Navigating the ESG Landscape: A Comprehensive Glossary

In the rapidly evolving world of Environmental, Social, and Governance (ESG), understanding the terminology is crucial for businesses and individuals alike. Here’s a concise and digestible glossary to help you navigate the ESG landscape:

Air Quality Index (AQI)

To understand the quality of the air we breathe, the Air Quality Index (AQI) serves as a simple and comprehensive measure. The AQI provides a clear snapshot of air pollution levels in a specific area, combining various pollutants into one easy-to-understand metric. Each country’s AQI is tailored to its unique air quality standards.

Air Pollution

Air pollution has wide-reaching impacts on health and the environment. It refers to harmful contaminants—physical, chemical, or biological—released into the atmosphere. It’s closely linked to climate change and primarily caused by activities like burning fossil fuels.

Atmosphere / Air

The Earth's atmosphere is vital for life and composed of a unique mix of gases. The Earth’s atmosphere is a mix of gases, including nitrogen (78.1%), oxygen (20.9%), argon (0.93%), and carbon dioxide (0.04%), plus trace amounts of gases like methane and helium.

Beyond Value Chain Mitigation (BVCM)

Tackling emissions beyond one’s immediate operations is essential for global climate goals. BVCM involves tackling greenhouse gas emissions beyond a company’s own value chain. It includes compensation and neutralisation efforts but should supplement—not replace—decarbonisation strategies.

Biofuel

Biofuels offer a renewable alternative to traditional fossil fuels. Biofuels are renewable energy sources derived from organic materials like crops, vegetable oils, and waste. Their potential to lower greenhouse gas emissions depends on their source and production methods.

Biomass / Biogas

Harnessing organic materials for energy is a key aspect of sustainable practices. Biomass consists of organic waste and residues from industries like agriculture and forestry. It’s converted into electricity, heat, or biofuels. Biogas, mostly methane, is created by the anaerobic digestion of biomass.

Business Travel Emissions (Scope 3 Category 6)

Employee travel contributes to a company’s overall carbon footprint. These are indirect greenhouse gas emissions from employee business travel, excluding daily commuting. They cover transport modes such as air, rail, and road.

Carbon Border Adjustment Mechanism (CBAM)

Global trade must address carbon disparities across regions. CBAM is a policy to apply carbon pricing on imports from countries with lenient climate regulations. Part of the European Green Deal, it aims to reduce carbon leakage and starts in 2026.

Carbon Insetting

Companies can enhance supply chain sustainability through insetting. Carbon insetting involves investing in nature-based solutions within a company’s supply chain to cut emissions while boosting environmental and social benefits.

Carbon Accounting

Measuring emissions accurately is key to climate action. Carbon accounting measures an entity’s greenhouse gas emissions in CO2 equivalents (CO2e), including CO2, methane, and nitrous oxide.

Carbon Budget

A carbon budget provides a roadmap for staying within climate targets. A carbon budget sets the maximum greenhouse gas emissions allowable to limit global warming to 1.5°C or 2°C. As of 2020, the remaining budget for the 1.5°C target is roughly 400 gigatonnes of CO2.

Carbon Capture and Storage (CCS)

Innovative technology can help reduce industrial emissions. CCS captures CO2 from industrial processes and stores it underground, preventing its release into the atmosphere. It’s a tool to cut emissions from high-polluting industries.

Carbon Credit

Carbon credits play a vital role in offsetting emissions. A carbon credit represents one tonne of CO2 removed or reduced from the atmosphere. Companies trade credits to offset emissions.

Carbon Dioxide (CO2)

CO2 is one of the most significant contributors to climate change. CO2 is a colorless, odorless greenhouse gas released by activities like burning fossil fuels and deforestation. It’s a key driver of climate change.

Carbon Dioxide Equivalent (CO2e)

A standardized metric helps compare various greenhouse gases. CO2e is a metric expressing the climate impact of various greenhouse gases relative to CO2, based on their Global Warming Potential (GWP).

