ESG Dictionary with Definitions and Glossary UK

ESG Dictionary with Definitions and Glossary UK

Welcome to the ultimate ESG Dictionary, your comprehensive resource for understanding the complex and evolving terminology of Environmental, Social, and Governance (ESG) criteria. Whether you’re an investor, corporate professional, or simply keen on sustainable practices, our extensive glossary demystifies ESG terms, regulations, and standards, empowering you to navigate the world of responsible investment and corporate sustainability with confidence. Stay informed on key concepts from Carbon Footprint to Social Impact Assessments and discover how these practices shape corporate strategies towards a sustainable future. Bookmark this go-to ESG lexicon for all your sustainability reference needs.

B-Corp: A certification for businesses that meet high standards of social and environmental performance, accountability, and transparency, designed to help companies balance profit with purpose.
Biodiversity Net Gain (BNG): An approach to development and land management that leaves biodiversity in a better state than before, ensuring that interventions provide an overall increase in natural habitats and ecological features.
Biodiversity: The variety of plant and animal life in a particular habitat, region, or on Earth, including the variability within species, between species, and of ecosystems.
Business Impact Assessment (BIA): A process that evaluates the potential effects of a business’s operations on its stakeholders, environment, and society, often used in sustainability and risk management strategies.
Carbon Capture and Storage (CCS): A technology that captures carbon dioxide emissions from sources like power plants, preventing it from entering the atmosphere and contributing to climate change, and then stores it underground.
Carbon Credits: Tradable certificates or permits representing the right to emit one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas; used as a part of emissions trading schemes.
Carbon Footprint Report: A document detailing the total amount of greenhouse gases produced directly and indirectly by an individual, organization, event, or product, typically measured in carbon dioxide equivalents.
Carbon Intensity: The amount of carbon by weight emitted per unit of energy consumed; a measure of how much carbon emissions are produced from various energy sources.
Carbon Negative: A process or activity that removes more carbon dioxide from the atmosphere than it emits, resulting in a net reduction of carbon dioxide in the air.
Carbon Neutral: A state where the net carbon dioxide emissions are equal to zero, typically achieved through balancing emissions with carbon removal or offsetting activities.
Carbon Offsets: Reductions in emissions of carbon dioxide or other greenhouse gases made to compensate for emissions made elsewhere, often used in conjunction with personal or corporate carbon footprint reduction strategies.
Carbon Pricing: The cost applied to carbon pollution to encourage polluters to reduce the amount of greenhouse gases they emit into the atmosphere, typically through a carbon tax or emissions trading system.
Carbon Reduction Plan (CRP): A strategic plan outlining how a business or organization intends to reduce its carbon emissions over time, often including targets, policies, and actions.
Carbon Risk: The financial risk to companies and investors that is associated with the price of carbon and greenhouse gas emissions and their contribution to climate change.
CBAM: Carbon Border Adjustment Mechanism; an EU proposal to impose a carbon price on imports of certain goods from outside the EU, aligning with the bloc’s climate objectives.
Circular Economy: An economic system aimed at eliminating waste and the continual use of resources through principles like reuse, sharing, repair, refurbishment, remanufacturing, and recycling.
Climate Change: The long-term alteration in average weather patterns, typically caused by human activities such as burning fossil fuels, which leads to global warming and other changes in climate.
Climate Neutral: The status of an individual, company, or product when its net greenhouse gas emissions are equal to zero, achieved by reducing emissions and compensating for remaining emissions with offsets.
Climate Risk: The potential negative effects of climate change on organizational operations and financial performance, including physical risks from disruptive weather events and transition risks from the shift to a low-carbon economy.
Climate Scenario Modelling: A process for assessing the financial impacts of climate-related risks and opportunities on an organization’s present and future performance under different plausible future climate scenarios.
CO2e (CO2-eq): Carbon dioxide equivalent; a standard unit for measuring carbon footprints, expressing the impact of each different greenhouse gas in terms of the amount of CO2 that would create the same amount of warming.
Conversion Factors: Numerical values used to convert activity data into greenhouse gas emissions, typically representing the average emission factor for each unit of activity, such as fuel consumption or electricity use.
Corporate Governance: The system of rules, practices, and processes by which a company is directed and controlled, encompassing the mechanisms through which companies, and those in control, are held to account.
Corporate Social Responsibility (CSR): A business model in which companies incorporate social and environmental concerns in their business operations and interactions with stakeholders.
CSDDD: Corporate Sustainability Due Diligence Directive; a proposed EU directive requiring companies to identify, prevent, mitigate, and account for adverse impacts of their activities on human rights and the environment.
CSRD: Corporate Sustainability Reporting Directive; an EU directive that requires large companies to disclose certain information on the way they operate and manage social and environmental challenges.
Double Materiality: The concept that businesses should consider not only how sustainability issues affect their financial performance but also how the company’s activities impact society and the environment.
