1.5°C goal

The Paris Agreement, a global commitment to combat climate change, calls for limiting global temperature increases to below 2°C above pre-industrial levels, with an even more ambitious target of 1.5°C if possible. It is widely recognized that surpassing the 1.5°C threshold could result in severe and irreversible climate impacts. To stay on track for a 1.5°C trajectory, scientists have determined that global emissions must be halved by 2030 and reach net zero by 2050.

2°C limit / 2°C goal

The Paris Agreement aims to limit global warming to below 2 degrees Celsius, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To achieve this long-term temperature goal, countries aim to reach the global peaking of greenhouse gas emissions as soon as possible to achieve a climate-neutral world by mid-century. Scientists have determined that to follow a 1.5 degrees Celsius trajectory, the world must cut its emissions in half by 2030 and reach net zero by 2050. It is widely recognized that surpassing the 1.5 degrees Celsius threshold could result in severe and irreversible climate impacts.

Accuracy gap (in Carbon accounting)

The accuracy gap refers to the variance between the emissions a company calculates and the emissions for which it is held accountable. Closing this gap is crucial for businesses to mitigate risks, including potential legal non-compliance, and to gain benefits such as enhanced brand equity. The accuracy gap often arises due to methodological discrepancies and data used in estimating emissions. Comprehensive and scientifically sound carbon accounting practices can enable businesses to bridge the accuracy gap and ensure more accurate emissions reporting.

Atmosphere

The atmosphere is the gaseous layer that surrounds our planet. Interestingly, oxygen is not the most abundant gas in Earth’s atmosphere. The composition of Earth’s atmosphere is primarily nitrogen (78.1%), followed by oxygen (20.9%), argon (0.93%), carbon dioxide (0.04%), and other gases (such as neon, helium, methane, and krypton).

Base year in carbon accounting

Defining a base year is crucial to establish emission reduction targets and initiatives that pave the way towards achieving net zero emissions. Therefore, the annual reduction targets are typically determined as a percentage of the total emissions in the selected base year.

Beyond value chain mitigation (BVCM)

Beyond value chain mitigation (BVCM) refers to measures undertaken by companies to avoid, reduce, or eliminate greenhouse gas emissions that occur outside their value chain. These measures can include compensation and neutralisation efforts. BVCM should complement, rather than substitute for, decarbonization efforts.

Biodiversity

Biodiversity encompasses the diverse range of life forms on our planet, from genes to species, communities, and entire ecosystems. The significance of safeguarding Earth’s biodiversity is underscored by Sustainable Development Goal 15: Life on Land, which emphasises the need to protect and preserve biodiversity on land.

Biofuel

Biofuels are energy sources obtained from biological materials, including crops, vegetable oils (both new and used), animal fats, and different types of waste. Biofuels have the potential to supplement or replace conventional fossil fuels, though their greenhouse gas mitigation capacity can vary significantly depending on the specific type of biofuel.

Blue bond

Blue Bonds are bond instruments designed to generate capital for projects that deliver environmental, social, or economic benefits related to marine or ocean conservation. The inaugural blue bond was introduced in 2018, marking a pioneering step in sustainable finance for marine conservation initiatives.

Cap & Trade

Cap and trade is a market-oriented strategy to reduce greenhouse gas (GHG) emissions. Under this approach, a governing body assigns a limited number of permits that grant the holder the right to emit a specific quantity of GHGs during a designated time frame. Companies exceeding their allocated emissions limit must purchase additional permits from other entities willing to sell them, creating a market for emissions permits. This approach incentivises companies to reduce their emissions and provides flexibility for emissions management.

Carbon accounting

Carbon accounting is a process to measure (or account) the carbon dioxide equivalents (CO₂e) of an organisation or entity, including all greenhouse gases such as CO₂, methane, nitrous oxide, and fluorinated gases. It involves systematic methodologies, measurement, and monitoring to evaluate and quantify emissions expressed as carbon equivalents.

Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) is a mechanism that imposes a carbon price on imported products from countries with less stringent national climate change policies. It aims to mitigate the risk of carbon leakage and was introduced by the European Commission in 2021.

Carbon budget

The carbon budget refers to the total amount of greenhouse gases that can be emitted into the atmosphere by the end of this century while maintaining global temperature increases below pre-industrial levels. As per the IPCC, the maximum amount of CO₂ that can be absorbed by the atmosphere, calculated from the beginning of 2020, is 400 gigatonnes (Gt) to stay below the 1.5°C threshold. Current annual CO₂ emissions from various sources like fossil fuel burning, industrial processes, and land-use change are estimated to be 42.2 Gt annually. If emissions continue at the current rate, the carbon budget for staying below the 2°C threshold would be used up in approximately 25 years. It’s important to note that the concept of the carbon budget is based on a nearly linear relationship between cumulative emissions and temperature rise, but this doesn’t necessarily mean that the Earth will warm by exactly 1.5°C when the remaining carbon budget for staying below the 1.5°C threshold is exhausted.

Carbon capture and Carbon capture and storage (CCS)

Carbon capture is the process of capturing carbon dioxide from emission sources, such as power plants and storing it securely underground, reducing its release into the atmosphere. It involves a range of technologies, from forestry to air-filtering machinery, and is often used as a compensation effort to combat carbon emissions.

Carbon credit

The carbon credit system offers an incentive for companies to reduce their emissions. It involves setting an emission cap, which is periodically decreased. If a company exceeds this limit, it incurs a fine. In addition, unused certificates can be sold to other companies, creating a market-oriented mechanism for reducing greenhouse gas emissions. As a result, the total number of available credits is decreased gradually over time to help reduce global greenhouse gas emissions.

