ESG Glossary

Your comprehensive guide to Environmental, Social, and Governance (ESG) terminology.

Explore the widely used vocabulary, acronyms, and frameworks used in the ESG sphere

Carbon and Climate Change

Climate change refers to long-term shifts in temperatures and weather patterns of a specific location. Such shifts can be due to natural causes but since 1800s human activities have been the main driver of the climate change ,primarily due to the burning of fossil fuels like coal, oil and gas.

The greenhouse gases (GHGs) are the gases in the atmosphere that traps the heat and emits radiant energy within the thermal infrared range, causing the greenhouse effect and thereby global warming. As per the Kyoto Protocol, the primary GHGs are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexaflouride (SF6).

The direct emissions occuring from sources owned or controlled by the company, like running machinery, manufacturing products, driving vehicles, heating and cooling buildings and providing power to devices, etc.

The indirect emissions generated by an organization's energy purchase and usage are scope 2 emissions. For example, the emissions caused when generating the electricity that we use in our buildings would fall into this category.

Scope 3 emissions are the result of activities from assets not owned or directly controlled by the reporting organization, but that the organization indirectly affects in its value chain. The scope 3 emissions for one organization are the scope 1 and 2 emissions of another organization. Scope 3 emissions, also referred to as value chain emissions, often represent the majority of an organization’s total greenhouse gas (GHG) emissions.

Read More: Corporate Value Chain (Scope 3) Standard

Net zero means cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, by oceans and forests for instance. It is a state in which, the amount of GHGs emitted in the environment is nullified by removing that equal amount of the gases.

Read More: Exploring the Key Differences: Net Zero vs. Carbon Neutrality

Carbon neutrality refers to achieving net zero carbon emissions by balancing a measured amount of carbon released with an equivalent amount sequestered or offset.

Read More: Exploring the Key Differences: Net Zero vs. Carbon Neutrality

REC is a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation. RECs are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource. Once the power provider has fed the energy into the grid, the REC received can then be sold on the open market as an energy commodity.

Scope 4 emissions, introduced by the World Resources Institute, essentially denote the emission reductions that take place beyond the traditional boundaries of a product's life cycle or value chain. These are often described as avoided emissions.

While there are currently no compulsory requirements to report scope 4 emissions, it can prove beneficial for both individuals and companies looking to reduce their emissions, improve upon their sustainability efforts, and meet their climate goals.


A globally recognized set of reporting and accounting framework to measure and manage greenhouse gas emissions from private and public sector operations, value chains and mitigation actions. GHG Protocol supplies the world's most widely used greenhouse gas accounting standards. The Corporate Accounting and Reporting Standard provides the accounting platform for virtually every corporate GHG reporting program in the world.

Read More: About GHG Protocol

Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to 1.5°C above pre-industrial levels.

Read More: Science-Based Targets

Global Reporting Initiative (GRI) is an independent international organization that provides standards, best practices, and industry-specific guidance for companies to use when reporting their environmental,social and economic impact.

Read More: Global Reporting Initiative

ESRS stands for The European Sustainability Reporting Standards, which outline the requirements for detailed corporate sustainability reporting on a broad range of ESG issues. The standards cover the full range of environmental, social, and governance issues, including climate change, biodiversity and human rights. They provide information for investors to understand the sustainability impact of the companies in which they invest.

Read More: Navigating the Revised ESRS Draft: Uncovering Crucial Changes and their Impact

ISSB is an independant body which aims to harmonize sustainability reporting for companies reducing burden and confusions encouraging better understanding. The ISSB builds on the work of market-led investor-focused reporting initiatives, including the Climate Disclosure Standards Board (CDSB), the Task Force for Climate-related Financial Disclosures (TCFD), the Value Reporting Foundation’s Integrated Reporting Framework and industry-based SASB Standards, as well as the World Economic Forum’s Stakeholder Capitalism Metrics.

Read More: IFRS & ESRS Interoperability - A Potential Gamechanger in Revolutionizing Sustainability Reporting

SASB Standards enable organisations to provide industry-based disclosures about sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance or cost of capital over the short, medium or long term.

