ESG Glossary

ESG Glossary

B Corp: A B Corp is an organization that has successfully completed the certification put forth by the nonprofit B Labs. B Corps can only be for-profit organizations, and they must meet B Labs’ standards for social and environmental performance, accountability and transparency. The B Corp certification is a distinction for social responsibility, much like fair trade or organic. Though for-profit social enterprises can apply for B Corp certification, B Corps don’t necessarily have to be social enterprises.

Blue washing: Blue washing refers to the practice of businesses to sign up for the UN global compact and use their association with the United Nations to enhance their image and shift attention from their controversial business practices.[1]

Carbon footprint: The CO2 equivalent of the total greenhas gas emissions caused by a person or organization

Carbon neutrality: A target set by companies or states to even out the emitted GHG by means of carbon offsetting, carbon capturing, etc. It covers only the company’s activities, and Scope 1 and 2. It aims to balance off whatever is emitted, it does not prioritize changes in the business model to reduce its emissions significantly.

Carbon offsetting: An action that removes carbon from the atmosphere or reduces emissions, in order to compensate for heavy emissions made elsewhere

CBI: Climate Bonds Initiative. An international, investor-focused not-for-profit project. An organisation working solely on mobilising the $100 trillion bond market for climate change solutions. It developes the Climate Bonds Standard and Certification Scheme, Policy Engagement and Market Intelligence work.[2]

CDM: Clean Development Mechanism. A carbon offset scheme run by UN. It allows a country to fund emission-reduction projects in another country, so that the sponsoring country can claim a part in lowered emissions and get closer to international emission targets. The CDM is supervised by the CDM Executive Board (CDM EB) under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).

CDP: Carbon Disclosure Project. CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. It allows organizations and cities to report on climate, water and forest topics through a detailed questionnaire. A company can voluntarily sign up to be rated by CDP for its performance. It also has its own reporting standards. It is a specialized data provider and a reporting framework. It can request information from corporations and rate them.

CDSB: Climate Disclosures Standards Board. A non-profit organization working to provide material information for investors and financial markets through the integration of climate change-related information into mainstream financial reporting. It has its own reporting framework. In November 2021, during COP26, it is decided to consolidate CDSB into IFRS, and in Q1 2022, consolidation took place. CDSB had created its own reporting framework for reporting environmental information, natural capital and associated business impacts. It used to adopt and rely on relevant provisions of existing standards and practices, including the TCFD recommendations and International Financial Reporting Standards as well as reflecting regulatory and voluntary reporting and carbon trading rules. The distinctiveness of the Framework was that it referenced to existing standards instead of creating new ones. After the consolidation into IFRS, CDSB framework will cease to exist as a separate reporting framework.

CER: Certified Emission Reductions. Issued by CDM (Clean Development Mechanism). One CER represents the successful emissions reduction equivalent to one tonne of carbon dioxide equivalent (tCO2e). In 2008, price of 1 CER was $20. In 2018, it was €8. In 2019, €25.[3]

Circular economy: A model of production and consumption that extends the life cycle of products, through encouragement of sharing, leasing, reusing, repairing, refurbishing, and recycling.[4]

COP26:           The 26th United Nations Climate Change Conference / UNCCC. The conference is set to incorporate the 26th Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change.

Corporate disclosure guidelines: Help investors and other stakeholders access company data on ESG risks and opportunities. Can be voluntary or mandatory, governmental or private initiatives.

CSR: Corporate Social Responsibility. A company’s perception of responsibility towards society and environment and the volunteer acts it carries out through that perspective.

CSRD: Corporate Sustainability Reporting Directive. Announced in April 2021 to replace NFRD. The obligation coverage expanded from 11,700 companies to 49,000 companies; all large companies and all companies listed on regulated markets (except listed micro-enterprises). It requires the audit (assurance) of reported information. It introduces more detailed reporting requirements, and a requirement to report according to mandatory EU sustainability reporting standards. The mandatory reporting standards will be developed by EFRAG (European Financial Reporting Advisory Group) possibly by the end of 2022. It requires companies to digitally ‘tag’ the reported information, so it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.[5]

Difference between a social entreprise, B corp and public benefit corporation:   Social enterprise refers to a business model, B Corp refers to a certification and public benefit corporation refers to a legal incorporation type. Social enterprises, B Corps and public benefit corporations are not mutually exclusive entities – an organization can be all three if they marry a social mission with a market approach, successfully complete the B Labs certification and incorporate as a public benefit corporation in their state. In the same vein, an organization can be a social enterprise but not necessarily a B Corp or public benefit corporation, and vice versa.[6]