Carbon dioxide (CO₂)

Carbon dioxide (CO₂) is a colourless, odourless gas that occurs naturally in the atmosphere. It is a greenhouse gas and one of the most common contributors to global warming. CO₂ is released through human activities like burning fossil fuels, deforestation, and natural processes. Human activities primarily cause an increase in atmospheric CO₂ concentration. Other greenhouse gases, such as methane, nitrous oxide, and fluorinated gases, also contribute to climate change

Carbon dioxide equivalent (CO₂e)

Carbon dioxide equivalent (CO₂e) is a unit of measurement used to quantify the climate effects of various greenhouse gases based on their Global Warming Potential (GWP). It provides a standard scale for comparing the warming potential of different gases to that of carbon dioxide (CO₂). CO₂e is more accurate than CO₂ alone in greenhouse gas accounting because it accounts for the GWPs of all gases that contribute to warming. For example, methane has a GWP of 28 CO₂e, which traps 28 times more heat than CO₂ over 100 years.

Carbon Disclosure Project (CDP)

The Carbon Disclosure Project (CDP) is a global non-profit organisation encouraging companies, cities, states, and regions to disclose their environmental data, including carbon emissions, water usage, and forest conservation efforts. The CDP provides a platform for organisations to measure, disclose, manage, and mitigate their environmental impacts. The CDP operates on behalf of institutional investors, purchasing organisations, and governments, intending to drive transparency, accountability, and action on climate change and environmental sustainability. The organisation collects data from thousands of companies worldwide, and investors, businesses, and policymakers use the information to make informed decisions about climate-related risks and opportunities. Companies that disclose their environmental data through the CDP are assessed on their environmental performance and given scores and ratings, which are publicly available through annual reports and an online platform. In addition, the CDP provides guidance and resources to help companies improve their environmental performance and management practices. The Carbon Disclosure Project plays a key role in promoting environmental transparency, corporate sustainability, and climate risk management. It encourages companies to take action on climate change, reduce their greenhouse gas emissions, and adopt sustainable business practices to address the global environmental challenges.

Learn more about the CDP here.

Carbon footprint

A carbon footprint refers to the total greenhouse gas emissions, both direct and indirect, associated with a specific product, activity, individual, project, organisation, or state.

Carbon markets

The concept of carbon markets was introduced by the Kyoto Protocol, which established three market mechanisms – International Emissions Trading (IET), Joint Implementation, and Clean Development Mechanism – to reduce emissions. The objective of a carbon market is to provide economic incentives for companies to reduce their emissions, as they can sell unused emissions allowances to other companies. Carbon markets, such as cap-and-trade systems or carbon taxes, can take various forms. Still, the underlying principle is to utilise market forces to lower greenhouse gas emissions and address climate change.

Carbon negative

Being “carbon negative” or “climate positive” means that a business or organisation’s activities result in a net decrease in the amount of carbon in the atmosphere. That goes beyond just achieving net zero emissions and involves actively removing additional carbon dioxide from the atmosphere, resulting in an environmental benefit.

Read more about the topic here.

Carbon neutrality

The concept of carbon neutrality means that a business or organisation’s core activities do not result in any additional greenhouse gas (GHG) emissions on balance. That can be achieved by compensating or offsetting the emissions through various means. However, to meet the goals of the Paris Agreement, companies must go beyond carbon neutrality and strive for net zero emissions, which involves actively removing or offsetting more emissions than they produce. 

Carbon sequestration

Carbon sequestration refers to capturing and storing carbon dioxide (CO₂) from the atmosphere or other sources to reduce its concentration in the atmosphere and mitigate climate change. It is a critical strategy for addressing the increasing levels of greenhouse gases in the atmosphere contributing to global warming. There are various natural and artificial methods of carbon sequestration. Natural methods include the uptake and storage of carbon by forests, soils, and oceans through photosynthesis, soil organic matter accumulation, and oceanic absorption. Artificial methods involve capturing and storing carbon from industrial processes, such as carbon capture and storage (CCS) technologies that capture CO₂ emissions from power plants or other industrial sources and store them underground or in other long-term storage methods. Carbon sequestration has gained significant attention as a climate change mitigation strategy, as it has the potential to help reduce the concentration of CO₂ in the atmosphere and slow down global warming. However, it raises concerns about potential environmental impacts, costs, and long-term effectiveness. Therefore, proper monitoring, verification, and management are crucial to ensure the effectiveness and sustainability of carbon sequestration efforts.

Carbon tax

A carbon tax is a form of environmental tax levied on the emission of carbon dioxide (CO₂) and other greenhouse gases by industrial activities, transportation, and other sectors contributing to climate change. It is designed to create an economic incentive for reducing greenhouse gas emissions and mitigating climate change. A carbon tax typically involves setting a price per unit of CO₂ or other greenhouse gas emissions, which companies or individuals must pay based on the emissions they release. A carbon tax aims to internalise the external costs of greenhouse gas emissions, which are often not accounted for in market prices, and provide a financial disincentive for activities that contribute to climate change. The revenue generated from a carbon tax can be used in various ways, such as funding renewable energy projects, supporting climate change adaptation efforts, or providing rebates to low-income households. Carbon taxes are often considered a market-based mechanism to incentivize the transition to a low-carbon economy and reduce greenhouse gas emissions. Carbon taxes are implemented in different ways in different jurisdictions, and their effectiveness and impact on the economy, industries, and consumers can vary depending on the specific design and implementation. Proponents argue that carbon taxes can effectively reduce greenhouse gas emissions, while critics raise concerns about potential economic and distributional effects.

Circular Economy

The circular economy is an economic model that aims to reduce waste, conserve resources, and minimise environmental impact by optimising the use of materials, products, and services through a continuous cycle of design, production, consumption, and recovery. It is based on “reduce, reuse, and recycle” principles. It seeks to create a regenerative and sustainable system where resources are used efficiently, waste is minimised, and the value of products and materials is retained as long as possible. In a circular economy, products are designed to be durable, repairable, and recyclable. Materials are used for as long as possible through refurbishment, remanufacturing, and recycling. The circular economy also emphasises the importance of extending the lifespan of products and reducing overconsumption by promoting sharing, leasing, and other collaborative consumption models. The circular economy goes beyond traditional “take-make-dispose” linear models of production and consumption, which generate significant waste and environmental degradation. Instead, it seeks to close the loop of resource use, creating a more sustainable and regenerative system that promotes economic, social, and ecological well-being. The circular economy concept has gained increasing attention and adoption in business, policy, and academia to address pressing environmental challenges, such as resource depletion, pollution, and climate change. It is seen as a promising approach to decoupling economic growth from resource consumption and waste generation and promoting a more sustainable and resilient economy for the future.

