Savvy Strategy Guides Carbon Disclosure Project

The Carbon Disclosure Project (CDP) is an organization with a clear goal, a simple premise and a savvy strategy. A research project on sustainability in the supply chain that I just completed (link forthcoming when the report becomes available for purchase) clued me into just how effective its strategy has been.

First, its goal. CDP was founded in 2000 with the goal of motivating investors, corporations and governments to take action to prevent climate change.

Its premise is the old management adage that “what gets measured gets managed.” By asking corporations to disclose their greenhouse gas emissions, CDP is implicitly asking companies to measure those emissions. And once companies get in the habit of measuring their emissions they are in a position to begin to manage and reduce them.

Indeed, it’s not hard to find companies that will tell you that once they began measuring their carbon footprint they gained a better understanding of how their business really operates and uncovered opportunities to improve efficiency and reduce costs.

It’s CDP’s strategy that I find most interesting. How does this nonprofit organization persuade companies across the globe to disclose information that, for most of them, never before required disclosure, not by statute, treaty or custom?

At its inception, CDP enlisted hundreds of institutional investors as backers. It persuaded them that prudent investing increasingly needs to take account of companies’ environmental performance and specifically their exposure to the regulatory and cost burdens of carbon abatement regimes.

With hundreds of big investors managing trillions of dollars in assets now interested in this information, CDP was able to begin asking corporations to supply it.

Amassing a set of influential backers is part of CDP’s strategy. Another is striking a business-friendly tone. CDP positions itself as an ally, not an adversary, of big business. It does not hammer companies to reduce their emissions; it merely asks that they comply with requests to disclose them. It does not shame non-compliant companies. Rather, it celebrates leaders. Its Carbon Disclosure Leadership Index, for example, ranks companies according to the quality of their disclosure, not their level of emissions. A friendly, non-judgmental tone eases the way for wary companies to begin to participate.

A third pillar of the strategy is exploiting network effects. It was this that I became aware of in my supply-chain research. Several of the major manufacturers—companies like Diebold and Alcatel-Lucent–said that they had begun to measure and disclose their greenhouse gas emissions to CDP at the request of their customers. Indeed Alcatel said it now planned to ask some of its own suppliers to begin reporting to CDP. This is the network effect in action. To accelerate the network effect, CDP has launched a supply chain initiative to enlist large companies to persuade their suppliers to begin reporting to CDP. “The information gathered,” notes CDP, “is used by senior management in over 40 of the largest organizations worldwide such as Walmart, PepsiCo and IBM.”

How successful has CDP been in encouraging companies to disclose their emissions? The number of companies responding to its emissions questionnaire has soared over the last five years, from 235 in 2003 to over 2200 in 2008.

Companies Responding to CDP

CDP is seeing improvement in the quality of reporting as well as the number of companies participating. And it is racking up a growing number of testimonials from participants supporting the premise that measuring and disclosing their carbon footprint has already produced tangible business benefits.

Do you have any experience with the Carbon Disclosure Project and its impact on business? What do you think of the strategy? I’ll look for your comments below.