ESG Glossary

Keeping up with the latest terms in the industry

ESG is an industry of acronyms, and the lexicon is constantly expanding. Terms that don’t have the same definition are often used interchangeably and the overwhelming number of acronyms can be difficult to keep track of. To help you become a subject matter expert, our ESG glossary contains a list of important industry terms that every organization and professional should know.

Activist Investing
Is investing in a company and/or obtaining seats in a company with the intention to drive major change in a company.

Active Ownership
Is the use of the rights and position of ownership to influence the activities or behavior of investee companies.

Anticipating the adverse effects of climate change and taking appropriate action to prevent or minimize the damage they can cause or taking advantage of opportunities that may arise. Examples of adaptation measures include large-scale infrastructure changes, such as building defenses to protect against sea-level rise, as well behavioral shifts, such as individuals reducing their food waste. In essence, adaptation can be understood as the process of adjusting to the current and future effects of climate change.

Anti-Corruption Measures
Measures that work to ensure that the demand to have responsible businesses and investment starts to rely on indicators that go beyond financial returns, understanding the ways corruption can occur in the private and public sector. As a first step, understanding whether environmental, social and governance standards are appropriately addressed. The most common form of corruption is bribery, conflict of interest, embezzlement, lobbying, undue influence, and sextortion.

B Corp
B Corp Certification is a designation that a business is meeting high standards of verified performance, accountability, and transparency on factors from employee benefits and charitable giving to supply chain practices and input materials.

To achieve certification, a company must:

• Demonstrate high social and environmental performance by achieving a B Impact Assessment score of 80 or above and passing our risk review. Multinational corporations must also meet baseline requirement standards

• Make a legal commitment by changing their corporate governance structure to be accountable to all stakeholders, not just shareholders, and achieve benefit corporation status if available in their jurisdiction

• Exhibit transparency by allowing information about their performance measured against B Lab’s standards to be publicly available on their B Corp profile on B Lab’s website

The process in ESG that involves measuring the performance of your business against competitors in the same market across similar metrics. Sustainability benchmarks are a way of systematically evaluating the sustainability performance of voluntary standards, certifications, companies, or other entities that aim to implement sustainability measures or create positive impacts. For example, in Real estate this could be comparing emissions per square foot across properties used for similar use or in manufacturing comparing emissions per ton of material produced.

Best in class (ESG)
Investment refers to the composition of portfolios by the active selection of only those companies that meet a defined ranking hurdle established by environmental, social and governance criteria.

Is a term used to describe substances or object that is capable of being decomposed by bacteria or other living organisms.

Is the measure of variation at the genetic and species level of life on earth.

Any fuel that is derived from biomass, that is plants or algae material or animal waste. Biofuels are a renewable source of energy since they can be replenished readily.

Is the capture and storage of the atmospheric greenhouse gas carbon dioxide by continual or enhanced biological processes.

Biodiversity Credits
According to the New South Wales government, biodiversity credits are the common unit of measure for offsets in the Biodiversity Offsets Scheme. Biodiversity credits created at a stewardship site via a Biodiversity Stewardship Agreement, can be used to offset the loss of biodiversity values on development site (a credit obligation) by being traded and retired.

Biodiversity credits are used to measure both:

• Impacts on biodiversity from development and clearing at a site

• The predicted improvement in biodiversity condition at a site

The Biodiversity Assessment Method (BAM) defines two types of biodiversity credits used to measure impacts:

• Ecosystem credits – measure the value of threatened ecological communities, threatened species habitat for species that can be reliably predicted to occur with a Plant Community Type (PCT), and PCTs generally

• Species credits – apply to all other threatened species which are found to occur at that location and cannot be reliably predicted to occur within the identified ecological communities at the development site

Is the design of materials, processes and structures that emulate biological entities and processes.

Blue Carbon
The term for carbon captured by the world’s ocean and coastal ecosystems. Sea grasses, mangroves, and salt marshes along our coast “capture and hold” carbon, acting as something called a carbon sink. These coastal systems, though much smaller in size than the planet’s forests, sequester this carbon at a much faster rate, and can continue to do so for millions of years. Most of the carbon taken up by these ecosystems is stored below ground where we can’t see it, but it is still there. The carbon found in coastal soil is often thousands of years old.

Blue Economy
According to the World Bank, the blue economy is the “sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem.”

California Transparency in Supply Chains Act
Requires companies subject to the law to disclose information regarding their efforts to eradicate human trafficking and slavery within their supply chains on their website or, if a company does not have a website, through written disclosures. The law affects retail sellers and manufacturers doing business in California and have annual gross receipts more than $100,000,000 USD.

Carbon Accounting
Which is sometimes also referred to as “greenhouse gas accounting,” refers to the techniques that are used to estimate how much carbon dioxide equivalents a business emits.

Carbon Credit
A carbon credit is a transferrable instrument certified by governments or independent certification bodies to represent an emission reduction of one metric ton of CO2, or an equivalent amount of other GHGs. The purchaser of an offset credit can “retire” it to claim the underlying reduction towards their own GHG reduction goals.

Carbon Footprint
A carbon footprint is the total greenhouse gas (GHG) emissions caused by an individual, event, organization, service, place, or product, expressed as carbon dioxide equivalent (CO2e).

Carbon In-setting
Is the implementation of nature-based solutions such as reforestation, agroforestry, renewable energy, and regenerative agriculture. While an important tool, carbon offsetting can’t be considered a substitute for direct emissions reductions by corporates.