Difference between Net zero target and carbon neutrality: Apart from the specification needed for net zero CARBON or EMISSIONS; carbon neutral refers to a policy of not increasing carbon emissions and of achieving carbon reduction through offsets. While Net-zero carbon means making changes to reduce carbon emissions to the lowest amount – and offsetting as a last resort. The offsetting is used to counteract the essential emissions that remain after all available reduction initiatives have been implemented.[7]

Double materiality: Assessment of an issue’s significance from 2 angles: both its impact on the company, and the impact on environment and society, caused by the company

Doughnot economy: An economic model for human prosperity in the 21st century, with the aim of meeting the needs of all people within the means of the living planet. The Doughnut consists of two concentric rings: a social foundation, to ensure that no one is left falling short on life’s essentials, and an ecological ceiling, to ensure that humanity does not collectively overshoot the planetary boundaries that protect Earth’s life-supporting systems. Between these two sets of boundaries lies a doughnut-shaped space that is both ecologically safe and socially just: a space in which humanity can thrive.[8]

EFFAS: European Federation of Financial Analysts Societies. In 2008, they published a set of Key Performance Indicators to help companies and analysts integrate ESG information into financial reporting and analysis.

EFRAG:           European Financial Reporting Advisory Group. A private association established with the encouragement from European Commission. EFRAG carries its assessments of IFRS throughout the standard-setting process.

ESG: Environmental, Social, Governance. The 3 pillars of sustainable development, which allow grouping issues for their impact on the nature, humanity and business ethics.

ETS: Emissions Trading Scheme. A trading scheme / standard drafted in 2005 by EU concerning greenhouse gas emissions. It acts like a stock exchange for “right to emit GHG” or sell the surplus (of the allowed emission quota) to other companies.

EU Taxonomy: It is an EU classification system desgined by the TEG on Sustainable Finance to determine whether an economic activity is environmentally sustainable. A social taxonomy is also being created for the same purpose. European companies are required to use the taxonomy while disclosing corporate sustainability information.

EUGBS:           EU Green Bond Standard. It was a recommendation by HLEG and it was created based on recommendation by TEG. It is a voluntary standard to help scale up and raise the environmental ambitions of the green bond market. this proposed Regulation will set a gold standard for how companies and public authorities can use green bonds to raise funds on capital markets to finance such ambitious large-scale investments, while meeting tough sustainability requirements and protecting investors.[9]

European Green Deal: A parent commitment in the form of a set of policy initiatives by European Commission to meet the goals of Paris Agreement, which is briefly a carbon-neutral Europe by 2050.

European Pension Directive: Another name is IORP (Institutions for Occupational Retirement Provision) Directive, it aims to facilitate the development of occupational retirement savings and to provide sustainable and adequate occupational pensions to the European citizens.[10]

EuroSIF: European Sustainable Investment Forum. A European coalition for the promotion and advancement of sustainable and responsible investment across Europe, for the benefit of its members. Eurosif members are local Sustainable Investment Forums, which are membership-based sustainable and responsible investment organisations.

Externality: A positive or negative outcome of a company activity, where a third party is affected by that outcome and not the company.

Fit for 55: A part of the European Green Deal, Fit for 55 is an intermediate step towards climate neutrality (to be reached by 2050 by EU). The EU has raised its 2030 climate ambition, committing to cutting emissions by at least 55% by 2030.

FSB: Financial Stability Board. It is an international coalition that monitors and makes recommendations about the global financial system. It coordinates national financial authorities and international standard-setting bodies as they work toward developing strong regulatory, supervisory, and other financial sector policies. It was established after the G20 London summit in April 2009. Members are all G20 major economies, FSF members, and the European Commission.[11]

GHG Protocol: Greenhouse Gas Protocol. It is a partnership between World Resources Institute and WBCSD (World Business Council for Sustainable Development). GHGP is acknowledged worldwide for providing GHG accounting and reporting standards, sector guidance, calculation methodology and tools, and trainings for businesses and government.

Global Compact: A voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals.[12] Local networks, such as Global Compact France, advances the principles at country level. It has no pre-defined reporting guidelines or enforcement positions. It is an initiative to develop governing principles, but it does not evaluate companies.

Green bonds: A fixed-income instrument, the primary aim of which is to support environmental projects or entreprises.