Climate change or global warming

As per the United Nations, climate change refers to long-term temperature and weather patterns shifts. While some of these shifts may occur naturally, since 1800, human activities have become the primary driver of climate change, mainly due to burning fossil fuels such as coal, oil, and gas. These activities release greenhouse gases into the atmosphere and oceans, surpassing the capacity of natural cycles to cope. As a result, it leads to rapid shifts and changes in both local and global climates. The consequences of climate change extend beyond just warmer temperatures. Examples of its effects include intense droughts, water scarcity, severe fires, flooding, storms, and a decline in biodiversity. It is important to note that climate change has far-reaching impacts beyond temperature changes, affecting various aspects of our environment and ecosystems.

Climate positive

A business can be considered climate-positive (or carbon negative) if the overall outcome of its activities reduces carbon in the atmosphere. That goes beyond net zero, which aims to balance carbon emissions with removals. Being climate positive signifies actively removing more carbon from the atmosphere than the business emits, resulting in a net decrease in atmospheric carbon levels.

Corporate Carbon Footprint (CCF)

Corporate Carbon Footprint refers to the total amount of greenhouse gas (GHG) emissions, typically measured in carbon dioxide equivalents (CO₂e), that are released into the atmosphere as a result of a company’s operations, including its direct and indirect emissions from activities such as production, transportation, energy use, waste disposal, and purchased goods and services. Corporate Carbon Footprint is a commonly used metric to assess a company’s contribution to climate change by quantifying its GHG emissions. It encompasses both the company’s direct emissions (Scope 1 emissions) from sources that are owned or controlled by the company, such as the combustion of fossil fuels in on-site operations, and its indirect emissions (Scope 2 and Scope 3 emissions) from sources outside of the company’s ownership or control, such as purchased electricity, business travel, and supply chain emissions. Calculating and managing Corporate Carbon Footprint is a key aspect of corporate sustainability and environmental stewardship efforts. By understanding and mitigating their carbon footprint, companies can identify opportunities to reduce emissions, improve operational efficiency, mitigate climate-related risks, enhance brand reputation, and contribute to global efforts to combat climate change. Corporate Carbon Footprint is also called “organisational carbon footprint” or “company carbon footprint.”

Corporate Sustainability Due Diligence / Corporate Sustainability Due Diligence Directive (CSDD / CSDDD)

The transformation into a sustainable economy is an essential priority for the European Union. Examples are the European Green Deal and related regulations like the Corporate Sustainability Reporting Directive, the Sustainable Finance Disclosure Regulation or the EU Taxonomy. Companies play an essential role in transitioning into a sustainable future, where the term “sustainable” applies to environmental, social, and economic topics. A harmonised EU legal framework on corporate sustainability due diligence for human rights and environmental impacts is expected to advance this transition. If the Corporate Sustainability Due Diligence Directive gets adopted, it would require companies to identify, prevent, end, or mitigate not only actual but also potential impacts on the environment and human rights. Moreover, conducting due diligence would not be limited to their operations but would extend to the activities of their subsidiaries, including the value chain.

Read more about the CSDDD in our blogpost here.

Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is an EU legislation that sets the standard for nearly 50,000 companies in the EU to report their climate and environmental impact. In addition, it introduces more detailed reporting requirements and expands the number of companies that must comply. The European Commission adopted the CSRD in late 2022. The CSRD applies to large companies with at least 250 employees, a turnover above €40M, or €20M in assets. The policy aims to help investors, consumers, policymakers, and other stakeholders evaluate the non-financial performance of large companies.

Read more about the CSRD here.

Decarbonisation

Decarbonisation refers to reducing or eliminating carbon emissions generated by human activities to mitigate climate change. It involves implementing measures and strategies to remove or reduce carbon emissions from the actions of organisations or individuals. Decarbonisation efforts encompass various sectors, such as energy, transportation, industry, buildings, agriculture, etc.

Decarbonisation differs from climate neutrality because it focuses on reducing absolute carbon emissions and intensity rather than solely relying on carbon credits. Climate neutrality may be achieved by offsetting emissions by purchasing carbon credits without necessarily addressing the root causes of carbon emissions. In contrast, decarbonisation aims to directly reduce or eliminate carbon emissions through a range of measures, such as transitioning to renewable energy sources, improving energy efficiency, adopting low-carbon technologies, changing production processes, promoting sustainable practices, and more.

Decarbonisation is crucial in combating climate change and achieving long-term sustainability goals. It involves systemic changes at various levels, including policy, technology, behaviour, and infrastructure, to transition towards a low-carbon and climate-resilient future. Decarbonisation is a critical component of global efforts to mitigate the impacts of climate change.

Direct air capture (Carbon removal)

Direct Air Capture (DAC) of CO₂ is a technology that directly removes carbon dioxide from the atmosphere. It is considered a form of carbon capture and storage (CCS) that aims to mitigate the impacts of climate change by reducing greenhouse gas emissions. DAC technologies typically use chemical processes to capture carbon dioxide from ambient air, and the captured carbon dioxide can be stored or utilised in various ways, such as in enhanced oil recovery, utilisation in industrial processes, or permanent storage in underground geological formations. DAC has gained attention as a potential tool to help achieve climate goals by actively removing CO₂ from the atmosphere. DAC is also sometimes referred to as “air capture,” “direct carbon capture,” or “carbon air capture.”

Divestment

Divestment refers to selling or otherwise disposing of investments in specific companies, industries, or sectors, often as a deliberate action to reduce or eliminate financial holdings considered ethically or socially undesirable. In the context of environmental, social, and governance (ESG) considerations, divestment is often used by investors or organisations to remove investments from companies associated with activities deemed harmful to the environment, society, or human rights.

That can include divestment from fossil fuel companies, weapons manufacturers, tobacco producers, and other sectors or industries with negative social or environmental impacts. Divestment is typically driven by ethical, social, or sustainability concerns and is seen as a way to align investment portfolios with specific values or principles.