Dual Materiality: A framework that recognizes the interconnection between a company’s financial performance and its wider social and environmental impact, used in sustainability reporting and decision-making.
Embodied Carbon: The total greenhouse gas emissions generated to produce a building or infrastructure, including the extraction, transport, and manufacturing of materials, and construction processes.
Emissions Trading Scheme (ETS): A market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants.
Emissions: The act of releasing substances, especially gases or radiation, into the atmosphere, with reference to greenhouse gases, it includes carbon dioxide, methane, and other pollutants contributing to climate change.
Environment, Social Governance (ESG): A set of standards for a company’s operations that socially conscious investors use to screen potential investments, relating to the environmental, social, and governance practices of the company.
Environmental Impact Assessment (EIA): A process by which the environmental consequences of a proposed project or program are evaluated and assessed before a decision is made to move forward with the project.
Environmental Performance Index (EPI): A method of quantifying and numerically marking the environmental performance of a state’s policies, allowing for comparisons over time and across countries.
Environmental, Social, and Governance Integration (ESG Integration): The practice of incorporating ESG factors into investment analysis and decisions to enhance long-term financial returns and societal outcomes.
Equator Principles: A risk management framework adopted by financial institutions for determining, assessing, and managing environmental and social risk in projects.
ESG Analytics: The use of data analysis tools and technology to analyze ESG data for better insights into the sustainability performance of an investment or company.
ESG Disclosures: Public filings by companies that give insights into their ESG practices, risks, and performance, often used by investors to assess potential risks and opportunities.
ESG Rating: A score or classification given to companies based on their exposure to long-term environmental, social, and governance risks, which can impact their financial performance and investment attractiveness.
ESRS: European Sustainability Reporting Standards; a set of standards under development to guide companies in reporting on sustainability issues, enhancing the comparability and reliability of ESG data.
Framework: A basic structure underlying a system, concept, or text, in sustainability, a framework provides guidelines for companies to report and act on environmental, social, and governance issues.
GHG Protocol: A widely-used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions.
Global Reporting Initiative (GRI): An international independent standards organization that helps businesses, governments, and other organizations understand and communicate their impacts on issues such as climate change, human rights, and corruption.
Global Warming Potential (GWP): A measure of how much heat a greenhouse gas traps in the atmosphere up to a specific time horizon, compared to carbon dioxide.
Gold Standard Carbon Offsets: Carbon offset credits certified by the Gold Standard Foundation, which ensures that the offset projects contribute to sustainable development and real emissions reductions.
Governance: The framework of rules, practices, and processes by which firms are directed and controlled, encompassing the entire system of oversight, including performance, conformance, and accountability mechanisms.
Green Bonds: Bonds specifically earmarked to be used for climate and environmental projects, these are typically asset-linked and backed by the issuer’s balance sheet, and are also referred to as climate bonds.
Green Economy: An economy that aims for sustainable development without degrading the environment, based on green and renewable energy and aimed at reducing carbon emissions and pollution.
Green Financing: Financing investments that provide environmental benefits in the broader context of environmentally sustainable development.
Greenhouse Gas (GHG): Gases in Earth’s atmosphere that trap heat, contributing to the greenhouse effect, which includes carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and fluorinated gases.
Greenwashing: The process of conveying a false impression or providing misleading information about how a company’s products are more environmentally sound, a deceptive marketing tactic.
GRI Content Index: A tool provided by the Global Reporting Initiative that offers a standard way for reporting organizations to index GRI disclosures in their sustainability reports.
Impact Investing: Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
Intensity Ratio: A measure of the environmental impact of an activity relative to a specific business metric, such as carbon emissions per unit of production or per revenue.
Intergovernmental Panel on Climate Change (IPCC): The United Nations body for assessing the science related to climate change, providing governments at all levels with scientific information they can use to develop climate policies.
ISO14001: An internationally agreed standard that sets out the requirements for an environmental management system, helping organizations improve their environmental performance through more efficient use of resources and waste reduction.
ISO14064: An international standard for quantifying and reporting greenhouse gas emissions and removals, intended for use by businesses and other organizations.
ISO14067: An international standard providing guidelines for the assessment of the carbon footprint of products (CFP), including the quantification and communication of CFP information.
ISO14068: An international standard that specifies principles, requirements, and guidelines for the quantification, monitoring, and reporting of activities intended to cause greenhouse gas (GHG) emission reductions or removal enhancements.
ISO14080: An international standard that provides guidance on principles and requirements for establishing, implementing, and improving a GHG management system for organizations.