Carbon Neutral
Means that any CO2 released into the atmosphere from a company’s activities is balanced by an equivalent amount being removed.

Carbon Offsets
A carbon offset broadly refers to a reduction in GHG emissions – or an increase in carbon storage (e.g., through land restoration or the planting of trees) – that is used to compensate for emissions that occur elsewhere.

Carbon Pricing
Is an instrument that is used to calculate the financial cost of climate change. In its essence, it creates financial incentives for companies and countries to lower their emissions by either becoming more efficient or adopting cleaner fuels

Carbon Sink
Is anything natural or artificial that can accumulate and store some carbon-containing compounds for an indefinite period thereby reducing carbon dioxide in the atmosphere.

CDP (formerly the Carbon Disclosure Project)
CDP manages a global environmental disclosure system used by more than 8,400 companies. Companies disclose by completing any or all the three CDP questionnaires of climate change, forests, and water security. Each year, CDP takes the information supplied in its annual reporting process and scores companies and cities based on their journey through disclosures and towards environmental leadership. Through its independent scoring methodology, corporate and city progress is measured, and organizations are incented to take greater action on climate change, forests, and water security.

CDFI (Community Development Financial Institutions)
Is a financial institution that provides credit and financial services to underserved markets and populations, primarily in the USA but also in the UK.

CECP (Chief Executives for Corporate Purpose)
Is a CEO-led coalition that believes that a company’s social strategy — how it engages with key stakeholders including employees, communities, investors, and customers —determines company success.

Ceres (Centers for Education and Research in Environmental Strategies)
Is a nonprofit organization transforming the economy to build a just and sustainable future for people and the planet.

Circular Economy
The circular economy refers to an approach that seeks to eliminate waste, circulate products and materials, and to regenerate nature. The use of renewable energy and materials, and the reduction of consumption of finite resources, plays a key role. The term is typically used in contrast to a ‘linear economy’, which refers to the process by which resources are extracted, products are manufactured, and waste is discarded.

Cradle to Cradle
Is a sustainable business strategy that mimics the regenerative cycle of nature in which waste is reused. In nature, when a tree or animal dies or creates waste, that waste breaks down and becomes nutrients for another process.

CSO (Chief Sustainability Officer)
Is the corporate title of an executive position in charge of that organizations environmental or sustainability programs.

Clean Tech
In finance, the term cleantech—short for clean technology—is used to refer to various companies and technologies that aim to improve environmental sustainability. Usage of the term has varied over the years, with some users treating it synonymously with terms such as “green technology” to refer to renewable energy sources, new methods of recycling, and other environmentally friendly practices.

Climate Change
A shift in weather patterns due to a heating of the Earth’s atmosphere, highly attributed to the burning of fossil fuels and other polluting activities that cause a release of greenhouse gasses.

Climate Disclosures
Climate risk disclosure is when a company discloses the risks they are facing due to the physical impacts of climate change and the transition to a low carbon economy.

Climate Risk
Climate risks that can affect the financial performance of an investment may be broadly categorized in two ways: physical risks and transition risks. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Separately, transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change.

Closed loop
Is an engineering term which has been used to define systems that automatically regulate around a set point to generate little deviation. In sustainability the term has been coined to describe systems that generate little to no waste and attempts to find use for all materials.

Conflict of Interest
A conflict of interest occurs when an individual’s personal interests – family, friendships, financial, or social factors – could compromise his or her judgment, decisions, or actions in the workplace.

CSA (Corporate Sustainability Assessment)
The S&P Global Corporate Sustainability Assessment annually evaluates the sustainability practices of more than 10,000 companies. Participants choose to fill out a questionnaire specific to their industry, and CSA assigns a sustainability score for each completed questionnaire. These scores help companies compare their sustainability performance to peer companies. Since 1999 CSA focuses on sustainability criteria that are both industry-specific and financially material.

CRREM (The Carbon Risk Real Estate Monitor)
Provides the real estate industry with transparent, science-based decarbonization pathways aligned with the Paris Climate Goals of limiting global temperature rise to 2°C, with ambition towards 1.5°C.

CSR (Corporate social responsibility)
CSR is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental.

27th conference of the parties to the UN Framework Convention on Climate Change to be held in Egypt in 2022.

Davos Agenda
Aims to inform the global public and the Forum’s 25,000,000+ social media followers on the key issues shaping the year ahead. It will also engage over 430 cities in 150 countries that host Global Shapers, a network of young people driving dialogue, action, and change.

Is the reduction of carbon dioxide emissions through using low carbon power sources.

DEI or D,E, &I
Diversity and inclusion or diversity, equity and inclusion broadly outline the efforts—programs and policies—that companies and organizations adopt to create a more welcoming environment and encourage representation and participation from a diverse group of people. Diversity and inclusion efforts generally focus on increasing the representation of women, people of color and members of the LGBTQ community, among others.

DfE (Design for Environmental Sustainability)
Is a technical and operative contribution to the United Nations that provides a comprehensive supporting framework and a practical tool for the process of designing environmentally sustainable products.

Is the purposeful clearing of forests historically, this has been done to make space for farming. However, in recent years the rate at which forests clearing has occurred has altered landscapes around the world.

DNSH (Do No Significant Harm)
Is an investment in an economic activity that contributes to an environmental or social objective, the investment does not significantly harm any social or environmental objectives and. the investee companies follow good governance practices.

ECORE (ESG Circle of Real Estate)
Is an emerging European initiative for ESG compliance in real estate portfolios.