Divestment can also be used as activism to pressure companies to change their practices or policies. It is important to note that divestment can have financial implications, as it involves selling or divesting from certain investments and may have implications for risk management and financial performance.

Double counting (in carbon accounting)

Double counting carbon emissions refers to the unintentional or deliberate counting of the same carbon emissions multiple times in different contexts or accounting systems, resulting in overestimating total emissions. It can occur in various scenarios, such as in carbon offset projects, international emissions reporting, or in the accounting of emissions associated with supply chains or product life cycles.

Double Materiality

Double materiality refers to the concept that sustainability risks and opportunities are relevant not only to a company’s financial performance but also to the broader societal and environmental impacts of its operations. It emphasises that a company’s impacts on the environment and society can, in turn, affect its financial performance. Therefore, sustainability considerations should be considered from both financial and non-financial perspectives. In the context of sustainability reporting, double materiality means that a company should not only disclose the material risks and opportunities that directly impact its financial performance (financial materiality). It should also disclose those that have significant social, environmental, and governance (ESG) impacts (non-financial materiality). That implies that companies need to consider not only the financial implications of sustainability issues but also the broader implications on stakeholders, including communities, ecosystems, and society at large.

Downstream emissions

Downstream emissions are part of a company’s scope 3 emissions, which refer to greenhouse gas emissions that occur during a product or service’s use, disposal, or end-of-life stage. These emissions are released after the product has been manufactured and delivered to the end user or consumer. Downstream emissions are often associated with the consumption or utilisation of products, such as the burning of fossil fuels for energy or the release of emissions during the disposal or decomposition of waste. Managing and reducing downstream emissions, including scope 3 emissions, is essential to addressing climate change and achieving sustainability goals, as they represent a significant portion of a company’s or organisation’s overall carbon footprint.

Embodied Carbon

CO₂ emissions are often understood as those that arise during an asset’s use or operation (e.g. a building or other infrastructure). Less obvious are emissions already “embedded” in a building or infrastructure. Emissions that result from raw material extraction, the production of building materials, and other processes up to the decommissioning are referred to as “Embodied Carbon”. More specifically, the term “Embodied Carbon” refers to those greenhouse gas emissions that occur or have already occurred during the entire lifecycle of a building and cannot be attributed to “Operational Carbon”. That includes all processes upstream and downstream of the actual usage phase. That also includes CO₂ emissions from extensive renovation or refurbishment.

Emission factors (Carbon accounting)

An emission factor (EF) quantifies the amount of greenhouse gas emissions associated with a specific activity or unit of product or service. For instance, it can measure the additional emissions linked to spending one euro on clothing or transportation or purchasing one kilogram of textile or one litre of fuel. Emission factors are used to estimate a company’s emissions based on their reported spending on different products and services or by more detailed reporting of quantities of purchased items.

Spend-based emission factors provide a rough estimate of a company’s emissions based on expenditure. In contrast, activity-based emission factors provide a more accurate estimate by considering the quantities of all purchased items. Emission factors are essential tools for measuring and tracking greenhouse gas emissions, and they can assist companies in evaluating and managing their environmental impact, as well as in setting emissions reduction targets and implementing mitigation measures.

Emissions Trading

Emissions trading or cap-and-trade: Under this approach, a governing body assigns a limited number of permits that grant the holder the right to emit a specific quantity of GHGs during a designated time frame. Companies exceeding their allocated emissions limit must purchase additional permits from other entities willing to sell them, creating a market for emissions permits. This approach incentivises companies to reduce their emissions and provides flexibility for emissions management.

Environment (the “E” in “ESG”)

Environmental criteria or Environment as in the “E” in “ESG” focus on the input and output of a company. Examples are energy and water consumption. But also on waste and by-products. Carbon emissions are directly linked to energy usage, which is also considered. Every business affects and is affected by the environment. Risk exposure to climate change is one example almost every company faces.

Environment, Social, Governance (ESG)

ESG, which stands for Environmental, Social, and Governance, is a framework used to evaluate a business’s non-financial performance in environmental impact, social responsibility, and governance practices. The increasing interest in measuring and ranking ESG by investors and other stakeholders reflects the recognition that environmental, social, and governance aspects are crucial in assessing business success.

Environmental factors encompass a company’s policies on climate change, decarbonisation efforts, natural resource management, pollution and waste management, and other related factors. Social criteria encompass human rights, labour standards across the supply chain, community integration, and additional social dimensions. Governance includes business ethics, compliance, accurate accounting practices, executive salaries, shareholder structure, and the company’s commitment to integrity and diversity in leadership selection.

ESG Ratings

Typically ESG ratings or scores are provided by a rating provider. The resulting ESG rating or score is often used to make investment decisions. Published ESG reports are often used in ESG scoring and rating. In the long term, ESG reporting can impact ESG scores and ratings.

ESG risks and opportunities

ESG can be an effective tool for risk management. The core is to look in detail at the risks related to ESG issues. But there is more than risk coverage since there are opportunities for long-term value creation too. Long-term value creation depends on how companies can adapt to climate change, minimise carbon emissions, deal with the scarcity of natural resources, and handle social topics and governance matters.

ESG- or Sustainability Reporting

Sustainability reporting is a way for companies to disclose their environmental and social performance, which includes their impact on ESG (environmental, social, and governance) factors. In some jurisdictions, sustainability reporting is mandatory for companies of a specific size. However, even when it’s not mandatory, customers, investors, and potential employees increasingly demand information about the sustainability performance of companies. An ESG report is a type of sustainability report focusing on a company’s environmental, social, and governance impact.

EU Taxonomy (Regulation)

The EU Taxonomy is an EU-wide framework established to classify economic activities based on environmental sustainability, which involves four core requirements. Firstly, the activities must substantially contribute to at least one of the six environmental objectives. Secondly, they must not cause significant harm to any of the other environmental objectives. Thirdly, they must comply with robust and science-based technical screening criteria. Lastly, compliance with minimum social and governance safeguards is also required.

