What is the Carbon Disclosure Project (CDP)? A Comprehensive Guide

As the global economy has shifted from a shareholder-focused approach to a stakeholder-focused structure over the last quarter-century, measuring company value solely through financial indicators is no longer sufficient. Today, investors, customers, and regulatory bodies also consider the impacts companies have on the environment and society while generating profit.

In this transformation process, the Carbon Disclosure Project (CDP), one of the most important tools for corporate transparency, stands out as a fundamental reporting framework that enables companies to measure and share their environmental impacts. This guide addresses the scope of CDP and its importance for companies from a holistic perspective.

The Role of Corporate Transparency in Combating Climate Change

For many years, climate change was perceived merely as a "social responsibility" issue on the agenda of environmental scientists and NGOs. However, the increasing concentration of carbon in the atmosphere, the rising frequency of extreme weather events, and the depletion of natural resources have turned the issue directly into the biggest risk factor for the global economy. Today, transparency is not a choice, but a prerequisite for commercial continuity.

The Impact of the Climate Crisis on Companies

The climate crisis creates two main categories of risk for companies: physical risks and transition risks.

• Physical risks involve events such as floods, droughts, and forest fires damaging production facilities or disrupting supply chains. For example, a factory operating in a water-intensive sector being forced to halt production due to drought in its basin is a direct financial loss.

• Transition risks, on the other hand, are more complex and strategic. They include market dynamics during the transition to a low-carbon economy, such as carbon taxes, the Carbon Border Adjustment Mechanism (CBAM), the removal of fossil fuel subsidies, or a shift in consumer preferences toward green products. Transparency is the clearest parameter showing how seriously companies take these risks and how prepared they are for the future.

The Concept of Corporate Responsibility and Accountability

Traditional corporate social responsibility (CSR) projects were often reputation-focused efforts independent of the core business area. However, today's concept of "Accountability" requires a company to bear the environmental cost of its core operations. Accountability means an institution declares the waste it produces, the water it consumes, and the greenhouse gases it emits into the atmosphere without hiding or manipulating them, in accordance with international standards. This declaration is proof that the company is not engaging in "Greenwashing" and backs up its sustainability claims with data.

Why Measuring Environmental Impacts is Necessary

The most fundamental rule of management science applies here as well: "You cannot manage what you do not measure." If a company does not know its Scope 1, 2, and 3 emissions, it is impossible to set a reduction target. Measuring environmental impacts is necessary not only to protect the planet but also to increase operational efficiency. A business that monitors its energy consumption in detail reduces its costs by identifying leaks and inefficient processes. Therefore, measurement is the cornerstone of both environmental and financial sustainability.

Definition of the Carbon Disclosure Project (CDP)

At its core, CDP is the environmental database of the global economy. It questions the environmental performance of companies by sending them detailed questionnaires under the headings of "Climate Change," "Water Security," and "Deforestation." This platform is not just a pool where data is collected, but an analysis center where this data is processed and transformed into a meaningful "Risk and Performance Score." CDP distributes this collected data to global markets via financial data providers such as Bloomberg, MSCI, and Refinitiv.

CDP’s Global Position

Today, CDP is considered the "Gold Standard of Environmental Reporting." In this system, which includes the world's largest companies (the vast majority of the Fortune 500), thousands of companies representing more than 50% of global market capitalization share their data. CDP data is used across a wide spectrum, from academic research to government climate policies, from insurance companies determining risk premiums to banks adjusting loan interest rates.

How Did CDP Emerge?

The emergence of CDP paralleled the transformation of sustainability in the business world from an environmental sensitivity to a strategic governance issue. Initially aiming to make the financial impacts of climate risks visible, CDP evolved over time—driven by investor expectations and global regulations—into a mainstream reporting framework that measures and guides companies' environmental performances.

CDP’s Expanding Sphere of Influence Over Time

Initially focusing solely on "Carbon" emissions, the project expanded over time to cover other dimensions of environmental degradation.

• 2003: First global questionnaires were sent.

• 2010: Water security and water management module added.

• 2013: Deforestation and commodity chain module added.

• 2019: Custom reporting systems for cities and regions were developed.

Today, CDP has transformed into a structure that collects data and sets targets not just for emissions, but in all areas pushing planetary boundaries, from biodiversity to plastic pollution.

What Core Areas Does CDP Cover?

To evaluate companies' environmental impacts from a holistic perspective, CDP structures its reporting around three main areas. These areas represent the topics where environmental risks are most concentrated globally and which directly affect the financial and operational performance of companies.

