founded the Future of Sustainable Data Alliance (FoSDA), a global coalition of ESG data providers, in 2020 and helmed it until she took up the top position at CDP, believes that the world is “at that tipping point” where sustainability data is regarded as “a business necessity at the board level”. 

Momentum has been building since the International Sustainability Standards Board (ISSB)’s released its inaugural standards last year to consolidate the “alphabet soup” of reporting frameworks, from the Taskforce for Climate-related Financial Disclosures to the CDP-established Climate Disclosure Standards Board.

Over 20 jurisdictions – including Australia, Japan, Hong Kong, Malaysia, New Zealand, Philippines and Singapore – have since announced plans to roll out mandatory ISSB-aligned reporting rules in the next few years. In April, CDP also released its 2024 corporate questionnaire, which aimed to simplify disclosures against multiple environmental issues by aligning with the ISSB’s climate standard. 

But the new format has been criticised by some sustainability practioners for doing just the opposite due to its length and lack of user-friendliness.

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Sustainability and climate-related data will take the same path as financial data over time, which means that we’re going to have more interoperability… but we can’t expect there to be one standard to rule them all. That would be great over time, but we don’t even have that with financial markets.

In a now widely-shared LinkedIn post, Anastasia Kuskova, chief executive officer (CEO) of Amsterdam-based sustainability data startup Sirius, stated that the latest questionnaire approaches 2,000 pages and over 5,500 questions. Many professionals commenting on her post shared similar sentiments, including one who complained that “navigating the questionnaire hasn’t become any easier” since she started reporting to CDP more than five years ago. 

Rejecting these claims, Madera has maintained that there are just 450 questions in the questionnaire and “never is a company going to be asked them all”. Starting this year, small and medium-sized enterprises (SMEs), or those with under 1,000 full-time employees and US$240 million in annual revenue, will only be subjected to about 10 per cent of these questions, she added.

But Madera acknowledged that CDP needs to ensure that the questions it asks, which reap some 2,900 data points, are “multi-use” so companies can “embrace the fact that this is a positive thing that they’re spending money, effort and resources on, as opposed to being a burden.”

Sherry Madera, a former investment banker and diplomat, succeeded CDP’s co-founder and long-time CEO Paul Simpson as its new head last year. Image: CDP

For her, it all boils down to three key use cases: access to capital, business efficiencies and compliance. Madera said that these use cases will determine CDP’s strategy for individual jurisdictions across Asia – one of its fastest growing market for disclosures – which saw a major upheaval for executives earlier this year.

Tune in as we discuss:

• Why rising disclosures has not led to more ambitious climate action
• How to bring up the rate of credible transition plan disclosures
• Criticism of the new CDP questionnaire
• CDP’s “much stronger strategy” for Asia post-restructuring
• Will we see further consolidation of ESG ratings and data providers?
• Is the “ESG party” is over?

The transcript in full:

How did you feel when you were shortlisted for this new role as the CEO of CDP and what made you say “yes” to the role?

To be honest, I have to tell you that it wasn’t something I looking for. I had just recently joined Mastercard, running its public policy team outside North America, after having spent some time as chief industry and government affairs officer at the London Stock Exchange Group (LSEG).

Then someone forwarded me this job description from CDP – an organisation that I’ve known for many years. I said, “You know what? I’m perfectly happy.” Then I got four more forwards from four different people. That was five people overall. And I thought, “If other people think this might be a good fit, maybe I should explore it.” 

There were a couple of things that really drew me to it. First, is the incredible heritage of CDP doing something I really believe in, which is that data is an unlocker for making positive climate change. The second is my own background: I’ve lived in China for three years and I was the economic ambassador to Asia for the City of London for a number of years. Asia is in my blood. The Asian markets are so incredibly interesting and exciting and the board of trustees also believes that at CDP. I’m sure we’ll talk about this, but there’s no such thing as “Asia”, you need to get much deeper into what each country is doing. 

A recent MSCI report revealed that despite Asia’s rising rate of corporate disclosures in the last decade, 20 of the largest Asian utilities are still way off track from net zero emissions pathways. Does this disconnect between climate reporting and actual action suggest there are cracks in the dominant theory of change, where target-setting and disclosures are meant to lead to more ambitious climate action?

What you’re really getting at, which I love, is that data is just not for data’s sake. We want to make sure that disclosures are moving towards action. So you’re asking about these companies who are huge emitters and I think that you are absolutely spot on when you talk about what tools might we have to start moving from disclosures to action.