Carbon Emissions

Understanding emissions is the first step toward reduction. Carbon emissions refer to CO2 and other greenhouse gases released by activities such as fossil fuel combustion.

Carbon Footprint

A carbon footprint reveals the environmental impact of activities. A carbon footprint measures the total greenhouse gas emissions caused by an individual, project, organization, or nation.

Carbon Leakage

Policy loopholes can lead to unintended emissions. Carbon leakage happens when companies move operations to countries with weaker environmental regulations, resulting in higher overall emissions.

Carbon Market

Markets can incentivize emissions reductions through trading. A carbon market allows the trading of carbon credits, encouraging companies to reduce emissions by creating economic incentives.

Carbon Negative

Achieving a net environmental benefit is a significant milestone. A carbon-negative entity removes more CO2 from the atmosphere than it emits, providing a net environmental benefit.

Carbon Neutral

Balancing emissions and removal is key to sustainability. Carbon neutrality means balancing emitted CO2 with an equivalent amount of removal or offsetting, often using carbon credits.

Carbon Positive

Going beyond neutrality by benefiting the environment. A carbon-positive organization reduces or removes more greenhouse gases than it emits, contributing positively to the environment.

Carbon Pricing

Pricing carbon emissions creates incentives to reduce them. Carbon pricing assigns a monetary cost to carbon emissions, incentivizing reductions through taxes or cap-and-trade systems.

Clean Development Mechanism (CDM)

Encouraging global participation in climate solutions. The CDM is a UN initiative allowing emission-reduction projects in developing countries to earn certified credits. These credits can offset emissions in industrialized nations.

Climate

Climate forms the backdrop for all environmental changes. Climate refers to the average weather conditions in a region over 30 years. Long-term changes indicate climate change.

Climate Change

One of the most pressing global challenges of our time. Climate change involves lasting shifts in temperature and weather patterns, primarily driven by human activities like fossil fuel combustion. Effects include rising sea levels and extreme weather events.

Compensation (Carbon Offsetting)

Offsetting provides a temporary but important solution to emissions. Compensation involves purchasing carbon credits to offset emissions that can’t be avoided, aiding net-zero goals.

Corporate Carbon Footprint (CCF)

Corporate emissions tracking ensures accountability. The CCF measures a company’s total greenhouse gas emissions over a set period, typically one year.

Corporate Sustainability Due Diligence

Integrating responsibility into business operations is crucial. This initiative promotes responsible corporate behavior by integrating environmental and human rights considerations into business operations.

Corporate Sustainability Reporting Directive (CSRD)

Transparency drives corporate accountability. An EU regulation requiring large companies to disclose their environmental and social impacts, enhancing transparency and accountability.

Decarbonisation

Reducing emissions is central to combating climate change. Decarbonisation reduces or eliminates human-caused carbon emissions. It focuses on deep cuts to achieve net-zero targets.

Direct Emissions (Scope 1)

Emissions directly under company control are a key focus area. Direct emissions are greenhouse gases released from company-owned or controlled sources, such as on-site combustion or vehicles.

Downstream Leased Assets Emissions (Scope 3 Category 13)

Leased assets can contribute significantly to emissions. These emissions stem from assets leased to others, covering their entire lifecycle.

Downstream Transportation and Distribution Emissions (Scope 3 Category 9)

Logistics play a role in downstream emissions. These emissions occur during the transportation and distribution of sold products to customers.

EU Taxonomy

Establishing sustainable criteria helps drive change. The EU Taxonomy is a classification system setting criteria to determine if an economic activity contributes to sustainability goals like climate mitigation and biodiversity.

Emissions

Emissions affect air quality and climate stability. Emissions are gases or substances released into the atmosphere from activities such as transportation and industrial processes.

Emissions Trading

Market mechanisms can help regulate emissions. Also called cap-and-trade, this market-based system caps total emissions and allows companies to trade allowances, encouraging reductions.

Employee Commuting Emissions (Scope 3 Category 7)

Daily commuting impacts a company’s total carbon footprint. These emissions come from employees commuting to and from work.