Green financing: Green financing is to increase level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities.[13]

Green funds: A green fund invests its assets in sectors and activities that benefit the environment, incorporating specific investment selection strategies into its investment decisions and processes.[14]

Green growth: Green growth means fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies.[15]

Greenwashing:            A communication approach which falsely suggests that an organization has environmentally friendly products and policies or exaggerates its positive green impact.

GRI: Global Reporting Initiative. An independent, international organization that created a set of standards through which companies can report the impact of their actions. It is the most-widely used framework in the world.[16]

HLEG on Sustainable Finance: High Level Expert Group on Sustainable Finance. Established by EU Commission in Dec 2016. The HLEG comprised 20 senior experts from civil society, the finance sector, academia, and observers from European and international institutions. The group was mandated to provide advice to the Commission on how to steer the flow of public and private capital towards sustainable investments identify the steps that financial institutions and supervisors should take to protect the stability of the financial system from risks related to the environment deploy these policies on a pan-European scale.[17]

ICGN: International Corporate Governance Network. An investor-led coalition, with a mission to promote effective standards of corporate governance and investor stewardship to advance efficient markets and sustainable economies worldwide.[18] Led by investors responsible for assets under management in excess of US$59 trillion.

IIRC: International Integrated Reporting Council. A work group that developed the Integrated Reporting Framework. Merged with SASB in late 2020, the new name of the merged organization is called Value Reporting Foundation. IR framework and SASB standards are to be kept as complementary tools.

Impact investment: Funding a project, company or an organization with the intention to generate tangible, positive social and/or environmental impact.

IOSCO: International Organization of Securities Commission. The leading international policy forum for securities regulators and is recognized as the global standard setter for securities regulation. The organization’s membership regulates more than 95% of the world’s securities markets in some 130 jurisdictions, and it continues to expand.

IPCC: The Intergovernmental Panel on Climate Change. The United Nations body which was created to provide policymakers with regular scientific assessments on climate change, its implications, and potential future risks, as well as to put forward adaptation and mitigation options. Created in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP). It published the first part of the Sixth Assessment Report in 2021, the second part in February 2022, with a completion date planned for late 2022.[19]

ISSB: International Sustainability Standards Board. It is the sustainability arm of IFRS and has the mission to set sustainability reporting standards. It is officially launched in November 2021, during COP26. It is decided that VRF (SASB + IIRC) and CDSB shall consolidate entirely into ISSB.

Materiality: The significance of an issue based on its potential impact on a company

Net zero target: A target set by companies, organizations or states to reduce their GHG emissions. It covers the entire value chain, not only the company’s activities, but its suppliers and customers as well. So, it aims to remove emissions from all 3 scopes. It requires changes in the business model or technology to reduce the emission. Offsetting is the last resort.[20]

NFRD: Non-Financial Reporting Directive. Also called EU Accounting Directive, came into effect in 2014. Certain type of companies were asked to disclose information regarding environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery, board diversity. This obligation covered large, public companies with more than 500 employees, which meant 11,700 large companies and groups across the EU. Some guidelines were also shared, but they were not mandatory to follow, and companies were left free to choose international, European or national guidelines to report non-financial info.

Non-financial reporting or extra-financial reporting: Formal disclosure of information on company activities or status, which is not solely or directly based on financial figures.

OECD Principles of Corporate Governance: A set of standards aiming to help policy makers evaluate and improve the legal, regulatory, and institutional framework for corporate governance, with a view to supporting economic efficiency, sustainable growth, and financial stability. Endorsed by both G20 and OECD.[21]

Paris Agreement: Paris Accords / Paris Climate Accords: An international treaty on climate change, covering the climate change mitigation, adaptation, and finance. As of July 2021, 190 states -causing 95% of anthopogenic emissions- ratified or acceded to the Agreement. Goal is to keep the rise of mean temparature below 2°C, preferably at 1.5°C, and reach net-zero by 2050. It has no official enforcement power over signitory countries, which can withdraw whenever they want. Difference from Kyoto Protocol is that Paris Agreement does not show that much tolerance to developing countries and asks them to set and submit emission reduction goals, like it is the case for developped countries.

Pink washing: Emphasizing company’s support for LGBT rights, despite not making genuine efforts to erase sexual discrimination.[22]

PRI: Principles for Responsible Investment. A UN-supported network of global, institutional investors who voluntarily sign in and commit to sustainable finance practices. Once in, they need to follow the 6 principles in their investment decisions and submit a mandatory annual report. It is a coalition that sets governing principles but does not evaluate companies.