Having a transition plan is a huge topic at the moment. The reality is that to have a transition plan, you have to have a target and a baseline. Then you need to be able to track against it year on year, because even if you set a target and you never track towards it, it means nothing.

At CDP, we’ve made an attempt to define what a credible transition plan might be on the basis of disclosures and we’ve chosen 21 data points that we can associate with a credible transition plan. Now, I’ll tell you the bad news: less than 1 per cent of all of our disclosure universe has credible transition plans. So we need to start seeing why that’s the case and building capacity.

What do you think is needed to bring up the numbers? ISSB has just taken over the role of standardising the reporting of corporate transition plans – will that help and what else is needed?

I do think that ISSB taking the Transition Plan Taskforce’s work under its wing to include that in disclosures is a huge step. 

How can we bring that 1 per cent up closer to 100 per cent? That’s the number we would like to see. We just can’t keep asking more questions. What we need to do is to find ways of making questions that we ask multi-use, for companies to embrace the fact that this is a positive thing that they’re spending money, effort and resources on, as opposed to being a burden.

To be clear, CDP is here to surface new information and to bring credible, comparable information into the marketplace. We’re not here to judge. We’re here to support standard setters and the use case for all the data that we are collecting. You’d be surprised how much one piece of data can be used in multiple ways.

Have there been concrete studies that have shown that companies who think about reporting a certain way tend to come up with better transition plans and to act on them?

Yes, one of the other statistics – and I’ll make this more Asia-specific – is “A List” companies. So CDP also scores companies on the basis of transparency. Those 21 data points that I spoke about are not some separate thing. They are now all part of a single CDP questionnaire, as of this year. In Singapore, the A List companies grew from one to three over the last year. We’re seeing that uplift in many places around the world. 

There are 174 A List companies across Asia, which is about 40 per cent of the entire A List globally. Embedded in that “A” means that they are disclosing against some or all of those transition questions. There’s a real benefit there in terms of being able to be more transparent. It’s not just so that you can say that you have a CDP “A”, the point there is to show leadership in transparency is being rewarded in other markets.

If I’m a chief financial officer (CFO) of one of the A List companies, I can take that to my financiers and be able to negotiate a lower cost of capital because higher transparency is able to yield a better review of risk. The banking and finance community are all about that.

I did want to go into the new questionnaire, which was meant to streamline reporting. But I’ve seen that it’s approaching 2,000 pages with over 5,000 questions. That’s quite a lot. What have you been hearing from companies and what’s been the progress in the uptake so far?

We’re super proud that it’s one questionnaire, as opposed to three separate questionnaires. Last year, there was an increase in uptake of all three questionnaires for climate, water and forests. But what we heard and listened to was that the market wanted to de-duplicate some of the questions and create some streamlining, which I think we definitely achieved.

I want to debunk the myth that there are 5,000 questions or whatnot. There are 450 questions and never is a company going to be asked them all. Our assessment of what questions companies get are on the basis of what authorities working with CDP are requesting.

In a large value chain, they may be asking specific questions such as, what type of market you’re in, if you’re impacting water and forestry. That is an associated question set that investors, customers and companies themselves would like answered.

The 450 questions yield about 2,900 data points. Because when you think about the questions, there can be drop down menus, there can be additional information that goes there, so that’s where things start mushrooming out. This is the first year that CDP has been able to have an online-based system to collect the data and to ask the questions. Does that mean that’s the way it is from here going on? No, absolutely not. Step one is to make sure that we are digitised.

One of the reasons I joined CDP was so it’s able to invest in itself in order to keep up with the ecosystem as it stands right now. 23 years ago, CDP created the ecosystem to collect climate data. It’s now huge. So we need to now catch up by investing in a system that’s going to be even more fit for purpose going forward. We’re working really hard to capacity build with companies that are investing their time, energy and resources this year to constantly improve. But I think we’ll see a bigger step change even next year as we bring in all of those commentary and be able to simplify.

Is there a bias towards larger companies versus SMEs, which may not be able to afford a dedicated team to report on all these different data points and therefore don’t have a fair shot at getting better ESG rating as compared to their larger and more well-resourced counterparts?

So this year we launched an SME questionnaire. You said 450 questions is still a lot. What if I said that you only need to do about 10 per cent of that for an SME questionnaire, which according to our research, is the level that is palatable?