End-of-Life Treatment of Sold Products Emissions (Scope 3 Category 12)

Proper disposal methods can reduce lifecycle emissions. Emissions produced when a company’s products are disposed of or recycled.

Environmental, Social, and Governance (ESG)

ESG considerations help define corporate responsibility. ESG measures a company’s non-financial performance in environmental, social, and governance areas, helping assess sustainability.

Fossil Fuels

The primary source of global carbon emissions. Fossil fuels—coal, oil, and natural gas—are major sources of carbon emissions, formed over millions of years from ancient organic matter.

Franchise Emissions (Scope 3 Category 14)

Franchises contribute indirectly to a company’s footprint. Emissions from franchises operating under a company’s brand but not directly controlled by it.

Fuel and Energy-Related Activities (Scope 3 Category 3)

Energy production processes generate indirect emissions. Indirect emissions from producing, transmitting, and delivering energy or fuel purchased by a company.

Global Surface Temperature

Tracking Earth’s temperature is key to understanding climate change. The global surface temperature averages Earth’s land and sea temperatures, having risen by about 1.09°C since pre-industrial times.

Global Warming Potential (GWP)

Different gases have varying impacts on global warming. GWP measures the warming impact of different greenhouse gases relative to CO2 over a specific time, usually 100 years.

Global Warming

The rise in Earth’s temperature affects all ecosystems. Global warming is the long-term increase in Earth’s surface temperature due to rising greenhouse gas concentrations.

Green Bonds

Green bonds finance projects with environmental benefits. Green bonds raise funds for environmentally friendly projects. Similar to traditional bonds, but exclusively for sustainability initiatives.

Greenhouse Gas (GHG) Protocol

A standardized approach ensures consistency in emissions reporting. The GHG Protocol is a global framework for measuring and managing greenhouse gas emissions. It offers reporting guidelines for organizations.

Greenhouse Effect

Understanding the greenhouse effect explains warming trends. The greenhouse effect occurs when greenhouse gases trap heat in the atmosphere, warming the planet. Human activities amplify this natural process, driving climate change.

Greenhouse Gases (GHGs)

GHGs are central to discussions on climate change. GHGs like CO2, methane, and nitrous oxide trap heat in the atmosphere, contributing to global warming.

Greenwashing

False claims can mislead consumers and harm progress. Greenwashing misleads consumers by falsely presenting products or practices as environmentally friendly.

Hydrogen

Hydrogen is a promising clean energy solution. Hydrogen, the universe’s most abundant element, serves as a clean energy source and a key player in sustainable energy strategies.

Indirect Emissions (Scope 2 and 3)

Understanding indirect emissions helps track overall impact. Indirect emissions are caused by a company’s activities but occur outside its control. Scope 2 covers purchased energy, while Scope 3 spans the entire value chain.

Intergovernmental Panel on Climate Change (IPCC)

The IPCC is a global authority on climate science. The IPCC is a UN body providing authoritative scientific assessments on climate change, informing global policy.

Internal Carbon Pricing

Assigning costs to emissions helps shape better decisions. Internal carbon pricing helps companies assign a cost to their emissions, encouraging sustainable decision-making.

Investment Emissions (Scope 3 Category 15)

Investments can carry hidden environmental costs. These emissions come from investments, such as equity or debt, not accounted for in Scope 1 or 2.

Kyoto Protocol

This landmark treaty set the stage for international action. Adopted in 1997, this treaty committed countries to reducing greenhouse gas emissions and took effect in 2005.

Life Cycle Assessment (LCA)

LCA provides a holistic view of environmental impacts. LCA evaluates the environmental impact of a product or service throughout its lifecycle, from raw material extraction to disposal.

Long-Term Science-Based Targets

Achieving net-zero requires ambitious long-term goals. These targets aim for deep decarbonisation (over 90%) by 2050, addressing remaining emissions through neutralisation.