EHS (Environment, Health, and Safety)
Is a general term used to refer to laws, rules, regulations, professions, programs, and workplace efforts to protect the health and safety of employees and the public as well as the environment from hazards associated with the workplace.

Is the transition of technologies that use fossil fuels with technologies that use electricity as a source of power.

Energy Star
Energy Star is a program run by the U.S. Environmental Protection Agency and U.S. Department of Energy that promotes energy efficiency. The program provides information on the energy consumption of products and devices using different standardized methods

Energy Transition
The process of replacing fossil fuels with low carbon alternatives. Energy transitions are seen as an essential step in the transformation needed to achieve carbon neutral operations globally.

Environmental (E in ESG)
Criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Company environmental activities considered ESG factors include managing resources and preventing pollution, reducing emissions and climate impact, as well as executing environmental reporting or disclosure. Environmentally positive outcomes include avoiding or minimizing environmental liabilities; lowering costs and increasing profitability through energy and other efficiencies; and reducing regulatory, litigation, and reputational risk. There is an important evolution taking place, in which sustainability will not be sufficient. Regeneration and making things better than how the company found them will be a growing requirement.

(EFCA) Environmental Full-Cost Accounting
Is a cost accounting method that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social, and economic costs and benefits or advantages (triple bottom line) for each proposed alternative.

Environmental justice
Is a social movement to address the unfair exposure of poor and marginalized communities to harms associated with resource extraction, hazardous waste, and other land uses.

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.

ESG Data Convergence Project
Private Equity’s first-ever collaboration to standardize ESG metrics, which received commitment of over 100 leading GPs and LPs to the partnership, representing $8.7 trillion in assets and over 1,400 underlying portfolio companies. The Project’s participating firms have agreed to report on a core set of ESG metrics across six categories and drawn from existing frameworks. The categories include greenhouse gas emissions, renewable energy, board diversity, work-related injuries, net new hires, and employee engagement.

ESG Rating
An ESG score is a measure of a company’s long-term exposure to ESG risks. ESG rating agencies help provide these scores, some of these are MSCI, Sustainalytics, Bloomberg, Refinitiv (formerly known as Thomson Reuters) as well as some credit agencies like Moody’s, S&P Global and Fitch.

ESG Risks
Any negative financial impact on an institution stemming from the current or prospective impacts of ESG Factors on its counterparties or invested assets

EPA (The Environmental Protection Agency)
An independent executive agency of the United States federal government tasked with environmental protection matters. President Richard Nixon proposed the establishment of EPA on July 9, 1970; it began operation on December 2, 1970, after Nixon signed an executive order.

EPCs (Energy Performance Certificates)
Are a rating scheme to summarize the energy efficiency of buildings.

EU Green Deal
Aims to boost the efficient use of resources by moving to a clean, circular economy and stop climate change, revert biodiversity loss and cut pollution. It outlines investments needed and financing tools available and explains how to ensure a just and inclusive transition.

Are the costs and benefits of economic activities experienced by an unrelated third party. Externalities can be negative and positive. Examples of negative externalities include air pollution; water pollution and noise pollution and examples of positive externalities can be increased tourism bettering the lives of communities.

Is a green building certification system that focuses on improving, enhancing, and safeguarding the health and wellbeing of tenants and residents in office buildings, multifamily residential buildings, and retail space.

GCF (Green Climate Fund)
Is a fund established within the framework of the UNFCCC (United Nations Framework Convention on Climate Change) as an operating entity of the Financial Mechanism to assist developing countries in adaptation and mitigation practices to counter climate change. The GCF is based in Incheon, South Korea.

Gender Equity
Is the process of being fair to women and men. To ensure fairness, strategies and measures must often be available to compensate for women’s historical and social disadvantages that prevent women and men from otherwise operating on a level playing field. Equity leads to equality.

Gender Pay Gap
Is the average difference in remuneration for men and women who are art of the workforce. Commonly, two averages are used being the non-adjusted vs the adjusted pay gap. The adjusted typically considers differences in hours worked, occupation, education, and experience. In the US the non-adjusted average female’s annual salary is 79% that of the average male compared to the adjusted which is 95%.

GFANZ (Glasgow Financial Alliance for Net Zero)
Is a global coalition of leading financial institutions committed to accelerating the decarbonization of the economy

GHG (Greenhouse gases)
GHG is any gas that absorbs infrared radiation in the atmosphere, thereby trapping heat and contributing to the greenhouse effect. Greenhouse gases include, but are not limited to, water vapor, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

GHGP (The Greenhouse Gas Protocol)
Provides accounting and reporting standards, sector guidance, calculation tools and trainings for businesses and local and national governments.

GIIN (Global Impact Investing Network)
Is the global champion of impact investing, dedicated to increasing the scale and effectiveness of impact investing around the world.

GLI (Gender Lens Investing)
Is a strategy or approach to investing that takes into consideration gender-based factors across the investment process to advance gender equality and better inform investment decisions.

Governance (in ESG)
Deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. Governance addresses areas such as corporate brand independence and diversity, corporate risk management, and excessive executive compensation, through company governance activities such as increasing diversity and accountability of the board, protecting shareholders and their rights, and reporting and disclosing information. Governance positive outcomes include aligning interests of shareholders and management and avoiding financial surprises.