ISO50001: An international standard that specifies requirements for establishing, implementing, maintaining, and improving an energy management system, enabling organizations to follow a systematic approach to achieving continual improvement of energy performance.
Life Cycle Assessment (LCA): A technique for assessing the environmental aspects and potential impacts throughout a product’s life cycle—from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling.
Materiality Assessment: A process for identifying and prioritizing the ESG issues that are most significant to an organization and its stakeholders, guiding sustainability reporting and strategic business decisions.
Natural Capital: The world’s stock of natural resources, which includes geology, soil, air, water, and all living organisms. It is the extension of the economic notion of capital to goods and services relating to the natural environment.
Net Zero: A balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere, reached when the amount we add is no more than the amount taken away.
Paris Agreement: An international treaty on climate change, aiming to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels by reducing greenhouse gas emissions.
PAS2050: A specification for the assessment of the life cycle greenhouse gas emissions of goods and services, providing a method for evaluating carbon footprints.
PAS2060: A specification for the demonstration of carbon neutrality, providing a framework for the assessment and verification of the carbon neutrality claims of organizations.
PAS2080: A standard for managing whole-life carbon in infrastructure, aiming to reduce carbon emissions from the construction and operation of infrastructure assets.
PPN06/21: Procurement Policy Note 06/21; guidance issued by the UK government for public sector organizations to assess and report on the carbon reduction plans of suppliers.
Preliminary Environmental Assessment (PEA): An initial evaluation of the potential environmental impacts of a proposed project or action, typically conducted early in the planning process.
Purchased Goods and Services (PG&S): A category of Scope 3 emissions that refers to the emissions associated with the production of goods and services that are purchased or acquired by a company during the reporting year.
Responsible Investment (RI): An approach to investing that includes ESG factors as a fundamental part of investment analysis and decision-making processes.
Scope 1 Emissions: Direct greenhouse gas emissions that occur from sources that are controlled or owned by an organization, such as emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.
Scope 2 Emissions: Indirect greenhouse gas emissions associated with the purchase of electricity, steam, heat, or cooling that is generated upstream from the organization.
Scope 3 Emissions: The indirect greenhouse gas emissions that are a consequence of the operations of an organization but are not directly owned or controlled by the organization, such as business travel, procurement, waste, and water.
SFDR: Sustainable Finance Disclosure Regulation; an EU regulation that requires financial market participants to disclose sustainability-related information with the aim of preventing greenwashing and ensuring investors have reliable sustainability information.
Social Impact Assessment (SIA): A methodology to review the social effects of infrastructure projects and other development interventions.
Social Washing: The act of a company falsely portraying itself as socially responsible, often through misleading marketing strategies, to divert attention from practices that are harmful to society.
Stakeholder: Any individual, group, or organization that can affect or be affected by an organization’s actions, objectives, and policies; not limited to shareholders or investors but including employees, customers, suppliers, and communities.
Streamlined Energy and Carbon Reporting (SECR): A UK regulation that requires qualifying companies to report on their energy use and carbon emissions within their Directors’ Report, in an effort to improve corporate transparency and encourage the implementation of energy efficiency measures.
Supply Chain: The entire network of entities, directly or indirectly interlinked and interdependent in serving the same consumer or customer, encompassing every aspect of producing and delivering products or services.
Sustainability: The practice of managing natural, financial, and human resources to meet current needs without compromising the ability of future generations to meet their needs, involving environmental, social, and economic stewardship.
Sustainable Accounting Standards Board (SASB): An independent, standards-setting organization dedicated to enhancing the efficiency of the capital markets by fostering high-quality disclosure of material sustainability information that meets investor needs.
Sustainable Development Goals (SDGs): A collection of 17 global goals set by the United Nations General Assembly intended to be a blueprint to achieve a better and more sustainable future for all by the year 2030.
Sustainable Finance Disclosure Regulation (SFDR): An EU regulation that seeks to increase transparency in the financial market by requiring financial market participants to disclose specific information related to sustainability within their investment processes.
Sustainable Investment: Investment in companies that produce sustainable products and services, or that operate in a sustainable manner, considering long-term environmental and social criteria.
TCFD: Task Force on Climate-related Financial Disclosures; an organization established by the Financial Stability Board to develop consistent climate-related financial risk disclosures for use by companies in providing information to stakeholders. [more]The Task Force on Climate-related Financial Disclosures (TCFD) is an industry-led group established by the Financial Stability Board (FSB) in 2015. It was formed in response to the growing recognition of the financial risks associated with climate change. The TCFD’s primary goal is to develop a set of recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions, and in turn, enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.