Read more about the EU Taxonomy here.

European Green Deal / EU Green Deal

The European Green Deal is a comprehensive strategy and policy framework launched by the European Commission in 2019 to achieve sustainable and inclusive economic growth for the European Union (EU) while addressing climate change and environmental challenges. It sets a roadmap for transitioning Europe into a climate-neutral, resource-efficient, and circular economy by 2050, in line with the Paris Agreement and the United Nations’ Sustainable Development Goals.

The European Green Deal encompasses a wide range of policy initiatives and actions that aim to transform various sectors, including energy, transport, agriculture, industry, buildings, and finance. It includes measures to reduce greenhouse gas emissions, increase energy efficiency, promote renewable energy, protect biodiversity, improve air and water quality, promote sustainable agriculture and food systems, foster circular economy principles, and support a just transition for all citizens and regions.

The European Green Deal also emphasises the social dimension of sustainability, focusing on creating green jobs, promoting social fairness, and addressing inequalities. It seeks to mobilise public and private investments to finance the transition to a green and sustainable economy and ensure a fair and inclusive transition that leaves no one behind. The European Green Deal represents an essential policy framework for the EU to address the urgent and complex challenges of climate change, environmental degradation, and sustainability and to become a global leader in green innovation, competitiveness, and sustainability.

European Sustainability Reporting Standard (ESRS)

The European Sustainability Reporting Standard (ESRS) is a set of guidelines and requirements for sustainability reporting developed by the European Union (EU) to standardise and improve sustainability reporting practices across European companies. The ESRS is part of the EU’s efforts to promote sustainability and enhance transparency and accountability among businesses in addressing environmental, social, and governance (ESG) issues. The ESRS is being developed as part of the EU’s Sustainable Finance Action Plan, which aims to channel investments towards sustainable activities, promote long-term sustainability, and facilitate the transition to a more sustainable economy. The ESRS is expected to provide guidelines for reporting on a wide range of sustainability topics, including climate change, environmental impacts, social and labour issues, human rights, anti-corruption, and diversity.

Read more about the ESRS here.

Financial Materiality

Financial materiality refers to the concept that certain information or factors can significantly impact a company’s financial performance or financial statements and are therefore considered material for financial reporting purposes. Materiality is a fundamental accounting concept that helps determine the relevance and significance of information for decision-making by investors, lenders, and other stakeholders. In financial reporting, materiality is assessed based on the nature and magnitude of an item and the potential influence it may have on users’ decisions. Financially material information is considered significant enough to impact the assessment of a company’s financial position, financial performance, or cash flows. Materiality is a matter of judgement and depends on the specific circumstances of each company and its stakeholders.

Fossil fuels

Fossil fuels are natural resources formed over long periods in the Earth’s crust from the remains of deceased plants and animals. They are primarily used as a source of fuel. According to the United Nations, burning fossil fuels is responsible for over 80% of the carbon dioxide (CO₂) emissions caused by human activities. The extraction, combustion, and resulting emissions of fossil fuels harm the carbon cycle, disrupting the balance needed for climate stability and a healthy biosphere. Examples of fossil fuels include petroleum, coal, and natural gas, among others.

Global Reporting Initiative, GRI

The Global Reporting Initiative (GRI) is a globally recognised and widely used framework for sustainability reporting. It provides guidelines and standards for organisations to report on their environmental, social, and governance (ESG) performance transparently and comprehensively. The GRI was established in 1997 as a non-profit organisation based in Amsterdam, Netherlands, and has since become one of the most widely used frameworks for sustainability reporting.

The GRI framework is based on reporting principles, including stakeholder inclusiveness, sustainability context, materiality, and completeness, which guide organisations in reporting their sustainability performance comprehensively and meaningfully. In addition, the GRI framework includes reporting standards that provide specific guidance on reporting topics, such as greenhouse gas emissions, water use, labour practices, human rights, and product responsibility.

These standards help organisations define and report on their sustainability impacts and performance consistently and reasonably. The GRI emphasises the importance of materiality in sustainability reporting, which means focusing on the most relevant and significant sustainability issues for the organisation and its stakeholders. GRI encourages organisations to engage with their stakeholders in the sustainability reporting process, including identifying and involving key stakeholders, understanding their sustainability concerns, and reporting on how their input has been considered in the sustainability report. 

Global warming

Global warming refers to the long-term increase in Earth’s average surface temperature due to human activities, primarily releasing greenhouse gases into the atmosphere. Greenhouse gases, such as carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O), trap heat in the atmosphere, leading to a warming effect on the planet. Human activities have significantly increased the concentration of greenhouse gases in the atmosphere, leading to accelerated global warming. The consequences of global warming include rising sea levels, more frequent and severe weather events, melting glaciers and polar ice caps, disruption of ecosystems, and impacts on human health and agriculture. Efforts to mitigate global warming include reducing greenhouse gas emissions, transitioning to renewable energy sources, promoting energy efficiency, adopting sustainable land management practices, and raising awareness about the need for climate action. The Intergovernmental Panel on Climate Change (IPCC) is a leading authority on global warming and provides scientific assessments and guidance on climate change to policymakers and the public.

Global Warming Potential (GWP)

Greenhouse gases vary in their chemical compositions and properties, resulting in different strengths and durations of contribution to the greenhouse effect. The Global Warming Potential (GWP) index is a widely used measure to assess the relative warming effects of these gases, with carbon dioxide (CO₂) serving as the baseline. The GWP index provides a standardised comparison by calculating the relative impact of different greenhouse gases in terms of CO₂ equivalents. Choosing an appropriate time horizon for these calculations is essential, as different gases have varying lifetimes (e.g., methane dissipates more quickly than carbon dioxide).

Green bonds

Green bonds are instruments issued to raise funds for sustainability or climate-related investments. These bonds are similar to traditional bonds in that they pay interest to investors. Still, the proceeds from the sale of green bonds are earmarked for projects with a positive environmental impact. As a result, green bonds generally have the same credit rating as the issuer’s traditional bonds, and their maturity, coupon, and other terms are similar to conventional bonds. However, they may have additional features, such as a “use of proceeds” clause, which ensures the funds are used exclusively for eligible environmental projects.