Once we’ve got established, global listed companies that are already very familiar with CDP, our job is to make sure that the rest of the market is also looking at how to disclose, especially when we talk about Scope 3 emissions, when we talk about the value chain and when we talk about supply chains. Those companies that are feeding into the world’s largest companies are smaller. So being able to find a way for them to step up into the disclosure world is our objective.

Coming back Asia, I did want to ask about CDP’s restructuring under your leadership so far. My colleague reported on how certain regional roles in the past year were scrapped in favour of global functional roles, which saw several senior executives in the region leave. But I also saw that there was a new job posting recently for a business development director role. Does this signal a return to regional roles?

I’m going to come back to something I said to you earlier in this discussion. There is no such thing as Asia. You need to think about what each market needs to be able to be successful in terms of the needs, requirements and sectors.

We’ve taken the time to do that. We’ve brought in external consultants, mined our internal knowledge and asked the marketplace. I’m delighted that you’ve seen that we’re hiring for an Asia -based business development lead who will report directly to me at the top table because It’s absolutely essential for us to be able to make sure that we are servicing that market. It is one of our highest growth markets, where disclosures are being driven by two huge factors.

One is investors and the second is buyers or the supply chain owners around the world. CDP works with 340 of the world’s largest supply chain members, representing US$6.5 trillion worth of buying power. A lot of it is buying from Asia. So for us, we need to make sure that our team is well trained and really focused on how to move quickly and effectively through Asia, and I’m really excited about this hire.

But why that personnel change when it seems like a pretty similar kind of role to what some of the previous executives were doing?

What I would say is no man steps in the same river twice. Both the man and the river have changed. So it may look on paper like that job is the same. The reality is that we have a much stronger strategy across Asia and in terms of skills and we’re looking for someone who’s really going to get out there and be client-facing, customer-facing, regulator-facing, and really be able to hone in on how our growth works going forward in that region.

Maybe you can walk me through the future plans that you have for Asia? How the river has changed, how the man has changed and how the markets differ, because you were alluding to how there’s no one Asia?

I want to take a half step back in order to be able to answer your question. I keep saying that data is not for data’s sake and that data needs to be used. So used how right? We need to think about that before we can start thinking about how that applies to the different countries within the Asia region.

I see it as being three main use cases for the CFO, the CEO and the board to say, “yes, I’m going to invest this money in being able to resource climate data”. Those three uses are: access to capital, business efficiencies and compliance.

Access to capital is pretty straightforward. Your investor, be that a public or private investor, be that a loan portfolio or equity, is increasingly seeking the data that allows them to understand risks and opportunities on the basis of a company’s impact on climate.

When you talk about business efficiencies, supply chain owners, your customers, are asking for this data. Requests for proposals are increasingly including questions about the climate and environment. Business efficiencies can also include what your employees are asking you and how you attract talent.

And the third being compliance. So we touched on how Singapore has adopted ISSB going forward. Many other countries around the world are doing the same. Increasingly ISSB is being used as a baseline.

Then we we put that into the Asia region. Our second largest market in the world for disclosures is China and our third largest market for disclosers is Japan. For China, it is a compelling use case to be able to service your customer. The supply chain owners around the world that work closely with CDP are making requests and that’s driving the biggest growth in China. I’m not saying that access to capital and compliance are not also of interest, but the biggest driver is customers.

It’s different in Japan. In Japan, it is investors and compliance. Already, the stewardship standards in Japan are making companies start thinking about what data they need to track internally to minimise their risks – not only from a regulatory environment, but also how they do business internationally. I’d never heard so much about the Carbon Border Adjustment Mechanism (CBAM) from Europe, as when I was travelling in Japan and Southeast Asia.

Part of what we’ve been doing is to think about what the data is being used for and how our connection with the marketplace is not only encouraging disclosure, but speaking to the CFO, the board and the shareholders, to say that this is core to your business, you can drive better efficiencies and you can win more business. That message is quite different, perhaps, compare to what CDP had been saying to the market before. And that shift takes a little bit of time. So that’s why we’re ready for some great new hires in the region, to be able to partner more completely.

Let me give you a good example. In India, we’re growing almost 100 per cent year on year and a lot of that has to do with SMEs. So we’ve partnered with a business group in India, Federation of Indian Chambers of Commerce & Industry (FICCI), to roll out the capacity building for our SME questionnaire. It’s not that we’re ignoring larger companies, but we see that as being the biggest accelerator to drive transparency in India. So all of those types of tactical as well as strong partnership-based approaches needs to be seen country by country.