TCFD’s recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets. Governance addresses the organization’s leadership and oversight of climate-related issues. Strategy focuses on the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning. Risk Management examines how an organization identifies, assesses, and manages climate-related risks. Lastly, Metrics and Targets involve the ways in which the organization measures, assesses, and manages relevant climate-related risks and opportunities.

The TCFD encourages companies to incorporate the potential implications of climate change within their financial planning and to inform investors about the risks they face through scenario analysis. Since its inception, the TCFD has gained widespread support from businesses and financial institutions, and its recommendations are being increasingly incorporated into national and international disclosure standards and regulations. The ultimate aim is to ensure that the effects of climate change become a standard consideration in business and financial decision-making, promoting a more sustainable global economy.

The UK is poised to be the first G20 nation to legally mandate that major businesses report on climate-related risks and opportunities, aligning with the Task Force on Climate-related Financial Disclosures (TCFD) guidelines. Starting in April 2022, the legislation will compel more than 1,300 significant UK-registered entities, including prominent market-listed companies, substantial banks, insurance firms, and private enterprises with sizeable staff and turnover, to make such disclosures compulsory​​.

The TCFD, which began at the Paris COP21 under the Financial Stability Board’s guidance, offers a structured framework for companies to disclose financial exposures due to climate risk in a consistent format​​. The forthcoming legislation is designed to embed consideration of climate change within corporate risk management and strategy, enhancing the level of climate-related reporting amongst UK businesses, thereby fostering a transition towards a lower-carbon economy​​.

The initiative has been welcomed by companies, such as Tesco, Aviva, and Unilever, who have acknowledged the benefits of early adoption of TCFD-aligned disclosure practices​​. This step is part of a larger strategy to transform the UK’s financial ecosystem into the most environmentally sustainable globally, a commitment outlined in the UK’s Net Zero Strategy​​.

This focus on transparency is seen as essential in managing the business impacts of climate change, encouraging companies to articulate their approaches to emission reduction and sustainability to investors and stakeholders​​. It’s believed that this heightened clarity will facilitate a shift of investments towards sustainable projects, contributing to the economy’s broader greening​​.

The criteria for disclosures are reflective of the TCFD’s recommendations and include innovative elements like qualitative scenario analysis, which aids companies in evaluating climate-related risks and potential opportunities​​. By setting out these requirements, the UK aims to fully embed TCFD-aligned disclosures throughout its economy by 2025, advancing beyond the existing ‘comply or explain’ model, with a significant portion of the framework operational by 2023​​.

Triple Bottom Line (TBL or 3BL): An accounting framework with three parts: social, environmental (or ecological), and financial. These three bottom lines are often referred to as the three P’s: people, planet, and profit.
UN Global Compact (UNGC): A voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals, such as the Sustainable Development Goals.
UN Principles for Responsible Investment (UN PRI): A set of six investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice.
UN SDG: United Nations Sustainable Development Goals; a universal call to action to end poverty, protect the planet, and ensure that all people enjoy peace and prosperity by 2030.
Value Chain: The full lifecycle of a product or service, including material sourcing, production, consumption, and disposal/recycling processes.
Water Footprint: A measure of the amount of water used to produce each of the goods and services we use, including both direct and indirect water use.

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