ESG Glossary (Source Credits Below)

1. Carbon Neutral

For a project or organisation to be carbon neutral, an equal amount of CO2 must be removed from the atmosphere for every unit of CO2 released. This may be accomplished by providing financial or other aid for initiatives aimed at removing CO2 from the atmosphere, such as the creation of renewable energy projects, planting trees, using carbon credits or carbon trading systems. A company can achieve “carbon neutrality” without cutting its emissions.

2. Carbon Footprint

The term Carbon footprint refers to the total greenhouse gas (GHG) emissions of a given person’s, business’s, or another entity’s activity.
It covers both direct emissions, such as those produced when fossil fuels are used in manufacturing, heating and transportation, in addition to indirect emissions resulting from the production of electricity used to power services and goods. However, most of the time, it is difficult to quantify the overall carbon footprint precisely due to a lack of information on the intricate interconnections between the systems that contribute to it, including the impact of natural processes that absorb or release carbon dioxide.

3. Climate Change Mitigation

Climate Change Mitigation refers to efforts to reduce or prevent the emission of greenhouse gases. Mitigation can mean using new technologies and renewable energies, making older equipment more energy efficient, or changing management practices or consumer behaviour. It can be as complex as a plan for a new city, or as simple as improvements to a cookstove design. Efforts underway around the world range from high-tech subway systems to bicycling paths and walkways.

4. Closed Loop Supply Chain

A supply chain system in which products and materials are recycled, reused, or remanufactured to minimise waste and maximise resource efficiency. It aims to create a circular flow of materials, reducing the need for raw material extraction.

5. Corporate Social Responsibility (CSR)

Generally used to describe the intersection between a company’s governance and its ethical obligations to the communities with which it interacts.

6. Environmental, Social and Governance (ESG)

General term for sustainable practices, often used by financial firms.

Environmental

Environmental criteria include a company’s use of renewable energy sources, its waste management program, how it handles potential problems of air or water pollution arising from its operations, deforestation issues (if applicable), and its attitude and actions around climate change issues.

Other possible environmental issues include raw material sourcing (e.g., does the company use fair trade suppliers and organic ingredients?) and whether a company follows biodiversity practices on land it owns or controls.

Social

Social criteria cover a vast range of potential issues. There are many separate social aspects of ESG, but all of them are essentially about social relationships. One of the key relationships for a company, from the point of view of many socially responsible investors, is its relationship with its employees.

Governance

Governance, in the context of ESG, is essentially about how a company is managed by those in the top floor executive offices. How well do executive management and the board of directors attend to the interests of the company’s various stakeholders – employees, suppliers, shareholders, and customers? Does the company give back to the community where it is located?

7. ESG Analysis

ESG Analysis refers to the process of evaluating a company’s environmental, social and governance policies and practices. This helps identify any potential risks or opportunities associated with those areas, including climate change. By considering ESG factors, businesses can make better decisions that may help the environment and their shareholders in the long run.

8. ESG Fund

ESG funds are bond and equity portfolios that give ESG factors top priority in the investment processes. They focus on investments with strong sustainability ratings while ignoring those with serious ESG problems, such as track records for pollution and labour unrest.

9. ESG Integration

In sustainable/green finance “ESG integration” refers to the systematic and explicit inclusion of material ESG factors into investment analysis and investment decisions. ESG Integration alone does not prohibit any investments.

Such strategies could invest in any business, sector or geography as long as the ESG risks of such investments are identified and taken into account.

10. ESG Rating

These ratings are provided by agencies that collate data based on public information, third party research, company reports and direct engagement.

There are many agencies that offer this service, with no standardised approach to scoring. This has been one of the major criticisms of the rating system. Providers offer no transparency on their data collection methods, citing that the methods they use are commercially viable and need to be kept secret.

There is therefore little indication of the research method and weight given to each category, posing a problem for both investors and businesses. To try and combat this investors generally use multiple agencies to cover issues they are concerned with.

11. Global Reporting Initiative (GRI)

The Global Reporting Initiative (known as GRI) is an independent, international organisation that helps businesses and other organisations take responsibility for their impacts, by providing them with the global common language to communicate those impacts. GRI reporting software provides the world’s most widely used standards for sustainability reporting – the GRI Standards.

12. GRI Standards

The GRI Standards create a common language for organisations – large or small, private or public – to report on their sustainability impacts in a consistent and credible way. This enhances global comparability and enables organisations to be transparent and accountable.

The Standards help organisations understand and disclose their impacts in a way that meets the needs of multiple stakeholders. In addition to reporting companies, the Standards are highly relevant to many other groups, including investors, policymakers, capital markets, and civil society.

The Standards are designed as an easy-to-use modular set, starting with the Universal Standards. Topic Standards are then selected, based on the organisation’s material topics – economic, environmental or social. This process ensures that the sustainability report provides an inclusive picture of material topics, their related impacts, and how they are managed.

13. Greenwashing

When a company’s management team makes inaccurate, unsupported, or blatantly deceptive claims about the sustainability of a product or service, or even about business operations in general, this is known as “greenwashing.” When management lacks expertise or awareness, greenwashing might happen accidentally. However, it can also happen on purpose through marketing strategies.

14. Integrated Reporting

The notion of producing a complete report that combines the two streams of data that most businesses publish. For example, sustainability data in a Corporate Responsibility Report and financial data in an annual report.

An integrated report integrates traditional sustainability statistics into the company’s strategy and financial outcomes. It also converts sustainability goals into KPIs and generates revenue.

15. Impact Investing

Impact investing is the conscious act of making investments with the intent of making a good impact on the environment or society while also generating a profit. Selecting businesses that can support the UN’s Sustainable Development Goals (SDGs) is one of the most common types of impact investing.

16. ISO 26000

International Organization for Standardization Standard 26000. The ISO publishes many different operational standards for companies, with ISO 26000 covering “socially responsible” processes that companies may implement and report.

17. Scope I Emissions

Scope I emissions are greenhouse gas emissions that your company is directly responsible for, such as emissions from on-site burning of fossil fuels or emissions from fleet vehicles.

18. Scope II Emissions
Scope II emissions are greenhouse gas emissions from sources that your company owns or controls, such as the generation of electricity, heat, or steam purchased from a utility provider.

19. Scope III Emissions

Scope III emissions are greenhouse gas emissions from sources your company doesn’t own or control but are related to your operations, such as employee commuting or contracted solid waste and wastewater disposal.

20. Supply Chain Transparency

The extent to which information about the processes, practices, and impacts within a supply chain is readily available and accessible. Transparent supply chains enable stakeholders to make informed decisions and hold organisations accountable.

21. Sustainable Development Goals (SDGs)

The Sustainable Development Goals SDGs are a set of 17 goals set out by the United Nations General Assembly to be reached by 2030. The goals are aimed at resolving complex economic, social and environmental issues at a global level as listed below:

The goals are broad in scope and interdependent and each goal is split out into 169 targets and 232 unique indicators (up to 3 per target) as a measure of progress. Most companies chose to focus efforts on a few select goals based on materiality and impact.

With reference to:
https://www.greenstoneplus.com/resources/esg-responsible-investing/esg-glossary; https://esg.conservice.com/esg-solutions/esg-glossary/; https://worldly.io/resources/esg-glossary/ and https://www.velaw.com/esg-glossary/

Prepared by Danielle John

ESG Project Intern for Shanti Abraham & Associates