ESG glossary for sustainability orientation

Embarking on a journey to comprehend this intricate subject requires familiarizing oneself with a multitude of seemingly cryptic concepts. To aid you in this endeavor, we have meticulously crafted an ESG glossary. It serves as your compass to navigate and seamlessly incorporate environmental, social, and governance factors into your company.

What does ESG mean? A glossary of the most common terms will give you an overview

ESG, non-financial data or non-financial reporting. These are aspects that almost no entrepreneur will miss in the coming years. This is due to the adoption of the CSRD, which introduces mandatory reporting of non-financial data for large companies, including their supply chains. Prepare for the upcoming changes in advance, perhaps with this glossary of the most common ESG terms.

CSR

The term Corporate Social Responsibility (CSR) refers to the practices and policies that are adopted by companies and organizations to take responsibility for making a positive impact on the world. It is a concept in corporate governance that integrates social and environmental commitments into the overall strategy of a company.

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Impact Investing

It is essentially about sustainable investment in companies or products that aim primarily to have a positive impact on the environment and society.

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Due diligence

Due diligence describes the status of measures taken to manage actual and potential negative impacts on human rights and the environment. This will now be addressed in a separate EU Directive.

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ESG

Environmental (E), social (S) and governance (G) factors are a set of criteria against which the sustainability and ethics of a company can be assessed. They provide a measure of the extent to which a company is prepared for a future beyond mere financial performance.

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ESG audit

This is an audit of non-financial data. It is currently possible to perform this audit using various commercial methodologies. However, a unified approach is being developed in the context of the CSRD (Corporate Sustainability Reporting Directive) deployment, which will put the non-financial audit on the same level of importance as the financial audit, which is widely known.

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GHG Protocol

The Greenhouse Gas Protocol is an initiative that aims to establish universal standardised procedures that can be used to assess the emissions performance of companies and organisations in a consistent manner.

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GHG Carbon footprint

This is a standardised expression of the carbon footprint that includes not only carbon dioxide (CO2) but also the other 6 substances identified by the Kyoto Protocol. You sometimes see it written as CO2e.

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Global Reporting Initiative (GRI)

The Global Reporting Initiative (known as GRI) is an independent international organisation that helps businesses and other organisations monitor and manage their environmental and social impacts by providing a common reporting process. Its standards also serve as one of the templates for the forthcoming European Reporting Standards (ERS).

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Greenwashing

Greenwashing most often takes the form of purposeful interpretation of data on the sustainability of a product, service or an entire company. One example is oil companies trying to hide their negative impact by offsetting emissions by purchasing commercial offsets in the form of "tree planting" in a several hundred year old native forest.

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Materiality / Double Materiality

Materiality/Dual Materiality is a term that plays a key role in ESG (Environmental, Social, Governance) reporting and considers both the impact of financial factors on the sustainability of the company (from the outside in) and the impact of sustainability factors on the financial performance of the company (from the inside out). This approach ensures a comprehensive analysis and consideration of the relevant sustainability aspects that affect the company's business and financial performance.

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Non-financial data

The ESG acronym can be summarised as 'non-financial data'. The carbon footprint, anti-corruption rules and equal working conditions are all aspects that may not have a direct financial impact on the company per se, but do have an impact on the company and can be reflected in practice. Therefore, assessing these factors is already important.

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Offset

Offsetting is the process of removing carbon dioxide or other greenhouse gas emissions from the atmosphere. This process can be carried out in different ways.

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CSRD Guidelines

The CSRD increases the transparency of financial products and defines the data that must be available to sufficiently inform the investor. A crucial element is the following EU Taxonomy Regulation, which defines what is considered sustainable and what is not.

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SFRD Directive

The SFDR requires banks to consider not only financial but also non-financial data when assessing credit applications from companies. These factors are not only important in setting interest rates, but can also influence the approval of the loan itself.

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Social criteria (S)

The social criteria cover a wide range of potential topics related to compliance with social and ethical standards. A key factor in this regard is the company's relationship with its employees and the community it affects.

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Socially Responsible Investing (SRI)

Socially responsible investing is based on individually chosen values. Transparency and non-financial data serve as the basis for an investor's decision as to whether or not a product meets their ethical and social responsibility criteria. This information allows the investor to better assess whether the investment is in line with his or her personal values and objectives in terms of sustainability and social impact.

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GRI Standards

Reporting standards create a common approach for organisations - whether large or small, private or public, financial or non-financial - to ESG reporting. This improves global comparability and enables organisations to be transparent and accountable.

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Sustainability management

Sustainability management is the term for sustainability management. It can be defined by an international standard or by its own policy. Software should be used to measure, evaluate and collect the necessary data. Automation helps to gain better visibility and control over data monitoring environmental impact.

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EU Taxonomy

Essentially, the Taxonomy Regulation aims to enable companies to clearly and easily determine whether their business is sustainable, particularly in terms of environmental sustainability, and to support the transition to sustainable financing through banks.

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Carbon neutrality

To be carbon neutral, a project or organisation must contribute (directly or indirectly) to removing the same amount of CO2 from the atmosphere as it has released into it. However, the concept of carbon neutrality has multiple definitions and forms, which may vary depending on the methodology and approach used in the calculations and offsetting measures.

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Carbon footprint

The amount of CO2 directly and indirectly impacted by society is measured in three areas, referred to as Scope 1, Scope 2 and Scope 3.

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Governance criteria (G)

Corporate governance is essential in the context of ESG to assess how well your company is governed.

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 Environmental criteria (E)

Environmental criteria focus on the assessment of a company in the context of environmental protection.

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