Greenhouse gas protocol (GHG protocol)

The Greenhouse Gas Protocol (GHG Protocol) is a globally recognised standard that provides guidelines for measuring and managing greenhouse gas emissions. Established in 1990, the GHG Protocol was developed to address the need for a consistent framework for reporting greenhouse gas emissions. Today, it collaborates with governments, industry associations, NGOs, corporations, and other organisations to provide widely used guidelines for calculating emissions. By providing a unified framework for emission management, the GHG Protocol has facilitated decarbonisation efforts across both public and private sectors.

Greenhouse gases (GHGs)

Greenhouse gases (GHGs) are gases in the Earth’s atmosphere that trap heat and contribute to the greenhouse effect, resulting in the planet’s warming. Carbon dioxide (CO₂), ozone (O₃), methane (CH₄), and nitrous oxide (N₂O) are among the major gases responsible for the increase in atmospheric temperatures.

Greenwashing

Greenwashing is the act of presenting misleading or false information about a company’s sustainability practices or environmental impact. Greenwashing can involve misrepresenting a company’s environmental efforts, overstating its sustainability initiatives, or providing incomplete or inaccurate information about its environmental practices. Therefore, companies must be transparent and genuine in their sustainability claims to avoid greenwashing and promote authentic sustainability practices.

Intergovernmental Panel on Climate Change (IPCC)

The Intergovernmental Panel on Climate Change (IPCC) is a United Nations intergovernmental body tasked with advancing our understanding of human-induced climate change. Established in 1988 and headquartered in Geneva, Switzerland, the IPCC comprises 195 member states. It compiles comprehensive assessment reports synthesising the latest scientific, technical, and socio-economic knowledge on climate change. These assessment reports have played a pivotal role in informing international policymaking related to climate change.

International Financial Reporting Standards (IFRS)

The International Financial Reporting Standards (IFRS) are a comprehensive set of global accounting standards used by companies for the preparation and publication of their financial statements. The IFRS is governed by the International Accounting Standards Board (IASB), which oversees its operation.

International Integrated Reporting Council (IIRC)

The International Integrated Reporting Council (IIRC) is a global coalition of stakeholders who advocate for adopting Integrated Reporting worldwide. The aim is to enhance communication about value creation, promote the evolution of corporate reporting, and contribute to financial stability and sustainable development.

Life cycle assessment (LCA)

Life Cycle Assessment (LCA) is a methodology used to assess a product’s environmental impact throughout its entire life cycle, from raw material extraction to manufacturing, use, and end-of-life disposal or recycling. LCA is a comprehensive and systematic approach that considers the environmental impacts of all stages of a product or process, including energy and resource use, emissions to air, water, and soil, waste generation, and other environmental burdens. LCA involves quantifying and evaluating a product’s or process’s ecological or environmental impacts by analysing its inputs (e.g., materials, energy) and outputs (e.g., emissions, waste) at each stage of its life cycle. The assessment considers the direct impacts (e.g., emissions from production processes) and indirect impacts (e.g., emissions from the production of raw materials or energy used during the life cycle) associated with the product or process. LCA is widely used in various industries, including manufacturing, construction, transportation, and consumer goods, to support sustainability and environmental management efforts. 

Materiality Assessment

Materiality assessment is used in various fields, including accounting, sustainability reporting, and risk management, to determine the significance or importance of certain factors or information. It involves evaluating the relevance, significance, and impact of specific elements in relation to the overall context or objective of a particular situation or decision-making process. Look up the terms “financial materiality” or “double materiality” for further details.

Methane (CH₄)

Methane (CH₄) is a potent greenhouse gas that significantly impacts our climate system and the earth’s temperature. Despite carbon dioxide (CO₂) having a longer atmospheric lifespan, methane has a much higher global warming potential (GWP) than CO₂. Agricultural activities contribute to approximately one-quarter of methane emissions, with the energy sector being another significant source.

Near-term science-based targets (SBTi)

Near-term science-based targets are goals set for the next five to ten years, aimed at reducing emissions by 50% compared to a baseline year. These targets are an initial assessment of a company’s progress towards achieving net-zero emissions by 2050, providing a reality check on their decarbonisation journey.

Net zero

Net zero refers to a state where the total amount of greenhouse gases (GHG) emitted into the atmosphere is balanced by removing an equivalent amount of GHG, resulting in no net increase in GHG levels. This concept is commonly applied to companies, countries, individuals, industries, geographic regions, or even the entire planet as a goal for reducing GHG emissions. Achieving net zero involves cutting emissions as close to zero as possible and compensating for any remaining emissions. Net zero is fundamental to addressing climate change and mitigating its environmental impact.

Nitrous oxide (N₂O)

Nitrous oxide (N₂O) is a greenhouse gas that contributes to the greenhouse effect. In addition to natural sources, agricultural activities and using fertilisers are significant contributors to nitrous oxide emissions. Approximately 40% of total global N₂O emissions result from human activities. The Intergovernmental Panel on Climate Change (IPCC) has estimated that nitrous oxide accounts for about 6% of all greenhouse gas emissions.

Ozone (O₃)

Ozone (O₃) is a pale blue gas composed of three oxygen atoms that exist in various layers of Earth’s atmosphere. Ozone is typically not emitted directly into the atmosphere but forms at ground level through chemical reactions. While ozone layer depletion does not directly contribute to global warming, it can adversely affect human health.

Paris Agreement

The Paris Agreement was reached in 2015 at COP21, the United Nations Framework Convention on Climate Change (UNFCCC). It was an agreement among parties to collectively combat climate change and work towards limiting the projected global temperature increase to below 2°C, with a goal of aiming for 1.5°C.

Science-based target (SBTi, Carbon accounting)

A science-based emissions reduction target aligns with the guidance provided by climate science to achieve the objectives of the Paris Agreement, which aims to limit global warming to below 2°C above pre-industrial levels, with a more ambitious goal of 1.5°C if possible.

