ESG Terms You Need to Know

Want to learn more about ESG? Check out our comprehensive glossary of environmental, social, and governance terms.
Persefoni Team
By Persefoni Team
February 17, 202212 min read
September 20, 2022, 2:16 PMUpdated
February 17, 2022Updated: September 20, 2022, 2:16 PM12 min read

If you are new to the world of Environmental, Social, and governance (ESG), you’ll be confronted with a dizzying array of acronyms and terms. CDP, GRI, SASB, TCFD, are just some of the alphabet soup of names you’ll have to wade through to ensure your ESG performance metrics are collected and disclosed correctly.

As pressure grows for companies to make ESG disclosures in line with their financial disclosures, companies must get up to speed with this quickly evolving nascent field. To help with this, here are fifteen essential ESG terms, bodies, and frameworks to get acquainted with to streamline your ESG journey.

The ABC’s of ESG

Benchmarking  

Benchmarking is the practice of measuring and comparing ESG performance with other companies in your sector or geography to understand where your company fits among your competitors. For accurate benchmarking, alignment with ESG frameworks, standards, and measurement methodologies is essential. Learn how you can make data-driven decisions with Persefoni's Climate Impact Benchmarking module.

Carbon Footprint

Carbon footprint is an estimate of how much carbon dioxide is produced to support your lifestyle or organization. Essentially, it measures your impact on the climate based on how much carbon dioxide is produced. Factors that contribute to your carbon footprint include your travel methods and general energy usage. Carbon footprints can also be applied on a larger scale, to companies, businesses, even countries.

Carbon Offsets

Carbon offsets are used to offset the amount of carbon that an individual or institution emits into the atmosphere. Carbon offsets work in a financial system where, instead of reducing its own carbon use, a company can comply with emissions caps by purchasing carbon credits from an independent organization. The organization will then use that money to fund a project that reduces carbon in the atmosphere. An individual can also engage with this system and similarly pay to offset his or her own personal carbon usage instead of, or in addition to, taking direct measures such as driving less or recycling.

Carbon offsets are most often used by companies or institutions to reduce their carbon footprint without polluting less. Most offsets involve renewable energy. For example, a company in Massachusetts can pay to build a wind turbine off the coast. By using its money to create renewable energy, that company thereby offsets its own carbon use.

CDP - Carbon Disclosure Project  

CDP is a not-for-profit charity founded in 2000 that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts. CDP offers reports and resources around three focus areas: climate change, water, and forests. Organizations complete a questionnaire and with that information, CDP assigns each a score (A+, B, C, etc.) The scored questionnaire can be exported and shared with key stakeholders. With the world’s most comprehensive collection of self-reported data, the world’s economy looks to CDP as the gold standard of environmental reporting.

CMAP - Climate Management and Accounting Platform  

A CMAP is a software platform that simplifies the carbon accounting process, so calculations are done in days rather than months. These platforms utilize codified guidelines like the GHGP and PCAF to calculate carbon emissions and thus deliver solutions based on organizational data. CMAPs allow companies to track their emissions, set carbon reduction targets, measure progress, and benchmark against peers. This means organizations can gauge their emissions reduction progress over time and accurately track their progress toward science-based and net zero commitments using the latest data available. CMAPs are just one of a growing number of ESG software that helps collect and report ESG data.

Consolidation

The combining of GHG emissions data from separate operations that belong to one or a group of companies.

CSR Corporate Social Responsibility

CSR is a voluntary way for companies to commit to ethical business practices and improve their environmental, economic, and social sustainability. ESG is a way for companies to measure their CSR. This leads us to...

Emission Factors

GHG emissions are released into the atmosphere through economic activities or processes that emit hydrocarbons. To measure these, a carbon dioxide equivalent (CO2e) value is given relative to the activity associated with the release of the GHG; this is known as an emission factor.

Emission factors are how activity data is converted into GHG emissions. The number of activities that necessitate EFs to measure their GHG emissions is huge, these activities include things like fuel combustion, waste landfilling, electricity consumption, vehicle travel, purchased heat and steam, animal agriculture, etc.

EPA - 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 the EPA on July 9, 1970. It began operation on December 2, 1970, after Nixon signed an executive order. The EPA publishes emission factor sets that we maintain in the Persefoni platform.

