Last updated March 2025
Our ESG & Sustainability glossary consists of key terms that are defined and explained by our team of sustainability experts. We hope it will assist you in navigating the intriguing and multi-faceted world of sustainability and ESG reporting. Our team will continue to update this glossary as new terms come to light. We will also continue to expand and refine it to ensure it remains a valuable resource for you.
Biodiversity
The variety of life in the world or a particular habitat or ecosystem. In ESG, it refers to a company’s impact on natural ecosystems and its commitment to conservation efforts.
More on Measuring Biodiversity Impact and Risk: A New Focus in ESG Disclosure.
Carbon Footprint
The term Carbon footprint refers to the total greenhouse gas emissions of a given person’s, business’s, or another entity’s activity.
It covers direct emissions, such as those produced when fossil fuels are used in manufacturing, heating, and transportation. It also covers 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.
Carbon Neutral
For a project or organization 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.
Carbon Offsets
Offsets are a way to balance out greenhouse gas emissions by funding projects that reduce or remove an equivalent amount of CO₂ or other gases from the atmosphere. These projects can include renewable energy, reforestation, or methane capture, and their impact is measured in tons of CO₂ equivalent (CO₂e). When an organization buys offsets, they compensate for their own emissions, aiming for a net-zero impact.
However, offsets must meet criteria like:
- additionality (emission reductions that wouldn’t happen otherwise)
- permanence (long-term impact) to be effective
While offsets can help mitigate climate change, they are not a substitute for directly reducing emissions and require careful oversight to ensure credibility.
Circular Economy
Circular economy refers to a framework for systems solutions that address issues including pollution, waste, the loss of biodiversity, and other major global crises. It is built on three design-driven tenets: eradicating waste and pollution, distributing goods and resources at their best value, and regenerating the natural world. A switch to sustainable materials and energy serves as its foundation. Decoupling economic activity from the exploitation of limited resources is necessary to move toward a circular economy. This reflects a structural change that fosters long-term adaptability, creates commercial and economic opportunities, and benefits society, the environment, and all living things.
More on How to Build a Circular Economy | Ellen MacArthur Foundation
Climate Change Mitigation
This term 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 behavior. 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.
Climate-related Opportunity
In line with the Task Force on Climate-related Financial Disclosures (TCFD), this refers to the potential positive impacts on an organization resulting from efforts to mitigate and adapt to climate change, such as through resource efficiency and cost savings, the adoption and utilization of low-emission energy sources, the development of new products and services, and building resilience along the supply chain. Climate-related opportunities will vary depending on the region, market, and industry in which an organization operates.
Climate-related Risk
In line with the Task Force on Climate-related Financial Disclosures (TCFD), this refers to the potential negative impacts of climate change on an organization. Physical risks emanating from climate change can be event-driven (acute) such as increased severity of extreme weather events (e.g. cyclones, droughts, floods, and fires). They can also relate to longer-term shifts (chronic) in precipitation, temperature and increased variability in weather patterns (e.g. sea level rise). Climate-related risks can also be associated with the transition to a lower-carbon global economy, the most common of which relate to policy and legal actions, technology changes, market responses, and reputational considerations.
Decarbonization
The process by which CO₂ emissions associated with electricity, industry, and transport are reduced or eliminated.
“Consume less, consume better” can be summarized as one of the finest approaches to decarbonize:
- by striving for energy efficiency when running factories, heating buildings, running our vehicles, etc.;
- by putting a strong emphasis on a strategy that entails lowering energy usage and is geared toward achieving energy sufficiency;
- by utilizing sources of renewable energy. Natural gas will eventually take the place of more polluting fuels like coal and oil used to produce power and heat in the short and medium term. Green gases, biogas, and hydrogen – renewable and made, for example, from organic waste – will displace natural gas in the long run; and
- by creating methods to capture and store CO2, we can protect carbon sinks, or the naturally occurring ecosystems (such as soil, forests, etc.) that absorb carbon.
More on Net Zero and Decarbonization: Your Starting Guide.
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, refers to a company’s leadership, ethics, risk management, and transparency. 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?
More on The Importance of the “G” in ESG
ESG Analysis
This term 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. Businesses that consider ESG factors can make better decisions that may help the environment and their shareholders in the long run.
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 labor unrest.
ESG Integration
In sustainable/green finance this term 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. This is as long as the ESG risks of such investments are identified and considered.
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 standardized 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.
Through our advisory services, we help with audit and third-party verification support, including third-party audit preparation, support during the audit process, direct auditor engagement, and audit report review.
Financed Emissions
Greenhouse gas emissions associated with financial institutions’ lending and investment activities, as measured under the PCAF (Partnership for Carbon Accounting Financials) framework.
More on Measuring GHG Emissions and Managing ESG Data Across Investments
GHG Inventory
An inventory of greenhouse gases (GHGs) is a list of emission sources and the corresponding emissions that have been calculated using standardized techniques.
There are many reasons why businesses create GHG inventories, including:
- managing the dangers posed by GHGs and locating possibilities for reduction
- taking part in GHG programs, either voluntarily or mandated
- engaging in GHG markets
- getting credit for quick volunteer action
Green Investing
Conventional investments (stocks, exchange-traded funds, and mutual funds) that are considered “green investments” have underlying companies that are in some way engaged in activities that try to better the environment.