GRESB (Global Real Estate Sustainability Benchmark)
GRESB is the global environmental, social and governance benchmark for real estate and infrastructure investments, providing standardized and validated ESG data to the capital markets. The GRESB reporting standard benchmarks the ESG performance of real assets. Real estate and ESG investors, managers, and the wider industry actively participate in the development of GRESB Assessments to ensure sustainability performance metrics reflect the issues most material to the industry. Data reported to the GRESB assessments are validated by a third party and scored before being used to the generate the ESG benchmarks for given industries: Real Estate, Real Estate Development, Infrastructure Fund, Infrastructure Asset.

Green Bonds
A green bond is a bond specifically earmarked to be used for environmental and climate-related projects. These bonds are typically asset-linked and backed by the issuer’s balance sheet. Climate bonds are a subset of green bonds.

Is when fund managers invest in sustainable activities but refrain from claiming so to avoid the data problems arising from the disclosure obligations.

Green Chemistry a.k.a. Sustainable Chemistry
Is an area of chemistry and chemical engineering focused on the design of products and processes that minimize or eliminate the use and generation of hazardous substances.

Green Growth
Means fostering economic growth and development, whilst ensuring that natural assets. continue to provide the resources and environmental services on which our well- being relies

Green Hydrogen
Is defined as hydrogen produced by splitting water into hydrogen and oxygen using renewable electricity. Green hydrogen has significantly lower carbon emissions than grey hydrogen, which is produced by steam reforming of natural gas, which makes up the bulk of the hydrogen market.

Green Lease
Is a standard lease that has “rehabilitated” certain clauses to better align financial incentives and sustainability goals between a landlord and a tenant.

Green Premium
Is the additional cost of choosing a clean technology over one that emits a greater amount of greenhouse gases.

Green Steel
Is a process that leverages high temperature reactions in electric arc furnace (EAF) steelmaking to transform waste tires and plastics in the production of high‐quality steel.

This term is popularly used to label activities and behavior by a company that seem environmentally friendly but instead don’t have the reported effects.

GRI (Global Reporting Initiative)
A voluntary global reporting framework used by thousands of companies and governments worldwide. It is a modular reporting framework that covers economic, environmental, and social impacts addressing all stakeholders’ groups. Disclosures are typically made in sustainability reports. The Global Reporting Initiative (GRI) created the first set of sustainability standards in the world, and they are claimed to be the most widely used for sustainability reporting. The newest GRI Standards developed three series (economic, environmental, and social) of 34 topic-specific standards to help companies report on the most material issues to their investors and other stakeholders.

GTAG (Green Technical Advisory Group)
Is independent group in the UK that provides independent advice to the government on implementing a UK Green taxonomy framework. The goal is to set the bar for investments that can be defined as environmentally sustainable.

Human rights
Are universal, cutting across civil, political, economic, social, cultural, and environmental issues (privacy, housing and a healthy environment), not a subset of niche social topics (child labor and human trafficking).

Heat Pump
Is a device that can heat a building by transferring thermal energy from the outside using the refrigeration cycle. Many heat pumps can also operate in the opposite direction, cooling the building by removing heat from the enclosed space and rejecting it outside.

IEA (International Energy Agency)
The IEA is an intergovernmental organization with a broad mandate, including providing statistics and analysis, and advocating for policies focused on enhancing the reliability, affordability, and sustainability of energy. Its membership represents c.75% of global energy consumption

IFRS (International Financial Reporting Standards)
A not-for-profit organization responsible for developing a single set of global accounting standards. The Trustees of the IFRS Foundation issued a consultation paper on sustainability reporting based on global sustainability standards.

IIRC (International Integrated Reporting Council)
Is powerful, international cross section of leaders from the corporate, investment, accounting, securities, regulatory, academic, and standard-setting sectors as well as civil society, formed in 2010 by The Prince of Wales’s Accounting for Sustainability Project. The development of Integrated Reporting is designed to enhance and consolidate existing reporting practices to move towards a reporting framework that provides the information needed to develop the global economic model to meet the challenges of the 21st century.

Impact Investing
Is an investment strategy that aims to generate specific beneficial social or environmental effects in addition to financial gains. Impact investments may take many different forms and the main objective is to drive positive social results.

Impact-Weighted Accounts
Are line items on a financial statement, such as an income statement or a balance sheet, which are added to supplement the statement of financial health and performance by reflecting a company’s positive and negative impacts on employees, customers, the environment, and the broader society.

Implied Temperature Rise
Is an intuitive, forward-looking metric, expressed in degrees Celsius, designed to show the temperature alignment of companies, portfolios, and funds with global temperature goals. Investors can use Implied Temperature Rise to set decarbonization targets and support engagement on climate risk. The ITR measure, which is also designed to support reporting for the Task Force on Climate-related Financial Disclosures (TCFD), is part of a platform of analytical tools from MSCI ESG Research for institutional investors to navigate the transition to net-zero at every stage.

Integrated Reporting Framework
The International Integrated Reporting Framework is used to accelerate the global adoption of integrating reporting with an aim to improve the quality of information available to providers of financial capital, promote more cohesive and efficient approach to corporate reporting, enhance accountability and stewardship for the broad base of capitals and support integrated thinking.

International Sustainability Standards Board (ISSB)
A standard-setting board, introduced by the International Financial Reporting Standards (IFRS) Foundation, which aims to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.

IPCC (Intergovernmental Panel on Climate Change)
The IPCC was established jointly by the United Nations Environment Program and the World Meteorological Organization in 1988. The purpose of the IPCC is to assess information related to all significant components of the issue of climate change by drawing upon hundreds of the world’s expert scientists as authors and thousands more as expert reviewers. IPCC releases periodic assessments of the scientific underpinnings for understanding global climate change and its consequences. The IPCC is looked to as the official advisory body to the world’s governments on the state of the science on climate change.