Climate Change

Climate change is CDP’s most comprehensive and widely participated area. Under this heading, companies are expected to disclose their greenhouse gas emissions (Scope 1, 2, and 3), energy consumption, emission reduction targets, and climate-related risk management approaches. The goal is not just to measure the carbon footprint, but to reveal the impact of climate risks on the business model.

Water Security

The water security area addresses companies' risks regarding water access, water use, and wastewater management. This module is critical, especially for companies operating in water-stressed basins. CDP adopts a basin-based evaluation approach, considering the risk level of the geography as much as the volume of water.

Deforestation and Supply Chain Impacts

The deforestation area focuses on commodities that can cause forest loss in supply chains. Companies using raw materials like soy, palm oil, timber, rubber, and cattle are expected to demonstrate that they source these products from non-deforestation sources. This module places supply chain transparency and traceability at the center of CDP reporting.

A Deeper Dive: The Specific Environmental Scopes CDP Requires

CDP requests reporting across these three main programs, which are interconnected ecosystems:

1. Climate Change and GHG Emissions:

Companies are asked to declare their emissions in accordance with the GHG Protocol standards:

• Scope 1: Direct emissions from owned or controlled sources (boilers, vehicles, furnaces).

• Scope 2: Indirect emissions from the generation of purchased electricity, steam, or heat.

• Scope 3: All other indirect emissions in the value chain, from the supply chain to product use and waste management.

2. Water Security and Water Management:

Critical for water-intensive sectors (textiles, food, energy, mining, chemicals). Requested data includes:

• Volumes of water withdrawn, consumed, and discharged.

• The proportion of operations in water-stressed regions.

• The financial dimension of water-related risks (e.g., cost of downtime due to water outages).

3. Deforestation and Supply Chain Impacts:

Focuses on four key global commodities causing deforestation: Timber, Soy, Palm Oil, and Cattle. Companies producing or using these must prove they do not cause deforestation and explain their traceability systems.

What is CDP Reporting?

Reporting is a disciplined and technical process that occurs during a specific period of the year.

Structure of the CDP Reporting System

Reporting is done via an online portal developed by CDP called ORS (Online Response System). This portal presents companies with customized questionnaires based on their sectoral characteristics (e.g., the questions asked to a bank differ from those asked to an iron and steel plant). The system stores previous years' data, allowing tracking of progress.

CDP Questionnaires and the Evaluation Process

The CDP cycle generally works as follows:

• March-April: Questionnaires and methodology documents are published. ORS opens.

• April-July: Companies collect their data, perform calculations, and enter them into the system.

• End of July: Deadline for reporting.

• August-October: CDP analysts and partner organizations evaluate the data.

• December: Scores are announced globally.

Scope of Reported Data

The reported data does not consist merely of quantitative metrics; qualitative data is also of great importance. Strategic information—such as a company's climate scenario analysis (e.g., business model resilience under 1.5°C or 2°C scenarios), whether the board's bonus system is tied to sustainability targets, and collaborations with suppliers—is also included in the report.

Who Participates in CDP?

The CDP ecosystem has expanded to include almost every actor in the global economy.

• Private Sector Companies: The backbone of the system. Companies of all sizes, from small suppliers to multinational conglomerates, can report. Publicly traded companies and exporters form the largest group.

• Local Governments and Cities: Cities also have carbon footprints. Metropolises like New York, London, and Paris, as well as Turkish cities like Istanbul, Izmir, and Gaziantep, aim to gain "Green City" status by reporting transportation, waste management, and energy efficiency projects via the CDP Cities program.

• Public Institutions and Other Organizations: In some countries, public institutions and regional governments use the CDP infrastructure to track their sustainability performance, which is vital for measuring the public sector's contribution to National Determined Contributions (NDCs).

How Does the CDP Scoring System Work?

The CDP score is the most prestigious report card showing a company's maturity level in its sustainability journey.

Evaluation Criteria for CDP Scores

Scoring works on a pyramid logic ranging from Level D to Level A. Each level is a prerequisite for the next:

• D / D- (Disclosure): The company transparently shared its data but may not yet be taking action. This is the "I just measured" level.

• C / C- (Awareness): The company is aware of the business impacts and risks of environmental issues.

• B / B- (Management): The company is taking concrete steps and developing policies to manage risks and reduce impacts.