Greenhouse Gases
In line with the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) and amendment issued by the Greenhouse Gas Protocol on May 2013 the basket of greenhouse gases (GHGs) consists of:
- carbon dioxide (CO₂)
- methane (CH4)
- nitrous oxide (N2O)
- hydrofluorocarbon family of gases (HFCs)
- perfluorocarbon family of gases (PFCs)
- sulfur hexafluoride (SF6)
- nitrogen trifluoride (NF3)
Nitrogen trifluoride (NF3) is now considered a potent contributor to climate change and is therefore mandated to be included in national inventories under the UNFCCC. NF 3 should also be included in GHG inventories under the GHG Protocol Corporate Standard, and the GHG Protocol Corporate Value Chain (Scope 3) Standard.
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. When management lacks expertise or awareness, greenwashing might happen accidentally. However, it can also happen on purpose through marketing strategies.
More on Spotting Greenwashing: What You Need to Know and Why It Matters
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.
Impact Investing
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.
Materiality Assessment
A process used to identify and prioritize sustainability issues that are most relevant to a company and its stakeholders.
More on Materiality in ESG Reporting: What You Need to Know
Net Zero
Also known as Net Zero Carbon or Carbon Neutral, this refers to a state where any remaining CO₂ and GHG emissions after decarbonization are offset by an equivalent number of negative emissions, removing CO₂ from the atmosphere and resulting in no net GHG impact. These offsets must actively remove carbon rather than merely avoiding emissions elsewhere, which is permitted under the carbon neutrality specification. Currently, no universal standard defines Net Zero Carbon for organizations, products, or countries, though multiple entities, such as the Science Based Targets initiative, have proposed working definitions.
Net-Zero Target
A Net-Zero Target refers to reaching net-zero carbon emissions by a selected date. It differs from zero carbon, which requires no carbon to be emitted as the key criterion. Net zero refers to balancing the amount of emitted greenhouse gases with the equivalent emissions that are either offset or sequestered.
Renewable Energy
The GHG Protocol provides the following definition: “Energy taken from sources that are inexhaustible, e.g. wind, water, solar, geothermal energy, and biofuels.”
On the other hand, fossil fuels, such as coal, oil, and gas, are non-renewable resources that require hundreds of millions of years to develop. When fossil fuels are used to create energy, they release dangerous greenhouse gases like carbon dioxide. When compared to burning fossil fuels, producing electricity from renewable sources produces far fewer emissions. The most effective way to combat the climate catastrophe is to switch from fossil fuels, which now produce the majority of emissions, to renewable energy. In the majority of nations, renewables are now more affordable and create three times as many jobs as fossil fuels.
Renewable Energy Certificates (RECs)
Renewable Energy Certificates (RECs) are a market-based instrument that certifies the bearer owns one megawatt-hour (MWh) of electricity generated from a renewable energy resource.
Responsible Investment
The Principles for Responsible Investment (PRI), a UN-supported network of investors that works to promote sustainable investment. It defines responsible investment as a strategy and practice to incorporate ESG factors in investment decisions and active ownership.
There are numerous methods to responsibly invest. Most approaches combine the following two main categories:
- Taking into account ESG issues when building a portfolio, also known as ESG incorporation. Current investment strategies can combine ESG issues by using three different methods: integration, screening, and thematic.
- ESG performance improvement, also referred to as active ownership or stewardship. Investors can persuade businesses they already own stock in to enhance their ESG risk management or adopt more environmentally friendly business practices.
Science-Based Target
Science-based are targets that are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement. Currently the goal is to limit global warming to well below 2°C above pre-industrial levels. In addition, it is encouraged to pursue efforts to limit warming to 1.5°C.
Science-based targets provide a clearly defined pathway for companies to reduce GHG emissions. This will help prevent the worst impacts of climate change and future-proof business growth.
Scope 1, Scope 2, Scope 3 Emissions
The GHG Protocol classifies a company’s GHG emissions into three categories or ‘scopes’, to unify the reporting and accounting of emissions worldwide.
Scope 1 Emissions
Cover all direct emissions from owned or controlled sources, such as energy consumption, fuels, vehicles, etc.
Scope 2 Emissions
Cover indirect emissions from the generation of purchased electricity, steam, heating or cooling energy consumed by the company.
Scope 3 Emissions
Cover all indirect emissions in the reporting company’s value chain, beyond its operational control, covering both upstream and downstream emissions. Since Scope 3 emissions stem from assets the company doesn’t own, they may originate from another company’s Scope 1, 2, or even 3 emissions. Scope 3 emissions fall into 15 categories, grouped into upstream and downstream types.
More on Scope 3 Emissions Reporting & Where to Start
Socially Responsible Investing (SRI)
SRI is a type of investment approach that strives to produce both social change and financial gains for the investor. Businesses that have a sustainable or positive social impact can be included in socially responsible investments. Conversely, those having a negative impact can be excluded.
Sustainable Finance
This term refers to the process of taking ESG considerations into account when making investment decisions in the financial sector. This leads to more long-term investments in sustainable economic activities and projects.
The policy context of the EU defines sustainable finance as financial support for economic growth. At the same time, it is lowering environmental constraints and considering social and governance factors. Transparency on the risks associated with ESG elements that could influence the financial system is a component of sustainable finance, as is the mitigation of such risks through responsible corporate and financial governance.
XBRL (eXtensible Business Reporting Language)
This is an XML-based open standard designed for the efficient communication and electronic exchange of financial and business data. It allows companies to tag financial information with standardized labels, making it easier to collect, analyze, and share data across different systems and platforms. XBRL structures financial reports in a machine-readable format. This enhances transparency, reduces errors, and improves the accuracy and speed of financial analysis. Regulators, businesses, and investors are often the most frequent users. XBRL enables them to streamline reporting processes, ensure compliance with regulatory requirements, and facilitate better decision-making through accessible and comparable financial data.