IPCC’s Fifth Assessment Report: the IPCC’s Fifth Assessment Report was a critical scientific input into the UNFCCC’s Paris Agreement in 2015. IPCC input also played a major part in the Business Roundtable’s Statement on the Purpose of a Corporation, signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.

ISO 26000
The International Organization for Standardization (ISO) created the 26000:2010 Standard on Social Responsibility to provide guidance to organizations on how to become more socially responsible. It is a set of guiding principles for businesses and organizations to use to steer them in a more socially responsible direction. Compliance with the principles is voluntary, and as such cannot be certified. The standards suggests that all organizations work to improve the following seven core subjects: Governance, Human Rights, Labor Practices, The Environment, Fair Operating Practices, Consumer Issues, Community Involvement and Development

Just Transition
Is a framework developed by the trade union movement to encompass a range of social interventions needed to secure workers’ rights and livelihoods when economies are shifting to sustainable production, primarily combating climate change and protecting biodiversity.

LCA (Life Cycle Assessment)
is defined as the systematic analysis of the potential environmental impacts of products during their entire life cycles.

LEED (Leadership in Energy and Environmental Design)
LEED is an ecology-oriented building certification program run under the auspices of the U.S. Green Building Council (USGBC). LEED concentrates its efforts on improving performance across five key areas of environmental and human health: energy efficiency, indoor environmental quality, materials selection, sustainable site development and water savings. LEED has special rating systems that apply to all kinds of structures, including schools, retail, and healthcare facilities. Rating systems are available for new construction and major renovations as well as existing buildings.

Is an inclusive term that includes people of all genders and sexualities, such as lesbian, gay, bisexual, transgender, questioning, queer, intersex, asexual, pansexual, and allies. While each letter in LGBTQIA+ stands for a specific group of people, the term encompasses the entire spectrum of gender fluidity and sexual identities.

LL97 (Local Law 97)
Is a law passed as a part of the Climate Mobilization Act by the New York City Council in March 2019, requires large existing buildings in New York City reduce their emissions by 40% by 2030 and 80% by 2050.

In the context of environmental, social, and corporate governance (ESG), refers to the effectiveness and financial significance of a specific measure as part of a company’s overall ESG analysis. Material factors are financial elements deemed fundamental to the long-term success of a company’s ESG strategy.

Is a credit in the form of microloans provided to impoverished individuals and groups. The ideas were pioneered as a concept to grant small loans to people who otherwise would have no access to money to run a business.

Making the impacts of climate change less severe by preventing or reducing the emission of greenhouse gases (GHG) into the atmosphere. Mitigation is achieved either by reducing the sources of these gases — e.g., by increasing the share of renewable energies, or establishing a cleaner mobility system — or by enhancing the storage of these gases — e.g., by increasing the size of forests. In short, mitigation is a human intervention that reduces the sources of GHG emissions and/or enhances the sinks.

Natural Capital
Can be defined as the world’s stocks of natural assets which include geology, soil, air, water, and all living things.

Nature-Based Solutions
Involve working with nature to address societal challenges, providing benefits for both human well-being and biodiversity.

Negative Screening
Excludes investments in companies that actively work against the investor’s values, such as organizations with a history of international bribery or corruption.

Net Zero
Net zero refers to a state in which the greenhouse gases going into the atmosphere are balanced by removal out of the atmosphere.

NZAM (Net Zero Asset Managers initiative)
A group of international asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5°C; and to supporting investing aligned with net zero emissions by 2050 or sooner.

NZAOA (Net-Zero Asset Owner Alliance)
A group of international asset owners committed to transitioning their investment portfolios to net-zero greenhouse gas (GHG) emissions by 2050.

NZBA (Net Zero Banking Alliance)
Is a coalition of banks representing 40% of global banking assets, which are committed to aligning their lending and investment portfolios with net-zero emissions by 2050. Combining near-term action with accountability, this ambitious commitment sees signatory banks setting an intermediate target for 2030 or sooner, using robust, science-based guidelines.

OECM (One Earth Climate Model)
Provides a roadmap for sectoral decarbonization. Following two years of research and modelling, leading scientists at UTS Institute for Sustainable Futures, the German Aerospace Centre and the University of Melbourne have developed the One Earth Climate Model. The model demonstrates the feasibility of achieving the 1.5˚C target by 2050 through 100% renewable energy and natural climate solutions such as conservation and reforestation. The model is one of the most detailed climate and energy studies ever produced and was funded by the Leonardo DiCaprio Foundation and One Earth.

OSHA (Occupational Safety and Health Administration)
Is a large regulatory agency of the United States Department of Labor that originally had federal visitorial powers to inspect and examine workplaces.

Paris Agreement
The Paris Agreement is an international treaty on climate change, adopted by 196 parties at the December 2015 UN Climate Change Conference in Paris. Its goal is to limit global warming to well below 2oC, preferably to 1.5oC, compared to pre-industrial levels. To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas (GHG) emissions as soon as possible.

PCAF (Partnership for Carbon Accounting Financials)
Is a global partnership of financial institutions that work together to develop and implement a harmonized approach to assess and disclose the greenhouse gas (GHG) emissions associated with their loans and investments.

Physical risk (climate change)
Physical risks resulting from climate change may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. They could include events that result in immediate disruption, such as fire, flood, cold wave, heatwave, and hurricane. They could also include longer-term shifts in climate patterns, which could lead to coastal flood and water stress.

