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-: Hello, I'm Diana Dimitrova,
a managing director and partner
from Boston Consulting Group.
Today I have the pleasure to be joined by Sonya Bhonsle
and James Chamberlayne.
CDP is a not-for-profit organization
that collects the world's climate data.
Sonya, could you tell us a little bit
about last year's disclosure cycle?
-: Absolutely. Last year was a successful year for CDP.
Over 23,000 corporates reported their climate-related data
to us. That's the most we've ever seen.
The quest for net zero really hinges
on transparency and disclosure.
What is measured gets managed.
-: This year, I think it's our third annual
CDP and BCG Supply Chain Report.
We start with an earth-shattering fact.
Scope 3 upstream now houses 26 times
the emissions of Scope 1 and 2.
So that's a more than doubling of last year's findings.
-: The ratio between upstream to operations has gone up.
What we are not seeing is more Scope 3 emissions.
What the data's telling us
is that there are more companies reporting their emissions.
They're assessing those emissions better,
and as they're doing so, they're really shining a light
and illuminating the scale of the upstream problem.
We looked at which companies were setting targets
on Scope 3 and taking action on Scope 3,
and we tried to identify what factors they had in common.
We identified three.
The first was having a climate-responsible board.
The second was a supplier-engagement program.
And the third, and this was interesting
because we've never seen this before,
was setting an internal carbon price.
-: Bringing in BCG's experience with the CDP information,
we do see the concept of fiduciary accountability
between boards and management
to be a really important linchpin.
I think the key is the definition, right?
A climate-responsible board is two things.
It's at least one climate-competent individual on the board,
and it is climate oversight that that board should have.
-: That's exactly right.
The top really makes a difference
to the rest of the organization.
But what we are seeing is that only 34%
of the corporates who have reported to CDP
had that climate-responsible board.
-: Supplier engagement, that's the second factor.
You've been running the supply chain program
for over a decade. Any insights
about how we actually move up the ladder
of supplier engagement?
-: Supplier engagement is crucial.
The war of climate change is going to be won or lost
on the Scope 3 front.
So what we need to see is more companies
talking to suppliers about climate change
and driving that knowledge and capacity down the line.
The CDP Supply Chain Program absolutely does that.
What we're seeing is that the companies
that are actively engaging with their suppliers,
they're six times more likely
to have a 1.5-aligned transition plan and Scope 3 target.
But there's still so much more work to be done.
Only four in 10 corporates are currently engaging
with their suppliers on climate change.
We're seeing only one in 10 collaborate with their suppliers
to drive action on climate change.
Only three in 100 corporates are asking their suppliers
to set targets aligned to climate science,
and that's the transition that we need to see happening.
-: The third factor that you mentioned
is the concept of the internal carbon price.
And we know those that have an internal carbon price
are four times more likely to have the 1.5 transition plan
and to have Scope 3 targets.
So clearly it works.
Can you tell me a little bit about what we have uncovered
for the first time this year?
-: It's a really interesting finding.
We this year found an implied carbon liability
of $335 billion associated
with reported Scope 3 emissions.
-: It illuminates how much liability we're missing, right?
James, you look after the investor community,
could you give us a bit of a sense of what they need to do
to contribute to our quest for net zero?
-: Yeah, as you said, disclosure's absolutely crucial
for investors and more broadly
the financial community at large.
Firstly, from the finance, the investor side,
it's using that data for those portfolio assessments,
identifying those risk-adjusted returns,
factoring it into benchmarking,
factoring it into engagement as well.
And then on the other side,
it's also we're seeing a rise in discussions
around how can it be factored into funds,
indices, and those innovative products,
whether that be green sustainability-linked loans, bonds.
-: It seems that half of corporates
meaningfully report on the financial risk that is out there,
but only one in three evaluate those financial risks
from the upstream emissions and in the context
of their financial performance.
-: Out of the 400 investors, asset managers,
asset owners who disclosed to CDP in 2023,
one in three have investment policies
that include climate-related requirements for their clients.
Less than one in 10 leverage
and require clients to disclose Scope 3 upstream emissions.
Now, if you're listening
to what we've just been talking about there, right?
That's a massive blind spot,
and you're not really getting on top
of your risk assessments.
And so when it comes to looking at CDP's role in this,
it's never been more crucial.
-: James, Sonya, thanks so much for your time today.
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