SASB Standards identify the sustainability-related issues most relevant to investor decision-making in 77 industries. The Standards were developed using a rigorous and transparent standard-setting process.

As of August 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation assumed responsibility for the SASB Standards. The ISSB has committed to maintain, enhance and evolve the SASB Standards and encourages preparers and investors to continue to use the SASB Standards.

Read More: SASB Standards

The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to action to achieve a better and more sustainable future for all by 2030.

They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. The 17 Goals are all interconnected, and in order to leave no one behind, it is important that we achieve them all by 2030.

Read More: The Sustainable Development Goals (SDGs)

The TNFD is a global initiative which focuses on the disclosure of nature-related risks and opportunities. The goal is to encourage businesses to assess and report on their dependencies and impacts on nature. The TNFD disclosure framework consists of conceptual foundations for nature-related disclosures, a set of general requirements, a set of recommended disclosures structured around the four recommendation pillars of governance, strategy, risk and impact management, and metrics and targets. This is consistent with the approach of the TCFD and the ISSB’s IFRS Standards.

Read More: The Taskforce on Nature-related Financial Disclosures (TNFD)

CDP operates the world's largest disclosure system encompassing numerous companies, cities, states, and regions. Over the years, businesses have voluntarily shared their global greenhouse gas emissions data with CDP. By creating a means for voluntary disclosure, CDP have stimulated a more sustainable economy, with investors now requiring organizations to report their greenhouse gas emissions and environmental impacts. In 2021 CDP has launched a new strategy that expanded their horizons to new areas such as biodiversity, plastics and oceans, and recognising the interconnectedness of nature and earth’s systems.

General Terminology

Double materiality is a concept which provides criteria for determination of whether a sustainability topic or information has to be included in the undertaking’s sustainability report. Double materiality is the union (in mathematical terms, i.e. union of two sets, not intersection) of impact materiality and financial materiality. A sustainability topic or information meets therefore the criteria of double materiality if it is material from the impact perspective or from the financial perspective or from both of these two perspectives.

Double materiality helps companies avoid focusing too narrowly on certain issues and ignoring their impact on the environment and society. By considering both the financial impact of sustainability issues on the company and the company's impact on the environment and society, companies are encouraged to take a more long-term approach to sustainability issues.

Read More: The double-materiality concept Application and issues

The number of lost time injuries ( i.e any workplace injury sustained by an employee while on the job that prevents them from being able to perform their job for at least one day/shift.) that occurred during the reporting period. Most companies choose to calculate LTIFR per 1 million man hours worked.

A Life Cycle Assessment (LCA) is the systematic analysis of the potential environmental impacts of products or services during their entire life cycle (production, distribution, use and end-of-life phases). This also includes the upstream (e.g., suppliers) and downstream (e.g., waste management) processes associated with the production (e.g., production of raw, auxiliary and operating materials), use phase, and disposal (e.g., waste incineration).

Any intentional or unintentional action or false claims that an organization, product or service has a positive environmental effect is called greenwashing.

Read More: Transparency is key for eliminating greenwashing

The circular economy is a model of production and consumption which keeps products in circulation to the fullest extent possible by reducing material consumption, streamlining processes and collecting waste for reuse. In practice, it implies reducing waste to a minimum. When a product reaches the end of its life, its materials are kept within the economy wherever possible thanks to recycling. These can be productively used again and again, thereby creating further value.

Read More: What is a circular economy?

The DPP is a tool to create transparency and unlock circularity proposed by the European Commission (EC) that will share product information across the entire value chain, including data on raw material extraction, production, recycling, etc. The idea is that, by establishing high levels of supply chain visibility, transparency, and accessibility, manufacturers, distributors, and customers will all possess the data and information necessary to make more educated, informed choices that reflect the increasing importance of sustainability and circularity.

The DPP is a so-called “data carrier” that must be affixed to all products that fall under Ecodesign for Sustainable Products Regulation (ESPR). It may take the form of a QR code, RFID tag, or other form of scannable technology. As the DPP and the ESPR are being implemented by the European Commission, these regulations will affect the 27 countries that comprise the EU. The Digital Product Passport will eventually be required for roughly 30 categories, with the implementation timeline spanning from 2026 to 2030.