Precautionary Principle
Is a broad epistemological, philosophical, and legal approach to innovations with potential for causing harm when extensive scientific knowledge on the matter is lacking. It emphasizes caution, pausing and review before leaping into new innovations that may prove disastrous.

Positive Screening
Is the process of finding companies that score highly on environmental, social and governance (ESG) factors relative to their peers. These companies can then be selected for sustainable investing portfolios.

PPA (Power Purchase Agreement)
Often refers to a long-term electricity supply agreement between two parties, usually between a power producer and a customer (an electricity consumer or trader). The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices, accounting, and penalties for non-compliance. Since it is a bilateral agreement, a PPA can take many forms and is usually tailored to the specific application. Electricity can be supplied physically or on a balancing sheet. PPAs can be used to reduce market price risks, which is why they are frequently implemented by large electricity consumers to help reduce investment costs associated with planning or operating renewable energy plants.

Race to Zero
Is the UN-backed global campaign rallying non-state actors – including companies, cities, regions, financial and educational institutions – to take rigorous and immediate action to halve global emissions by 2030 and deliver a healthier, fairer zero carbon world in time.

Is when a business shows public support for the LGBTQ+ community but however in private engages in acts that negatively affect members of that community.

REACH (Registration, Evaluation, Authorization and Restriction of Chemicals)
Is a European Union regulation dating from 18 December 2006. REACH addresses the production and use of chemical substances, and their potential impacts on both human health and the environment.

REC (Renewable Energy Certificate)

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:

There are two types of RECs that you can purchase: bundled (typically just called “RECs”) and unbundled RECs. Though RECs and electricity are produced concurrently, the two “products” are severable and represent different revenue streams for project developers.

• When a REC is sold together with its associated energy, it is called a bundled REC. Bundled RECs often come from new-build projects because in order for developers to receive financing and construct the project, they must show guaranteed revenue streams for the expected energy rather than merely the severed REC. Buying a bundled REC (i.e. electricity + REC) from a yet-to-be-built project allows your company to make “additionality” claims, meaning that your company’s investment directly added new, low-cost renewable energy to the grid and displaced higher-cost fossil power.

• Unbundled RECs, however, can’t garner additionality claims. That’s because unbundled RECs aren’t tied to their underlying power. Unbundled REC supply has far outpaced demand, which has driven the cost of unbundled RECs down. While companies can still purchase unbundled RECs to achieve sustainability goals, unbundled RECs don’t have as positive an environmental impact because they don’t lead to new renewable energy being generated and merely represent a re-shuffling of the existing renewable energy supply on the market today.

Regenerative Agriculture
Is a conservation and rehabilitation approach to food and farming systems. It focuses on topsoil regeneration, increasing biodiversity, improving the water cycle, enhancing ecosystem services, supporting Bio sequestration, increasing resilience to climate change, and strengthening the health and vitality of farm soil.

Climate resilience is the ability to anticipate, prepare for, and respond to hazardous events, trends, or disturbances related to climate. Improving climate resilience involves assessing how climate change will create new, or alter current, climate-related risks, and taking steps to better cope with these risks.

Responsible Sourcing
Is the incorporation of ethical, sustainable, and socially conscious principles into sourcing, procurement and overall supply chain management practices.

SASB (Sustainability Accounting Standards Board)
The Value Reporting Foundation’s (VRF) SASB Standards allow you to track and communicate sustainability actions most financially-material to your investors. There are 77 different industries specific SASB Standards. According to a joint statement from SASB and GRI, SASB provides “industry-specific standards to identify the subset of sustainability-related risks and opportunities most likely to affect a company’s financial condition (i.e., its balance sheet), operating performance (i.e., its income statement) or risk profile (i.e., its market valuation and cost of capital). SASB metrics are divided into five broad “sustainability dimensions”: Environment, Social Capital, Human Capital, Business Model and Innovation, Leadership and Governance. SASB also offers a Materiality Finder to explore and compare SASB Standards more quickly.

SBTi (The Science Based Targets Initiative)
The SBTi mobilizes companies to set science- based targets and boost their competitive advantage in the transition to the low- carbon economy. The initiative is a collaboration of CDP, WRI, WWF, and the UN Global Compact. It launched the world’s first Net Zero Standard, which gives companies science-based certification of their net-zero targets.

Scope 1 Emissions
Are direct emissions from company-owned and controlled resources. In other words, emissions are released into the atmosphere as a direct result of a set of activities, at a firm level. It is divided into four categories: stationary combustion (e.g. fuels, heating sources). All fuels that produce GHG emissions must be included in scope 1.

Scope 2 Emissions
Are indirect emissions from the generation of purchased energy, from a utility provider. In other words, all GHG emissions released in the atmosphere, from the consumption of purchased electricity, steam, heat and cooling.

• The market-based method calculates emissions based on the electricity that organizations have chosen to purchase, often spelled out in contracts or instruments like Renewable Energy Certificates (RECs)

• The location-based method calculates emissions based on the emissions intensity of the local grid area where the electricity usage occurs

Scope 3 Emissions
Are all indirect emissions – not included in scope 2 – that occur in the value chain of the reporting company, including both upstream and downstream emissions. In other words, emissions are linked to the company’s operations. According to GHG protocol, scope 3 emissions are separated into 15 categories.

Scope 4
Also referred to as avoided emissions or abated emissions are the emissions reductions that happen outside of a products lifecycle or value chain that occur due to the use of that product.