Methane (CH4)

Methane is a potent but often overlooked greenhouse gas. A potent greenhouse gas with a high Global Warming Potential, methane is emitted from agriculture, energy production, and waste management.

Mitigation

Mitigation is key to managing climate change risks. Mitigation reduces or prevents greenhouse gas emissions through renewable energy, energy efficiency, and other strategies.

Mitigation Hierarchy

A structured approach ensures emissions reductions are prioritized. This framework prioritizes decarbonisation, followed by compensation and neutralisation, to achieve deep emission reductions.

Near-Term Science-Based Targets

Immediate actions pave the way for long-term sustainability. These targets focus on halving emissions within 5-10 years as a step toward net-zero by 2050.

Net-Zero

Net-zero represents the ultimate goal in emissions management. Net-zero involves cutting greenhouse gas emissions as much as possible and balancing any residual emissions through carbon removal or offsetting.

Neutralisation

Capturing carbon permanently helps achieve net-zero. Neutralisation removes carbon from the atmosphere and stores it permanently, often using technologies like Direct Air Capture (DAC).

Nitrous Oxide (N2O)

Agriculture is a significant source of nitrous oxide emissions. A potent greenhouse gas mainly emitted from agricultural practices and fertilizers, comprising about 6% of total GHG emissions.

Non-Financial Reporting Directive (NFRD)

Transparency is essential for stakeholder trust. An EU directive requiring large companies to disclose non-financial information, aiding stakeholders in assessing environmental performance.

Offsetting

Balancing emissions is part of a broader sustainability strategy. Offsetting balances emissions by reducing or removing them elsewhere, complementing decarbonisation efforts.

Ozone (O3)

Ozone serves both beneficial and harmful roles in the atmosphere. Ozone can be harmful at ground level but protects the Earth by absorbing harmful UV radiation in the upper atmosphere.

Paris Climate Agreement

This landmark agreement guides global climate efforts. Adopted in 2015, this global pact aims to limit warming to below 2°C, with efforts to stay below 1.5°C.

Processing of Sold Products Emissions (Scope 3 Category 10)

Manufacturing processes contribute to downstream emissions. Emissions generated when a sold product undergoes further processing by third parties.

Purchased Goods and Services Emissions (Scope 3 Category 1)

Procurement choices impact a company’s emissions profile. Indirect emissions from a company’s purchased goods and services, forming a significant part of its upstream emissions.

Science-Based Targets Initiative (SBTi)

SBTi provides a framework for ambitious climate targets. The SBTi supports companies in setting emissions reduction targets aligned with the Paris Agreement’s goals.

Scope 1 Emissions

Scope 1 focuses on emissions directly under company control. Direct emissions from company-owned or controlled sources, like factories or vehicles.

Scope 2 Emissions

Purchased energy can also contribute to emissions. Indirect emissions from the production of purchased energy, like electricity or steam.

Scope 3 Emissions

Tracking value chain emissions is critical for overall reduction. All other indirect emissions throughout a company’s value chain, including upstream and downstream activities.

Scope 4 Emissions

Scope 4 emissions, also known as "avoided emissions," are reductions in greenhouse gas emissions that occur outside a product's life cycle or value chain but as a direct result of using that product. For example, if a company produces an energy-efficient appliance, the emissions saved by consumers using this appliance instead of a less efficient model would fall under Scope 4 emissions.

Streamlined Energy & Carbon Reporting (SECR)

The SECR requires 11,900 UK companies to disclose their energy and carbon emissions. This reporting framework encourages energy efficiency measures, helping companies cut costs, improve productivity, and reduce carbon emissions. The requirement has been in place since April 2019.

Sustainability

Sustainability refers to business practices that create long-term value by addressing economic, environmental, and social challenges. It involves operating in a manner that is economically viable, socially responsible, and environmentally friendly, ensuring that current activities do not harm future generations' ability to meet their needs.