IPCC is United Nations' body for evaluating scientific climate change information. Created in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP), the objective of the IPCC is to provide governments at all levels with scientific information that they can use to develop climate policies.

Participation in the IPCC is open to all member countries of the WMO and United Nations. It currently has 195 members.

Read More: Inter Governmental Panel on Climate Change (IPCC)


CSRD stands for The Corporate Sustainability Reportiing Directive, is a proposed European legislation which requires all the companies to bring their sustainability reporting in line with the financial reporting. Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS). Nearly 50,000 EU companies will have to report their climate and environmental impact by introducing more detailed reporting requirements.

Read More: Decoding CSRD: Addressing FAQs for Sustainable Business Practices

The EU taxonomy is a cornerstone of the EU’s sustainable finance framework and an important market transparency tool. The taxonomy is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate.

The Taxonomy Regulation entered into force on 12 July 2020. It establishes the basis for the EU taxonomy by setting out the 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable.

Read More: EU taxonomy for sustainable activities

CBAM imposes a price on carbon emissions that occur during the production of certain categories of products that are imported into the EU, from countries where these emissions are not taxed or taxed disproportionately compared to the pricing regimes within the EU. CBAM will apply to the following categories of products that are imported into the customs territory of the EU, according to their classification per Combined Nomenclature code:

  • Iron and steel including some downstream products (e.g., screws, bolts)
  • Cement
  • Aluminum
  • Fertilizers
  • Electricity
  • Hydrogen

Read More: CBAM

The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU sustainability and ESG (environmental social governance) standard adopted as a proposal by the European Union Commission on February 23, 2022. The CSDDD is a regulation designed to help companies and businesses identify, prevent, mitigate, and account for environmental impacts and human rights abuses from their supply chains and sourcing operations.

The CSDDD is a companion law to the EU Corporate Sustainability Reporting Directive (CSRD). It is expected to be adopted into law in 2024.

Read More: Corporate sustainability due diligence

The Sustainable Finance Disclosure Regulation SFDR, established by the European Union, serves as a framework designed to foster transparency and openness in transactions related to sustainable finance. It imposes comprehensive sustainability disclosure requirements covering a broad range of environmental, social & governance (ESG) metrics at both entity- and product-level.

The disclosures, which went into effect on 10 March 2021 – and which apply to several financial products, including UCITS, AIFs and segregated mandates – were rolled out in two phases:

  • Core disclosures (Level 1) effective March 2021, which apply at an entity level to Sustainability Risks and Principal Adverse Impacts, and at a product level to Article 6, 8 and 9 products.
  • Enhanced disclosures (Level 2) effective January 2023, which apply at an entity level to Principal Adverse Impacts, and at a product level to only Article 8 and 9 products.

Sustainable Finance

A sustainability linked bond (SLB) is a borrowing instrument where financial and structural characteristics are based on whether the issuer achieves sustainability or ESG metrics within a given timeframe. If the company doesn’t meet those goals, there’s a penalty: higher interest paid to investors. This performance-based instrument allows issuers to commit explicitly to future improvements in sustainability outcomes while benefiting from discounted interest rates on the bond.

ESG funds are portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.

Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors' strategic goals.

Technology and Innovation

Carbon capture and utilization (CCU) is the process of capturing carbon dioxide (CO2) to be recycled for further usage. It basically involves the capture of CO2, generally from large point sources like power generation or industrial facilities that use either fossil fuels or biomass as fuel. Then the captured CO2 is compressed and transported by pipeline, ship, rail or truck to be used in a range of applications.

Green hydrogen is the hydrogen produced by splitting water into hydrogen and oxygen using renewable electricity. This is a very different pathway compared to both grey and blue.

Grey hydrogen is traditionally produced from methane (CH4), split with steam into CO2 –and H2, hydrogen.

Blue hydrogen follows the same process as grey, with the additional technologies necessary to capture the CO2 produced when hydrogen is split from methane (or from coal) and store it for long term.

Read More: What is green hydrogen and why do we need it? An expert explains