I’m still wondering about the whole theory of change. When will we start seeing real decarbonisation? Because disclosures have increased and we have a lot more data now, but high emitters haven’t really changed the way they do business in the past decade.

Let me give you some examples that we are taking pride in, because, if you don’t mind me saying, I think it’s simpler to say it’s not working, than actually digging out the examples where it is. I’ll give you an example. We work very closely with Walmart, which has an enormous global supply chain.Together, with us and other partners, they put together a plan called “Project Gigatonne” in 2020 to remove a gigatonne of carbon emissions from the environment by 2030. Earlier this year, Walmart announced that it has reached its target.

What does this mean? This means that Walmart was tracking the emissions that came from its supply chain. The biggest hurdle for decarbonising is often found in your Scope 3. Walmart did not just track its emissions, but also figured out where the pain points were within its own supply chain to do some capacity building with its suppliers.

There’s always that threat of changing suppliers, but what Walmart did was to educate and bring partners along to say, “Well, if you’re going to change your energy mix to renewables, that’s going to take an investment. How about we bring in some lower cost of capital through the banking system in order to facilitate that change for you, so that when you actually report back into us, we’re going to see that your energy mix is significantly decarbonising?”

This is a great example of how if you don’t have that data, you will not know which one of your suppliers you should talk to. Neither will the banks or financiers be able to really understand that this company’s buyer is asking for this change, and being able to invest in that is actually a pretty secure investment.

It seems like the companies themselves also need to be extra committed to using that data as a leverage for decarbonisation. But so far it’s almost like just compliance or box-ticking, right? 

We do need to be cognizant of the fact that making change to a business process, no matter what business you’re in, in the hard-to-abate sectors or as a consulting firm, costs money.

So as any business leader would say, “what is my return on investment?” Regulation, fines or compliance breaches, are reasons you are going to have to make a change because your return on investment will be higher if you’re actually in compliance.

Moreover, if your customer is going to say, “I can’t buy from you anymore”, that’s a pretty compelling reason to make an investment. The point I’m making is: we can’t forget that it is an investment. So part of the capacity building we need to do if we want to see the change is to investigate what that return on investment realistically is over a time frame that is perhaps a little longer than some of the CFOs usually take into account.

This is not a quarterly cycle return on investment. This is a one, five, 10-year return on investment. But that’s where the real benefit comes. Because if you’re going to make a major change to your energy mix, you are going to reap the rewards for many years to come. But that upfront cost is something that we need to think about how we finance well.

So far that the link to the returns on investment from disclosures is still tenuous. Is that something that CDP is trying to quantify?

Yes, and there are some very simple examples as well. A number of our A List companies report getting a lower cost of capital if year on year, they maintain their CDP A List designation. That maybe lowers their cost of capital by only a few basis points or 10 basis points, but in multinational companies, this makes a big difference.

We’re also seeing that extend down into the ecosystem that they work in. So, companies that disclose to CDP or have certain data points that are above thresholds that bankers, financiers or buyers put into place will get a real financial gain through supply chain finance products. I’m excited about all of these little pieces, because it’s not just about the big picture sustainable finance.

We’ve talked a lot about ESG funds in the past or sustainable finance writ large. When it becomes practical, that’s when companies start saying, where’s the downside? Actually, the upside is quite financial. This data that we’re gaining cannot only be used for compliance, it’s used also for that access to capital and business efficiencies. If you have your Scope 1 and Scope 2 emissions, you only need to write it one time and you get to use it many times. Then that return on investment in terms of your own reporting burden goes down because you’re seeing where those benefits are, not just to contribute to a positive journey of climate change, but because it’s actually business critical.

We are just at that tipping point of making sure that data points on climate are being required as a business necessity at the board level.

You also founded the Future of Sustainable Data Alliance (FoSDA). Earlier this month, Moody’s confirmed that it will no longer have its standalone ESG ratings business after announcing a strategic partnership with MSCI. Will see further market consolidation in this space in the near future?

Well, my crystal ball is broken. But you’re right. I founded FoSDA, which is a group of data players that primarily serve the financial industry. The members of FoSDA include S&P Global, Bloomberg, Moody’s, LSEG, and some smaller players like Clarity AI and Greenomy. CDP, alongside Climate Bonds Initiative, was one of the founding members of FoSDA.