For example, if a company creates a product and optimizes it to emit less CO2 during its life cycle then emissions can be reported according to the making of the product from the beginning of the value chain until it reaches the end user, and then the estimated calculated emissions of what would be used during the product’s life cycle. So the overall reduction has been made by optimizing the product and the emissions are now lower over the life cycle. (During the manufacturing and logistics processes the scopes 1 and 2 were counted for and scope 3 if they report the up and downstream emissions if the outside companies in the value chain don’t count their scopes 1 and 2s). The avoided emissions are what would have been had the product never been optimized or complimented.

Science-Based Targets
Provide a clearly defined pathway for companies to reduce greenhouse gas (GHG) emissions, helping prevent the worst impacts of climate change and future-proof business growth. 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 well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C.

SDGs (Sustainable Development Goals)
Through the United Nations Global Compact and Reporting Initiative (GRI), corporations have begun reporting through the Reporting on SDGs initiative. Reporting on the SDGs leverages the GRI Standards and the Ten Principles of the UN Global Compact so businesses can incorporate SDG reporting into their existing processes.

SEC (Securities and Exchange Commission) Climate disclosures
In March 2022 the SEC proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.

Refers to the broad category of sexual exploitation in which abuse of power is the means of coercion, as well as to the category of sexual exploitation in which threatened release of sexual images or information is the means of coercion.

SFDR (Sustainable Finance Disclosure Regulations)
Imposes mandatory ESG disclosure obligations for asset managers and other financial institutions

SHINE (Sustainability and Health Initiative for NetPositive Enterprise)
Is an initiative at the Massachusetts Institute of Technology and the Harvard T.H. Chan School of Public Health. In the first four years of SHINE’s existence, both the Handprints and Net Positive program and the worker well-being program were both situated at Harvard. Now, SHINE at MIT focuses on research on Handprints and Net Positivity. It is a joint initiative that strives to make the world a healthier, more sustainable place. The publications section includes white papers and case studies which resulted from the research on Handprints and Net Positive during the period from 2013-2017, before this program moved to MIT.

Sin Stocks
Are publicly traded companies involved in or associated with an activity that is considered unethical or immoral. Sin stocks are generally in sectors that deal directly with morally dubious actions. They are perceived as making money from exploiting human weaknesses and frailties.

Social (in ESG)
Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. They are addressed by company social activities such as promoting health and safety, encouraging labor-management relations, protecting human rights, reversing the gender gap, and focusing on product integrity. Social positive outcomes include increasing productivity and morale, reducing turnover and absenteeism, and improving brand loyalty.

Social Bonds
Are a form of debt that allow investors to help raise funds for projects with positive social outcomes that in some cases, provide an investment return. They include projects on improving food security and access to education, as well as health care and financing.

Social Progress Index
Measures the extent to which countries provide for the social and environmental needs of their citizens. Fifty-four indicators in the areas of basic human needs, foundations of well-being, and opportunity to progress show the relative performance of nations.

SROI (Social Return On Investment)
Is a method for measuring values that are not traditionally reflected in financial statements, including social, economic, and environmental factors. They can identify how effectively a company uses its capital and other resources to create value for the community.

The PRI defines stewardship as “the use of influence by institutional investors to maximize overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend.

Stewardship Code
Is a code requiring institutional investors to be transparent about their investment processes, engage with investee companies and vote at shareholders’ meetings. The first stewardship code was introduced in the United Kingdom in 2010, with the objective of enhancing the quality of engagement between asset managers and companies to help improve long-term risk-adjusted returns to shareholders.

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. For example, an energy company having made significant investment into fossil fuels but due to many Net Zero commitments can no longer burn these fuels, therefore meaning they would have to write off the assets.

Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social —also known informally as profit, planet, and people.

Telesto supports private markets leaders as they get started and navigate their ESG journeys with the goal of elevating these questions to corporate strategy and business growth. With the increasing complexity around ESG and Sustainability topics, we find that leaders lack the resources to simplify this transition and have the meaningful impact that they are counting on. That’s where we come in. We offer a variety of ESG and Sustainability specific growth solutions, whether it’s related to net-zero planning, materiality assessments, ESG metrics, or simply to having a dedicated team to making your ESG program come to life.

TFCD (Task Force on Climate-related Financial Disclosures)
G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to review how the financial sector can take account of climate- related issues. The FSB established the TCFD to guide companies on disclosing climate-related financial risks to investors, lenders, insurers, and other stakeholders. This guidance identifies multiple climate-related risks and opportunities to disclose. While the TCFD offers guidance around the type of information that should be disclosed, it is principles-based, and does not prescribe the specific metrics that should be used for such disclosure. Standard setters such as GRI, SASB and others have done work around mapping their standards to the TCFD.

Thematic Investing
Is an approach which focuses on predicted long-term trends rather than specific companies or sectors, enabling investors to access structural, one-off shifts that can change an entire industry.

Transition Risks
Transition risks are business-related risks that follow societal and economic shifts toward a low-carbon and more climate-friendly future. These risks can include policy and regulatory risks, technological risks, market risks, reputational risks, and legal risks. These risks are interconnected and often top of mind for investors as they attempt to navigate an increasingly aggressive low-carbon agenda that can create capital and operational consequences to their assets.

Triple Bottom Line
Is an accounting framework with three parts: social, environmental, and financial. Some organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value.

Triple Net Lease (triple-net or NNN)
Is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities. In contrast, in standard commercial lease agreements, some or all these payments are typically the responsibility of the landlord.