Sustainable Development Goals (SDGs)

The Sustainable Development Goals (SDGs) are a set of 17 global goals established by the United Nations in 2015. They aim to achieve a better and more sustainable future for all by 2030. The SDGs cover a wide range of issues, including poverty, hunger, health, education, gender equality, clean water and sanitation, affordable and clean energy, decent work and economic growth, industry innovation and infrastructure, reduced inequalities, sustainable cities and communities, responsible consumption and production, climate action, life below water, life on land, peace, justice, and strong institutions, and partnerships for the goals.

Sustainable Finance Disclosure Regulation (SFDR)

The SFDR is a European regulation that came into effect in March 2021. It aims to increase transparency on sustainability among financial institutions and market participants. The regulation has three main goals:

1. Improve disclosures to help asset owners and retail clients understand and compare the sustainability characteristics of financial products.
2. Ensure a level playing field within the European Union to prevent unfair competition from companies outside the EU.
3. Counter greenwashing by providing clear and consistent information on sustainability.

Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD is an organization created by the Financial Stability Board to improve and increase the reporting of climate-related risks and opportunities. It provides a framework for companies to disclose climate-related risks and opportunities through their existing reporting processes, helping stakeholders understand the financial impact of climate change.

Tipping Point

A climate tipping point occurs when a small change in forcing triggers a significant and often irreversible shift in the internal dynamics of a part of the climate system. This can lead to qualitative changes in the system's future state. Examples of tipping points include the melting of the Greenland ice sheet, the collapse of the Atlantic thermohaline circulation, and the dieback of the Amazon rainforest.

Two-Degree Limit / Two-Degree Target

The Paris Agreement aims to limit global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels. This target is crucial for preventing the most severe impacts of climate change. To achieve this, countries aim to peak global greenhouse gas emissions as soon as possible and achieve a climate-neutral world by mid-century.

UN Framework Convention on Climate Change (UNFCCC)

The UNFCCC is an international environmental treaty adopted in 1992 to combat dangerous human interference with the climate system. It aims to stabilize greenhouse gas concentrations in the atmosphere at a level that prevents dangerous anthropogenic interference with the climate system. The Kyoto Protocol and the Paris Agreement are key implementations of the UNFCCC.

Upstream Leased Assets Emissions (Scope 3 Category 8)

These emissions result from assets leased by a company from another entity, where the company does not have financial control over these assets. This category is significant for companies with leased assets like vehicles, buildings, or machinery.

Upstream Transportation and Distribution Emissions (Scope 3 Category 4)

These emissions occur during the transportation and distribution of products purchased by a company from its suppliers to its operations. They include emissions from various modes of transport and storage facilities, covering both inbound and outbound logistics.

Use of Sold Products Emissions (Scope 3 Category 11)

These emissions are released during the use phase of a company's products by consumers. This category is particularly relevant for products with significant energy consumption during use, such as vehicles, appliances, and electronics.

Value Chain Emissions

Value chain emissions, also known as Scope 3 emissions, account for the most significant part of many organizations' total Corporate Carbon Footprint (CCF). They include all indirect emissions that occur in the reporting company's upstream and downstream supply chain, divided into 15 different categories.

Voluntary Emission Reductions (VER)

VERs are emission reductions made voluntarily and not mandated by any regulation or legislation. They are often used by organizations to take proactive climate action and can be part of a broader sustainability strategy.

Waste Generated in Operations Emissions (Scope 3 Category 5)

These emissions result from the disposal, treatment, or recycling of waste generated by a company's operations off-site. They are considered indirect emissions and are not directly controlled by the company.

Weather

Weather refers to the state of the atmosphere at a particular place and time, including temperature, pressure, wind, humidity, precipitation, and cloud cover. Weather is different from climate, which is the average weather conditions over a longer period, typically 30 years.

Zero Carbon

Zero carbon means a product or service produces no carbon emissions. For example, renewable energy sources like wind and solar are considered zero carbon because they do not emit carbon when producing electricity. Net-zero refers to balancing any remaining emissions through carbon removal or offset, while zero carbon focuses on eliminating emissions entirely.