ESG - Environmental, Social, and Governance

ESG are the three overarching pillars through which an organization’s effect on the environment and society can be measured. Initially used as a tool for investors to understand a company's long-term financial performance, ESG is now central to business strategies. It assesses a company's ability to deal with the defining issues of our time, the climate crisis, environmental degradation, social injustice, and inequality. 

Fugitive Emissions

Emissions that are not physically controlled but result from the intentional or unintentional releases of GHGs. They commonly arise from the production, processing, transmission, storage, and use of fuels and other chemicals, often through joints, seals, packing, gaskets, etc.

Geothermal Energy

Geothermal energy is electricity generated by harnessing hot water or steam from within the earth.

GHG Sink

GHG Sink - or Carbon Sink - is any physical unit or process that stores greenhouse gases. This usually refers to forests and underground or deep sea reservoirs of CO2.

GHG Source

Any physical unit or process that releases GHG into the atmosphere.

GHGP - Greenhouse Gas Protocol  

Created in 1997, the GHGP is the original carbon accounting standard. It provides guidelines for organizations to develop greenhouse gas (GHG) emissions inventories. Under the GHGP, all emissions are broken down into three scopes. Scopes 1 and 2 are required to be measured, whereas Scope 3 is currently optional.

  • Scope 1 refers to the direct emissions from an organization's operations, including company vehicles and buildings.

  • Scope 2 categorizes indirect emissions from purchased electricity, heating, and cooling.

  • Scope 3 comprises all other indirect emissions in a company's value chain.

Global Warming

An average increase in the temperature of the atmosphere near the Earth’s surface and in the troposphere, can contribute to changes in global climate patterns. Global warming can occur from a variety of causes, both natural and human-induced. In common usage, “global warming” often refers to the warming that can occur as a result of increased emissions of greenhouse gases from human activities.

Greenwashing

Greenwashing refers to the act of companies portraying a more sustainable, ethical, or “green” image of themselves for marketing purposes. Acts of greenwash occur when a company misinforms or makes unsubstantiated claims for a competitive advantage. Some jurisdictions have begun to legislate to combat greenwash. The EU’s taxonomy regulation is one example of a piece of legislation designed to prevent greenwashing behavior.

GRI - The Global Reporting Initiative

Founded in 1997 following public outcry over the Exxon Valdez oil spill, the GRI created the first global standards for sustainability reporting (the GRI Standards) and is today one of the most commonly used reporting frameworks, helping businesses, governments, and other organizations understand and communicate the impact of companies on critical sustainability issues.

GWP - Global Warming Potential

Each GHG has a GWP which is a factor referring to its heat-trapping ability relative to that of CO2. Because GHGs vary in their ability to trap heat in the atmosphere, some are more harmful to the climate than others. For example, methane is 25 times more potent than CO2, so methane has a GWP of 25.

IPCC - Intergovernmental Panel on Climate Change  

The IPCC is an intergovernmental body of the United Nations responsible for advancing knowledge on human-induced climate change. It provides policymakers with regular scientific assessments on climate change, its implications, and potential future risks and puts forward adaptation and mitigation options.

ISO 14064

Created in 2006, the ISO 14064 is an international standard for measuring and reporting greenhouse gas emissions. The standard is part of the International Standardization Organization environmental management standards and is broken into three parts, each with a different technical approach. Part 1 refers to the guidance of quantifying a greenhouse gas inventory for organizations using a bottom-up data collection approach. Part 2 addresses the quantification and reporting of emissions from individual project activities. Part 3 establishes a process to verify the validity of an organization’s emissions.

The ISO 14064 is continually being developed with new iterations improving and fine-tuning the standard. The ISO 14064 is consistent with and derived from the GHGP. The two documents differ in that the GHGP focuses on the provisions of best practices for making GHG inventories. At the same time, ISO14064 establishes minimum levels of compliance against the GHGP best practices. Although only slightly different, the two standards complement each other.

Kyoto Protocol

An extension of the UNFCCC, the Kyoto Protocol applies to seven greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3).

While the Convention asks industrialized countries to adopt policies to reduce GHG emissions, the Kyoto Protocol commits nations to taking specific action – limiting and reducing GHG emissions in accordance with agreed upon individual targets.