Science-Based Targets initiative (SBTi)

The Science Based Targets initiative (SBTi) is a collaboration between the CDP, the UNGC, the WRI, and the WWF. It advocates for setting science-based targets to enhance companies’ competitive advantages in transitioning to a low-carbon economy. SBTi encourages companies to set targets aligned with the Paris Agreement and provides general and industry-specific guidance on how to meet these targets.

Scope 1 emissions / Direct emissions (GHG protocol)

Scope 1 emissions are direct greenhouse gas (GHG) emissions that result from a company’s business activities and are generated by company-owned and controlled resources. This includes activities such as on-site combustion, the operation of fossil-fuel power plants owned by the organisation, and other processes.

Scope 2 emissions / Indirect emissions (GHG protocol)

Scope 2 emissions refer to indirect greenhouse gas (GHG) emissions that result from the generation of purchased electricity, heat, or steam consumed by a company. These emissions are considered indirect because they occur offsite, at the location where the electricity, heat, or steam is generated, but are associated with the company’s operations. Scope 2 emissions are categorised as part of a company’s overall carbon footprint and are typically reported separately from scope 1 emissions, which are direct emissions from the company’s own activities. Scope 2 emissions are often reported using internationally recognised standards, such as the GHG Protocol, to ensure consistency and comparability across different companies and industries. Monitoring, measuring, and reducing scope 2 emissions are essential for companies seeking to manage and mitigate their environmental impacts and contribute to global efforts to address climate change.

Scope 3 emissions / Indirect emissions (GHG protocol)

Scope 3 emissions, also called value chain emissions, encompass all indirect emissions that occur in a company’s value chain and are not included in scope 1 or scope 2 emissions. These emissions result from sources that the company does not own or control. Scope 3 emissions have various categories, such as emissions generated in the company’s supply chain. According to the GHG Protocol, scope 3 emissions are further categorised into 15 categories.

Scope 4 emissions (PG&E)

The PG&E Climate Strategy Report defines “Scope 4” emissions in the context of “transitioning into a decarbonised and more climate-resilient economy” as “an emerging term for categorising emissions reductions enabled by a company. PG&E can make a significant contribution by enabling these emissions reductions in our service area”. So “Scope 4” emissions may fit into the category of avoided emissions.

Social (the “S” in ESG)

The “Social” aspect of ESG (Environmental, Social, and Governance) evaluates various factors impacting a company’s financial performance. When considering social factors in sustainable investing, it’s vital to assess a company’s strengths and weaknesses in areas such as social trends, labour practices, and political engagement. Considering these social factors can provide insights into a company’s approach to social responsibility, stakeholder engagement, and its impact on communities and employees. These can be important considerations for sustainable investing and assessing a company’s overall ESG performance.

Stakeholder engagement

Stakeholder Engagement is the process of identifying and reaching out to a company or organisation’s key stakeholders or stakeholder groups. The objective is to learn about their viewpoints, values and needs. Furthermore, stakeholder engagement can contribute to building trust and exploring new ways to master challenges together.

Streamlined Energy & Carbon Reporting (SECR)

Streamlined Energy and Carbon Reporting or “SECR” is a piece of UK legislation that requires large companies and all publicly traded companies to disclose their energy consumption and the greenhouse gas emissions associated. The reporting framework supports companies in cutting costs, improving productivity, and reducing carbon emissions.

Supply chain emissions (Carbon accounting)

Supply chain emissions, also called upstream emissions, are greenhouse gas emissions that occur in the production and transportation of materials, goods, and services upstream in a company’s supply chain. These emissions are categorised as part of Scope 3 emissions, encompassing all indirect emissions associated with a company’s value chain, including those outside of a company’s direct control. Supply chain emissions are an essential consideration in measuring and managing a company’s overall carbon footprint, as they can significantly impact its environmental impact and sustainability performance.

Sustainability Accounting Standards Board (SASB)

The Sustainability Accounting Standards Board (SASB) is a non-profit organisation founded in 2011 to develop sustainability accounting standards for companies. SASB provides a comprehensive set of standards that enable companies to effectively identify, manage, and report on sustainability topics that are material to their investors. These standards are developed through a transparent and publicly-documented process, with extensive feedback from companies, investors, and other market participants. SASB standards are industry-specific, allowing for meaningful performance comparison within industries. Companies can utilise SASB standards to report their environmental, social, and governance (ESG) performance, providing stakeholders with relevant and reliable information to make informed decisions about a company’s sustainability performance.

Sustainability Finance Disclosure Regulation (SFDR)

The Sustainability Finance Disclosure Regulation (SFDR) is a European Union regulatory framework that requires financial market participants and financial advisors to disclose information related to the integration of sustainability factors in their investment decision-making processes and the consideration of adverse sustainability impacts of their investment decisions. The SFDR aims to promote transparency and consistency in sustainable finance across the EU financial market and ensure that investors and clients can access reliable information to make informed investment decisions. The SFDR distinguishes between two categories of financial products: those that promote environmental or social characteristics (known as Article 8 products) and those with a sustainable investment objective (known as Article 9 products). Financial market participants are required to disclose information on the environmental or social characteristics of Article 8 products and provide detailed information on the sustainability objectives and the methodologies used for Article 9 products. The SFDR aims to facilitate the transition to a more sustainable financial system by improving transparency, accountability, and comparability of ESG-related information provided by financial market participants and advisors. It helps investors and clients to assess the sustainability risks and impacts of their investments. In addition, it promotes the integration of sustainability factors in investment decision-making processes, ultimately contributing to the advancement of sustainable finance across the EU.

Sustainable Development Goals (SDGs)

The Sustainable Development Goals, also called SDGs, have been established by the United Nations (UN) in 2015 to achieve a more sustainable future by 2030. The SDGs serve as a comprehensive framework to address global challenges, including poverty, inequality, climate change, environmental degradation, peace, and justice. The 17 interconnected goals provide a blueprint for governments, organisations, and individuals to collectively take urgent action towards achieving a more equitable and sustainable world.