ULI (Urban Land Institute)
The ULI Greenprint goal is to reduce the carbon emissions of its members’ collective buildings under operational control to net zero by the year 2050. This net zero carbon operations goal is designed to meaningfully reduce the built environment’s impact on climate change beyond existing efforts.

UN Treaty on Plastics a.k.a. UNEA Resolution
In March 2022 representatives from 175 countries signed a resolution at the UN Environmental Assembly in Nairobi that negotiates an international legally binding agreement to end plastics pollution by 2024.

UNEP FI (United Nations Environment Program Finance Initiative)
Is a global partnership established between the United Nations Environment Program and the financial sector. UNEP FI catalyzes action across the financial system to align economies with sustainable development.

UNFCCC (United Nations Framework Convention on Climate Change)
Established an international environmental treaty to combat “dangerous human interference with the climate system”, in part by stabilizing greenhouse gas concentrations in the atmosphere.

UNGC (United Nations Global Compact)
Is a non-binding United Nations pact to encourage businesses and firms worldwide to adopt sustainable and socially responsible policies, and to report on their implementation.

Undue Influence
Occurs when an individual can persuade another’s decisions due to the relationship between the two parties. Often, one of the parties is in a position of power over the other due to elevated status, higher education, or emotional ties. The more powerful individual uses this advantage to coerce the other individual into making decisions that might not be in their long-term best interest.

UN PRI (The United Nations Principles for Responsible Investment)
The PRI was established to encourage investors to implement six sustainable investment principles. Each signatory must report their responsible investment activities each year using the UNPRI Reporting Framework. The six principles were developed by investors for investors:

• We will incorporate ESG issues into investment analysis and decision making processes

• We will be active owners and incorporate ESG issues into our ownership policies and practices

• We will seek appropriate disclosure on ESG issues by the entities in which we invest

• We will promote acceptance and implementation of the principles within the investment industry

• We will work together to enhance our effectiveness in implementing the principles

• We will each report on our activities and progress towards implementing the principles

Refer to PRI’s starter guide for how GPs can manage ESG issues in PE. It outlines how to include ESG issues throughout the investment process, and in the relationships between the GP and LP.

USGBC (United States Green Building Council)
The U.S. Green Building Council (USGBC) is a nonprofit organization that supports the development of prosperous, healthy and resilient communities through the transformation of the built environment. Through its Leadership in Energy and Environmental Design (LEED) green building program, USGBC is committed to transforming how our buildings and communities are designed, constructed and operated, enabling an environmentally and socially responsible, healthy, and prosperous environment that improves quality of life.

Values-Based Investing
Is a term used to refer to an investment strategy that evaluates assets not only for potential for profit and risk, but also whether or not they align with core values.

Value Reporting Foundation
Is a global nonprofit organization that offers a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value—how it is created, preserved, or eroded over time.

VPPA (Virtual Power Purchasing Agreement)
Is purely a financial transaction, exchanging a fixed-price cash flow for a variable-priced cash flow and renewable energy certificates (RECs). Within a VPPA contract, the corporate buyer does not own and is not responsible for the physical electrons generated by the project. Because the VPPA is purely financial, the buyer still needs to meet its electricity load through traditional channels—therefore, the VPPA means the buyer’s relationship with its utility at the retail level remains unchanged.

WACI (Weighted Average Carbon Intensity)
(tCO2e/$M sales) measures a fund’s exposure to carbon intensive companies. It is calculated as the sum of security weight (normalized for corporate positions only) multiplied by the security Carbon Intensity. This allows for comparisons between funds of different sizes.

Water Consumed
Is the amount of water removed for use and not returned to its source.

Water Neutral
Means that one reduces the water footprint of an activity as much as reasonably possible and offsets the negative externalities of the remaining water footprint.

Water Positive
Is when companies are replenishing more water than they use. These water positive companies are typically defining water “use” as total water consumption.

Water Withdrawn
Is the total volume removed from a water source such as a lake or river. Often, a portion of this water is returned to the source and is available to be used again.

WEEE (Waste Electrical and Electronic Equipment)
Is electrical and electronic equipment that is broken or unwanted. It is important to dispose responsibly of any appliance that runs on electricity (or that contains electrical parts) to avoid causing damage to the environment.

WDI (Workforce Disclosure Initiative)
The WDI aims to improve corporate transparency and accountability on workforce issues, provide companies and investors with comprehensive and comparable data and help increase the provision of good jobs worldwide.

WEF-IBC (World Economic Forum – International Business Council)
The WEF-IBC Stakeholder Capitalism Metrics and Disclosures are comprised of a set of 21 core ESG metrics and 34 recommended disclosures organized into the categories of Principles of Governance, Planet, People and Prosperity. The proposed metrics and disclosures are largely drawn from existing standards (such as GRI, SASB, TCFD and others) with the stated intent of “supporting convergence” among existing standard setters. The WEF-IBC encourages IBC members (and others), regardless of sector or country of operation, to report on these metrics in the mainstream annual reports, if material, on a comply or explain basis.

WOC (World Ocean Council)
Is a global, cross-sectoral ocean industry leadership alliance committed to “Corporate Ocean Responsibility”, developed by and for the private sector, with a unique and multi-sectoral approach to address cross-cutting issues affecting ocean sustainable development, science, and stewardship of the seas.

Zero Waste
Is a set of principles focused on waste prevention that encourages the redesign of resource life cycles so that all products are reused. The goal is for no trash to be sent to landfills, incinerators, or the ocean.

Where the World is Going

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