• A / A- (Leadership): The company implements best practices, sets ambitious goals (like Science Based Targets), and leads its industry.

• F Score (Failure to Disclose): Given to companies that were requested to report but failed to do so. It signifies a lack of transparency, not necessarily poor performance.

The Meaning of CDP Scores for Institutions

A high CDP score (especially the A List) is a stamp of being "investable" for a company. A low or F score can be perceived as a "red flag" by investors, leading to the company being evaluated with a high risk premium.

Benefits of CDP for Institutions

Although CDP reporting may seem like an arduous process, the output adds multidimensional value to the company.

• Increased Corporate Transparency and Trust: The CDP report is the company's declaration of "we have nothing to hide," building trust with customers, employees, and NGOs.

• More Effective Management of Climate Risks: The process allows the company to see its "blind spots" (e.g., realizing 80% of water consumption is in a high-risk basin), enabling preventative measures.

• Visibility to Sustainable Investors: ESG funds, now worth trillions of dollars, use CDP data as a filter when selecting investments. A CDP report is a ticket to accessing this massive capital pool.

• Competitive Advantage and Corporate Reputation: In B2B markets, large buyers look at CDP scores when selecting suppliers. A high-scoring supplier becomes the "preferred partner."

The Relationship Between CDP and Sustainability Strategies

CDP acts as both an input and output of a company's sustainability strategy. It encourages companies to set Science Based Targets (SBTi). On the path to 2030 or 2050 Net Zero goals, CDP serves as an annual milestone where the company can check its progress and correct its course.

Is CDP Reporting a Legal Obligation?

While not directly a legal obligation, CDP reporting is increasingly intertwined with investor expectations and global regulatory frameworks. The proliferation of legislation regarding the financial reporting of climate risks has made CDP a de facto market standard.

Increasing Regulations and CDP's Preparatory Role

Regulations like the EU's Corporate Sustainability Reporting Directive (CSRD), the US SEC Climate Rules, and the International Sustainability Standards Board (ISSB) standards are making reporting a legal requirement. Companies using the CDP infrastructure are the fastest to comply with these regulations. CDP acts as a training ground against the impending regulatory tsunami.

Implementation Status in Turkey

Turkey is one of the countries among emerging markets that adopted CDP earliest and most effectively.

Since 2010, CDP reporting in Turkey has been conducted in partnership with the Sabancı University Corporate Governance Forum (CDP Turkey). Hundreds of companies, particularly BIST 30 and BIST 100 constituents from sectors like energy, banking, textiles, home appliances, automotive, and logistics, report regularly. Furthermore, under CDP's "Supply Chain Program," large parent companies demand data from their SME suppliers, giving SMEs a chance to institutionalize and play in the big leagues.

Preparing for the Green Transition with CDP

CDP is the roadmap for the Green Transition. Turkey's preparations to establish its own Emissions Trading System (ETS) and the drafting of a Climate Law show that carbon will soon become a cost item. Companies with CDP experience will be one step ahead in carbon credit trading and taxation processes. Furthermore, CDP’s Scenario Analysis helps companies measure risk exposure and align long-term investments with climate projections.

Why is the Carbon Disclosure Project Becoming Increasingly Important?

The world is changing, exponentially increasing CDP's relevance.

• Shift in Global Climate Policies: The Paris Agreement pushes countries toward binding commitments; governments rely on CDP data to formulate national strategies.

• Transformation of Investor Behavior: Gen Y and Gen Z investors want their money in ethical, green companies. Asset managers restructure portfolios based on CDP scores to meet this demand.

• Necessity for Supply Chain Transparency: Pandemics and geopolitical crises have exposed supply chain fragility. Companies now evaluate suppliers not just on price, but on sustainability resilience.

Frequently Asked Questions

• What is the Carbon Disclosure Project (CDP) and what does it do?
  It is a global platform where companies and cities report their environmental data (carbon, water, forests) in a standardized way to manage risks and build reputation through transparency.

• Is participation in CDP mandatory?
  It is not legally mandatory, but it has become a commercial necessity due to demands from investors and major clients.

• Why is the CDP score important?
  A high score shows that a company manages climate risks well, translating to cheaper credit, greater investor interest, and brand prestige.

Why is CDP Important for Institutions?

Ultimately, the answer to what the Carbon Disclosure Project is, is a survival guide for the modern business world. Today, "how you profit" is just as important as "how much you profit." CDP is a strategic tool that transforms environmental impacts from a risk factor into a competitive advantage.