Task Force for Nature Related Disclosure (TNFD)

The Task Force on Nature-related Financial Disclosures (TNFD) aims to foster resilience in the global economy by guiding the redirection of financial flows towards activities that positively impact nature and communities, enabling both to thrive.

Task Force on Climate-related Financial Disclosures (TCFD)

The Task Force on Climate-related Financial Disclosures (TCFD) is a global initiative established by the Financial Stability Board (FSB) to provide a framework for companies and financial institutions to disclose climate-related risks and opportunities in their financial reporting. The TCFD framework provides recommendations for companies and financial institutions to voluntarily disclose information on how climate-related risks and opportunities are integrated into their governance, strategy, risk management, and metrics and targets. The framework focuses on four key areas: governance, strategy, risk management, and metrics and targets. The TCFD framework encourages companies and financial institutions to disclose both the physical risks of climate change (such as extreme weather events, sea level rise, and resource scarcity) and the transition risks associated with the shift to a low-carbon economy (such as policy changes, technological advancements, and changing consumer preferences). By disclosing this information, organisations can provide stakeholders with a clearer understanding of how climate-related risks and opportunities may impact their financial performance, operations, and value over the short, medium, and long term.

Tipping point (Climate change)

A climate tipping point is reached when a slight change in external factors leads to a disproportionately large and nonlinear response in a specific part of the climate system, resulting in a qualitative shift in its future state. Human-induced climate change can push various large-scale “tipping elements” beyond their tipping points. These elements may include the Atlantic thermohaline circulation, West Antarctic ice sheet, Greenland ice sheet, Amazon rainforest, boreal forests, West African monsoon, Indian summer monsoon, and El Niño/Southern Oscillation.

Transition risks

The risks of transitioning to a low-carbon economy can encompass various factors, such as policy changes, reputational impacts, and shifts in market preferences, norms, and technology.

Triple Bottom Line

The triple bottom line is a framework that assesses an organisation’s performance in three areas: economic, social, and environmental. This approach emphasises the importance of businesses and organisations considering not only their financial profitability but also their impact on society and the environment. The TBL framework recognizes that a company’s success should be measured by its ability to create value for shareholders, as well as for society and the environment. The three dimensions of the TBL, also known as “Profit, People, and Planet,” are widely used in sustainability and corporate social responsibility efforts to promote a holistic and balanced approach to organisational performance.

UN Principles for Responsible Investment (UN PRI)

The UN Principles for Responsible Investment (PRI) are voluntary guidelines established by the United Nations to encourage institutional investors such as pension funds, asset managers, and financial organisations to adopt responsible investment practices. These guidelines provide a framework for incorporating environmental, social, and governance (ESG) factors into investment decision-making and ownership practices. The aim is to generate sustainable long-term returns while contributing to positive environmental, social, and governance outcomes. The PRI consists of six principles that signatories commit to. These are: incorporating ESG factors into investment analysis and decision-making processes, being active owners and incorporating ESG factors into ownership policies and practices, seeking appropriate disclosure of ESG information by the entities in which they invest, promoting the adoption and implementation of the PRI within the investment industry, and working together to enhance the effectiveness of the implementation of the principles.

United Nations Global Compact (UNGC)

The United Nations Global Compact (UNGC) is an initiative launched by the United Nations to encourage businesses worldwide to adopt sustainable and socially responsible policies and to report on their implementation. The UNGC is based on ten principles that cover human rights, labour, environment, and anti-corruption. Under human rights, businesses should respect and support the protection of internationally proclaimed human rights and ensure they are not involved in any human rights abuses. Regarding labour, businesses should uphold freedom of association and recognition of the right to collective bargaining, eliminate all forms of forced and compulsory labour, abolish child labour, and eliminate discrimination in employment and occupation. Regarding the environment, businesses should take a precautionary approach to environmental challenges, undertake initiatives to promote greater environmental responsibility and encourage the development and spread of environmentally friendly technologies. Finally, businesses must be anti-corruption and promote ethical practices.

Upstream emissions

Upstream emissions refer to greenhouse gas emissions that occur during the production, extraction, or transportation of goods and services in a company’s supply chain. They fall under the scope 3 emissions category, which includes indirect emissions associated with a company’s activities that occur outside its operational boundaries. Upstream emissions are also known as supply chain emissions. Examples of upstream emissions include emissions from extracting and processing raw materials, manufacturing and transporting components or materials used in the company’s products and transporting goods to distribution centres or retail outlets. These emissions are linked to various supply chain activities involving suppliers, contractors, and other business partners. Measuring and managing upstream emissions can be challenging, involving multiple stakeholders and dispersed activities. However, addressing upstream emissions is crucial in mitigating a company’s environmental impact.

Value chain emissions (Carbon accounting)

Scope 3 emissions, also called value chain emissions, are the emissions that occur during the supply chain or during the use and disposal of a product. They are a significant part of a company’s Corporate Carbon Footprint (CCF) and are divided into 15 different categories based on the GHG Protocol. However, not all categories are relevant to every organisation. Examples include business travel, waste disposal, and purchased goods and services. For many companies, value chain emissions can account for as much as 90% of their total emissions, making it essential to consider them when setting reduction goals.

World Green Building Council (WGBC)

The World Green Building Council (WGBC) is a non-profit organisation that encourages sustainable building practices worldwide. It achieves this through advocacy, certification systems, sharing knowledge, and collaborating with others. The organisation operates through a global network of national Green Building Councils, promoting green building policies, certification systems, and innovation to create a more sustainable future for the built environment.

Zero Carbon

Zero carbon means that a product or service does not produce any carbon emissions while operating. Renewable energy sources like wind and solar are examples of zero carbon as they don’t release carbon dioxide (CO₂) when producing electricity. On the other hand, net-zero carbon refers to the balance between the amount of carbon emitted and the amount removed from the atmosphere. This involves offsetting or compensating for the carbon emissions produced by a company or activity through measures like carbon offset projects or carbon capture technologies. Zero carbon means a product or service emits no CO₂ equivalent (CO₂e) during operation. Meanwhile, net-zero carbon emissions imply that activity doesn’t result in any net increase in carbon emissions in the atmosphere.