Does the CDP Supplier Engagement Rating (SER) miss the mark?
By Anthony Gilbreath, Principal at Caelus Sustainability Consulting
The Carbon Disclosure Project (CDP) is a non-profit organization that provides one of the world’s leading sustainability disclosure systems. The CDP was founded over 15 years ago In the United Kingdom. The CDP is focused on helping investors, companies, cities, states, and regions manage their environmental impacts. The CDP has had particular success working with purchasing organizations and suppliers to reduce climate, water, and forest risks. Their supply chain program can be an important tool for building a green supply chain.
In 2016, the CDP created the Supplier Engagement Rating (SER) to evaluate and recognize companies that are actively engaged in their supply chain. Member organizations that disclose to the CDP Supply Chain questionnaire are evaluated on supplier engagement. An organization’s SER is based on their responses to questions about supplier engagement in Governance, Targets, Scope 3 Emissions, Scope 3 Emissions (Supplier Engagement) and the overall CDP Climate Change Score. Performance in these topic areas is weighted in order to calculate the rating.
- Governance (20% of score) – Companies are graded on two areas of governance. One component focusses on the number of incentives (financial and recognition) offered to staff for good management of climate change issues in their supply chain. The other area looks at the integration of climate change into the overall business strategy through dedicated spend.
- Targets (15% of score) – Companies are given points for establishing absolute and intensity Scope 3 emissions targets.
- Scope 3 Emissions (20% of score) – Companies are given points for reporting Scope 3 emissions.
- Scope 3 Emissions (35% of score) – Companies receive points for the number of suppliers engaged, the type of engagement and the amount of spending dedicated to suppliers.
- Overall CDP Climate Change Score (10% of score) – The rationale behind these points is that companies that demonstrate strong management over their own climate change impacts will be well positioned to show leadership when engaging with suppliers.
Participation in the CDP Supply Chain program has benefits for both purchasing organizations and suppliers. Some of the shared benefits include using incentives to promote and recognize good climate change policies, setting Scope 3 emission targets, integrating climate strategy with business strategy and direct supplier engagement. However, several parts of the Supplier Engagement Rating are based on indirect indicators. An example of this is the assumption that if a company demonstrates strong management over their own climate change impacts, that company will be well positioned to show leadership when engaging with suppliers. This does not show ‘actual’ supplier engagement, but rather the ‘potential for’ or the ‘ability to’ engage with suppliers. Therefore, many may find the name of the rating to be confusing or inaccurate.
Despite the problem with its title, the SER can be a good indicator of the effectiveness of a Green Supply Chain program.