A few years ago, we counted there were 734 ESG scores or ratings providers. That has come down significantly. I don’t have the number, but let’s think about why that is the case.

CDP was the very first in the market to create a score in 2010. The number of scores we produce has grown significantly since then. I think that the big pressure on the industry are two things. One is, do you have a methodology that is clear, transparent and shown to be useful in the ecosystem? Do I think that we need 734? Probably not.

The other big factor here is compliance. Scores around the world are increasingly being regulated. That is the case in places like India and the European Union. So that extra compliance burden might mean that it’s more logical to be more efficient with resources and bring that number down.

What are the pros and cons of having a smaller number of ESG players in the future?

The pros of having multiple scores and ratings are that, as long as the methodology is clear and transparent, it can tell the user something different. A variety of different scores can be used together as inputs.

Some of the cons are that if there isn’t transparency, it gets confusing. A score might present a easy way, but not the best way, to make decisions or allocate capital. It’s a tool. And as long as the tool is being used accurately by the market, then more than a handful can be very useful. But the thing to remember here is that a score is a derivation of the data. The raw data is the start of all of this.

If CDP continues to do a good job here, you’re able to use that raw data, either in your own modelling through a scoring mechanism or when scores start getting embedded in other products. So this is becoming a value chain of the data itself.

It’s just like financial data. Financial data has taken its journey so that you have all the various different constructs, all the way up into asset management indices, whatever they happen to be. That methodology, as long as it’s transparent, has got a marketplace.

I personally think sustainability and climate-related data will take the same path as financial data over time, which means that we’re going to have more interoperability, we’re going to have a bit more consolidation, but we can’t expect there to be one standard to rule them all. That would be great over time, but we don’t even have that with financial markets. So we need to be realistic. For instance, for financial reporting, there’s International Financial Reporting Standards (IFRS) versus Generally Accepted Accounting Principles (GAAP) [where IFRS is used in over 144 countries, but GAAP is used in the US].

As we’re on this journey, CDP’s data can become that interoperability tool. If you get back down to the raw data that is being disclosed by the companies themselves that they’re putting their name to, that becomes very compelling data in order to build scores and analysis tools by others in the ecosystem.

There was a recent documentary that the Financial Times released titled, “Who Killed the ESG Party?” In your opinion, do you think the ESG party is over? And if so, who do you think killed it?

I don’t know if any of my colleagues at CDP would have considered it a party. CDP has been around for 23 years, and there has been a lot of waxing and waning in terms of interest in climate data. So maybe this time we can think of it as just another cycle that is being gone through.

When you think about politics and government influence, it is quite significant in this space, in terms of prioritisation, and the big agreements that come out of COP. As we’re seeing how politics is shaping up this year, which is the year where more people will go to the ballot box than any other year in history, we can only imagine that this is a cycle of what the industry and the market are thinking about ESG.

I don’t think that the drive to understand what our impact is as a company, as a human, as a city, state, region, government, is waning. There is a real understanding that things need to change. Action needs to be taken. So I guess my point back to you is: how do we know what change we might want to make? How do we know if we’re going in the right direction? How is it that we know if we need to course correct? You can’t make any of those decisions if you do not have year on year tracked data.

You did bring up that it’s the year of record elections. There are some really big elections to watch. The news just came out that US president Biden has dropped out and it’s now Kamala Harris, the current vice president, who’s going to be running as the Democrats’ presidential candidate. So what’s the outlook depending on some of these big elections outcomes, for the coming years of climate action?

I think there’s two things that we can watch. One is, what is being splashed on newspapers and what directions of travel politicians are going in. The second is what’s really happening, in terms of businesses that can take action.

One of the most important things to keep an eye on is whether data continues to be transparent. What CDP is here to do is to keep that engine of data year on year being tracked. We might expect it to be a little bit quieter on the headlines from some of the world’s biggest companies, because they’re seeing the direction of travel of the politicians, governments and economies.

Does that mean that they’re stopping what they’ve been doing for many years through CDP, which is tracking, calculating and being transparent about their data? Often that’s not the case. So let’s track them both. Let’s see what’s going on in the macro environment. Let’s keep an eye on what data is continuing to be generated. I have great confidence that the latter is going to continue at pace.

The transcript has been edited for brevity and clarity.