Materiality  

ESG issues or information are considered material if they need to be accounted for when considering an organization's risks and opportunities. Material issues are those that cannot be ignored when assessing the sustainability of a company. Materiality has now evolved to be a concept of  “double materiality.” Double materiality speaks to the fact that ESG issues or information can be material from both financial and non-financial perspectives.

Net Zero  

Net zero is a common target for organizations to commit to typically by 2050 as prescribed by the IPCC. It means to negate the amount of carbon your company emits by withdrawing the same amount of carbon through offsets and having it stored permanently in carbon sinks. 

(The) Paris Agreement

The Paris Agreement is a legally binding international treaty on climate change. It aims to limit global warming to well below 1.5°C, compared to pre-industrial levels. The long-term goal is to achieve a climate neutral world by mid-century. The Paris Agreement is a landmark for climate change because, for the first time, a binding agreement was enacted to bring all nations together to combat the climate crisis. It is estimated that in order to achieve the 1.5°C limit, the world will have to cut GHG emissions by 55% by 2030.

PCAF Partnership for Carbon Accounting Financials 

Published in 2020 as a response to industry demand for a global, PCAF is standardized approach to measure and report financed emissions, PCAF was created to add further guidance to the GHGP’s Scope 3, Category 15 (investment activities). The standard provides detailed methodological guidance to measure and disclose GHG emissions associated with six asset classes: Listed equity and corporate bonds, Business loans and unlisted equity, Project finance, Commercial real estate, Mortgages, and Motor vehicle loans.

Physical Risk

A type of risk caused by climate change that refers to the economic costs and financial implications resulting from climate change, such as increasing extreme
weather events, severe climate shifts, and other indirect effects of climate change (e.g. water shortage). An example of a physical risk would be the destruction of real estate, infrastructure, or land during a storm or flood event.

SDG Sustainable Development Goals  

SDGs are 17 interconnected goals for sustainable development set by the UN in 2015—their objective being for these goals to be met by 2030. The 17 goals aim to “provide a shared blueprint for peace and prosperity for people and the planet, now and into the future.” While these were originally intended to support Governmental progress, they are now widely used by companies to disclose their sustainability practices.

TCFD Task Force for Climate-Related Financial Disclosures 

Founded in 2017, the TCFD is an industry agnostic climate-related disclosure framework that established eleven recommendations across four key areas of interest: governance, strategy, risk management, and metrics and targets. The recommendations were designed to help companies provide better quality data to support informed capital allocation decisions. Unlike CDP, there is no score associated with reporting in line with TCFD, but it is the most commonly considered standard across regulators given the robustness of its considerations.

Transition Risk

A type of risk caused by climate change - related to the process of transitioning away from reliance on fossil fuels and toward a low-carbon economy, including shifts in climate policy, regulation of certain industries, and global market sentiment. An example of a transition risk would be a carbon tax. The International Monetary Fund recognizes that it is essential to integrate climate change risks into the analysis of financial risks and vulnerabilities.

UNFCCC - United Nations Framework Convention on Climate Change

Commonly referred to as “The Convention”, the ultimate goal of the UNFCCC was to stabilize greenhouse gas concentrations “at a level that would prevent dangerous anthropogenic (meaning human-induced) interference with the climate system. It states that “such a level should be achieved within a timeframe sufficient to allow ecosystems to naturally adapt to climate change, ensuring food production is not threatened and to enable economic development to proceed in a sustainable manner.” Today, Convention membership totals 197 countries. The onus was placed on developed countries to take action and lead the way.

Value Chain Emissions

GHG emissions from the upstream and downstream activities associated with the full scope of operations (value chain) of the reporting company.

Verification

An independent assessment of the reliability (considering completeness and accuracy) of a GHG inventory.

VRF Value Reporting Framework

Previously SASB, the VRF was founded in 2011 and 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 and eroded.

The VRF covers three frameworks: 

  • The Integrated Thinking Principles guide board and management planning and decision-making.

  •  The Integrated Reporting Framework provides principles-based, multi-capital guidance for comprehensive corporate reporting.

  •  The SASB Standards are a powerful tool to inform investor decision-making when embedded in investment tools and processes. 

These resources combined offer a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value.

© 2022 Persefoni AI Inc. All rights reserved. This presentation is the exclusive property of Persefoni and may not be copied or distributed, in whole or in part, without the express permission of Persefoni.

Persefoni is a leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.

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