Public Benefit Corporation: A public benefit corporation is a legal incorporation available only in certain states that allows organizations to identify a purpose beyond maximizing shareholder value. Becoming a public benefit corporation “protects mission through capital raises and leadership changes, creates more flexibility when evaluating potential sale and liquidity options, and prepares businesses to lead a mission-driven life post-IPO,” according to benefitcorp.net. Public benefit corporation legislation varies from state to state. To learn more about becoming a public benefit corporation, click here: http://benefitcorp.net/businesses/how-become-benefit-corporation.

SASB: Sustainability Accounting Standards Board. A non-profit organization founded in 2011 by an individiual to develop sustainability accounting standards. It is adopted mostly by US companies. It is known for its materiality matrix that focuses on the financially material issues per industry. Late 2020, it merged with IIRC and formed Value Reporting Foundation. In 2021, they announced an upcoming incorporation of XBRL. In June, it will consolidate into ISSB.

SBTi: Science Based Targets initiative. It is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). It shows how much and how quickly companies need to reduce their greenhouse gas (GHG) emissions to prevent the worst effects of climate change.

Scope 1: Direct emissions caused by combustion of fuels at company premises or vehicles, and fugitive emissions from airconditioners & refrigerators at company premises

Scope 2: Indirect emissions caused due to the production of electricity, heat or steam purchased by the company.

Scope 3           : Other indirect emissions caused due to the company activities but by sources which are not owned or controlled by the company.

SECR: Streamlined Energy and Carbon Reporting. It is a requirement for UK companies concerning mandatory annual reporting and disclosure of energy and carbon information. SECR came into effect in 2019. It is mandatory for large companies that meet certain criteria. It is part of other mandatory reports required from UK companies. It is in line with TCFD recommendations. SECR does not provide a fixed template for reporting, it only specifies what information must be disclosed by the company.

SFAP: EU Sustainable Finance Action Plan. It was launched European Commission in 2018.[23] It is part of broader efforts to connect finance with the specific needs of the European and global economy for the benefit of the planet and the society. It planned the creation of the EU Taxonomy.

SFDR: Sustainable Finance Disclosure Regulation. It is an EU regulation that lays down sustainability disclosure obligations for manufacturers of financial products and financial advisers toward end-investors.[24]

SFF: Sustainable Finance Framework. It can be used as a generic term in the context of a set of regulations and initiatives concerning sustainable finance. EU, sovereign states, financial institutions like banks can define their own Sustainable Finance Framework.

SGD Compass: It is a guide with an objective to help companies align their strategies as well as measure and manage their contribution to the SDGs. It is developed by UN Global Compact, the Global Reporting Initiative (GRI) and World Business Council for Sustainable Development (WBCSD). It is a collection of resources (analysis of the goals, indicators for businesses, tools for stakeholders) that companies can utilize in finding out their role in helping to achieve the SDGs.

Sin stocks: Shares in companies that operate in gambling, alcohol, tobacco, adult entertainment or weapon manufacturing

Social entreprise: Social Enterprise Alliance defines a social enterprise as an organization or initiative that marries the social mission of a nonprofit or government program with the market-driven approach of a business.[25] A hybrid model, social enterprises address critical unmet basic needs in society through business. They can be nonprofit or for-profit organizations. Social enterprise is not a distinct legal entity – it is instead an ideological spectrum marrying commercial approaches with social good.

Social washing: Similar to greenwashing, an organization falsely suggests that is a socially-conscious company, but it does not make tangible efforts in the direction.[26]

SRI: Socially Responsible Investment. An investment approach that aims positive or neutral impact in environmental or social issues, alongside a financial return.

SSE: UN Sustainable Stock Exchanges Initiative. A project that promotes corporate investment in sustainable development.

SSF: Swiss Sustainable Finance Association. Currently SSF unites around 180 members and network partners from financial service providers, investors, universities and business schools, public sector entities and other interested organisations. Member of Eurosif.

Stewardship codes: Voluntary guidelines for interaction between investor and investee, based on “comply or explain” principle.

Stranded Assets: Stranded assets are defined as assets that have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities. In recent years, the issue of stranded assets caused by environmental factors, such as climate change and society’s attitudes towards it, has become increasingly high profile.[27]

Sustainability: A management approach that cares for the future needs of a company, society and the Earth while attending to the present-day business.

Sustainable finance: A finance strategy that involves environmental, social and governance (ESG) considerations in investment decisions

TCFD: Task Force on Climate-related Financial Disclosures. It is created by the Financial Stability Board to develop recommendations for more effective climate-related disclosures that could promote more informed financial decisions.[28] In 2017, the TCFD released climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation.

TEG on Sustainable Finance: Technical Expert Group on sustainable finance. It was established by the European Commission in 2018. Its 35 members from civil society, academia, business, and the finance sector, as well as additional members and observers from EU and international public bodies work both through formal plenaries and subgroup meetings for each workstream. TEG develops the EU Taxonomy, EU Green Bond Standard, EU climate Benchmarks and disclosures for benchmarks and Climate-related disclosures.

Triple bottom line: A way of measuring a company’s positive or negative impacts on society and environment, in addition to its financial success.

UN 2030 Agenda for Sustainable Development:     Launched during a UN Summit in 2015, introduced the 17 Sustainable Development Goals (SDGs) and 169 associated targets. It seeks a world of universal respect for human rights and human dignity, environment, the rule of law, justice, equality, and non-discrimination.

UNEP FI :UN Environment Programme Financial Initiative. The United Nations Environment Programme (UNEP) is the leading global environmental authority that sets the global environmental agenda, promotes the coherent implementation of the environmental dimension of sustainable development within the United Nations system, and serves as an authoritative advocate for the global environment.[29] UNEP FI is a partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development.[30] UNEP FI works with more than 400 members – banks, insurers, and investors – and over 100 supporting institutions – to help create a financial sector that serves people and planet while delivering positive impacts.

UNFCCC: United Nations Framework Convention on Climate Change / UN Climate Change. It is the first multilateral agreement on climate change. First meeting was held in 1994. It is the parent treaty of Paris Agreement, COP26 and Kyoto Protocol.

US EPA: USA Environmental Protection Agency. A US government agency that has the responsibility of setting federal, industy-specific regulations. It also provides technical information on environmental topics, such as emission inventory, water use, pesticide details, etc.

WBCSD: World Business Council for Sustainable Development. A CEO-led coalition of over 200 international companies. Membership granted for a fee and examination of the company commitment to sustainable development.

References

[1] https://www.abtmarkets.com/abt-blog/green-blue-pink-and-social-corporate-washing

[2] https://www.climatebonds.net/

[3] https://www.fairclimatefund.nl/en/news/from-30-eurocents-to-25-euros-the-price-of-a-tonne-of-co

[4] https://www.europarl.europa.eu/news/en/headlines/economy/20151201STO05603/circular-economy-definition-importance-and-benefits

[5] https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

[6] https://socialenterprise.us/resources/news/b-corps-public-benefit-corporations/

[7] https://www.renewableenergyworld.com/policy-regulation/difference-between-net-zero-and-carbon-neutral-policies/#gref

[8] https://doughnuteconomics.org/about-doughnut-economics

[9] https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/european-green-bond-standard_en

[10] https://www.pensionseurope.eu/iorp-ii-directive

[11] https://www.fsb.org/about/

[12] https://www.unglobalcompact.org/about

[13] https://www.unep.org/regions/asia-and-pacific/regional-initiatives/supporting-resource-efficiency/green-financing

[14] https://www.bourse.lu/green-funds

[15] https://www.oecd.org/greengrowth/whatisgreengrowthandhowcanithelpdeliversustainabledevelopment.htm

[16] https://www.globalreporting.org/media/mlkjpn1i/gri-sasb-joint-publication-april-2021.pdf

[17] https://ec.europa.eu/info/publications/sustainable-finance-high-level-expert-group_en

[18] https://www.icgn.org/about

[19] https://www.ipcc.ch/about/

[20] https://www.dezeen.com/2021/06/22/carbon-trust-net-zero-carbon-neutrality-difference-interview/

[21] https://www.oecd.org/corporate/principles-corporate-governance/

[22] https://www.abtmarkets.com/abt-blog/green-blue-pink-and-social-corporate-washing

[23] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52018DC0097

[24] https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/sustainability-related-disclosure-financial-services-sector_en

[25] https://socialenterprise.us/resources/news/b-corps-public-benefit-corporations/

[26] https://www.abtmarkets.com/abt-blog/green-blue-pink-and-social-corporate-washing

[27] https://www.lloyds.com/strandedassets

[28] https://www.fsb-tcfd.org/about/

[29] https://www.unep.org/about-un-environment

[30] https://www.unepfi.org/about/