ESG Glossary of Terms

ESG Tool Kit: Chapter 10

You are reading part 10 of the 10-part ESG Factsheet Series. Explore all the chapters here.

ESG FAQs  |  What is ESG  |  ESG Ratings  |  ESG Reporting  |  ESG Climate and Risk  |  ESG Human Capital Management  |  Supply Chain and ESG  |  Real Estate and ESG Plastics and Packaging and ESG  ESG Glossary of Terms

Acute risks

Physical risks that result in single or short-term events that are highly destructive, such as hurricanes, floods, wildfires, storms, and heatwaves.


Assurance in ESG refers to the validation of information to be included in ESG-related disclosures, reporting, and/or filings. This process can be completed internally or through the use of external auditors, and ESG assurance is being increasingly demanded by investors, regulators, and other stakeholders.


The practice of measuring the ESG performance, policies, progress, and/or ratings of a company or other entity against its peers in the same industry, market sector, geographic region, or company size.


The biological variety of living species in the world or in a particular ecosystem. ESG concerns related to biodiversity include species extinction and loss of genetic diversity, deforestation, the preservation of ecosystem services like natural carbon sequestration, and more.

Carbon footprint

A measure of the total greenhouse gas emissions produced by an individual, group, or company.

Carbon offsets

Carbon offsets are reductions in carbon dioxide or other greenhouse gases in order to compensate for emissions made elsewhere; measured in tons of carbon dioxide equivalent (CO2e).

Carbon sequestration

Carbon sequestration is a proposed way to slow the accumulation of greenhouse gases in the atmosphere, mitigate global warming, and avoid climate change impacts through long-term storage of CO2 and other forms of carbon.


Formerly known as the Carbon Disclosure Project, CDP is an organization that supports companies and cities to disclose the environmental impact of major corporations. It aims to make environmental reporting and risk management a business norm and drive disclosure, transparency, and action towards a sustainable economy.

Chronic risks

Physical risks that result in long-term shifts and patterns, such as rising sea levels, extended droughts, decreased precipitation, and increasing average temperatures

Circular economy

A circular economy is a systematic model of production and economic development with the goal of eliminating waste by focusing on a regenerative design and promoting leasing, sharing, reusing, repairing, and recycling existing materials to reduce the consumption of finite resources.

Aerial image of forest representing ESG initiatives

Climate change

A shift in short- and long-term 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.


Corporate social responsibility (CSR) is a type of private business self-regulation that aims to contribute to societal goals of a philanthropic or activist nature and be socially accountable by engaging in or supporting volunteering or ethically-oriented practices.


The disclosure of data relating to an organization’s ESG performance. Investors use ESG disclosures to make informed decisions about companies’ ESG-related strengths, weaknesses, and risk exposure.

Diversity, equity, and inclusion (DEI)

Diversity refers to the presence of differences along the lines of race, gender, religion, ethnicity, sexual orientation, socioeconomic status, and more. Equity is promoting justice, fairness, and impartiality in the procedures and policies of organizations. Inclusion is an outcome that ensure those who are diverse feel and are welcomed. Together, these principles form an organizational culture that encourages differences in backgrounds and ideas, makes all members or employees feel safe, and boosts morale, retention, and innovation.


The act of dissociating or selling assets and securities due to behavior that is not aligned with ESG values. Investors divest to display a strong ESG commitment and responsible investing practices.

Ecosystem services

The benefits provided by healthy ecosystems in the natural environment, such as food and water provisioning, air and water purification, carbon sequestration, and waste decomposition.

Environment, health and safety (EH&S)

EH&S refers to the development and implementation of policies and procedures that comply with all relevant regulations and serve the ultimate purpose of doing no harm to people or the planet. EHS procedures include workplace hazard management (e.g., exposure to harmful substances), accident response training, emissions and waste reductions, and more.


An environmental management system (EMS) is a tool and set of practices that focus on training personnel and monitoring and reporting on environmental performance and the impact to internal and external stakeholders, with the goal of reducing negative impacts and increasing operating efficiency.

Environmental factors

The "E" in ESG, environmental factors include things like climate impact and environmental challenges and opportunities, such as greenhouse gas emissions, energy use, water and waste management, biodiversity impacts, and more.


Environmental, Social, and Governance (ESG) refers to the three central factors in measuring the impact of an investment in a company or business on the environment, society, and the world. These criteria help to better determine the future financial performance and reputation of companies.

Aerial image of forest representing ESG initiatives

ESG ratings

ESG ratings are scores and/or rankings issued by rating agencies as a measure of a company’s ESG performance and exposure to long-term ESG-related risks. Investors use ESG ratings to compare potential investments within their industries, and other stakeholder groups can use the ratings to get a snapshot of a company’s current ESG status. Some raters use only information that companies make publicly available, while others request information directly from companies to inform their ratings.

Governance factors

The "G" in ESG, governance factors relate to how a company is run and managed, which includes things like management structure, compensation, internal controls and accountability, ESG oversight, shareholder rights, and more.

Greenhouse gases

Earth’s greenhouse gases are those that trap heat in the atmosphere, resulting in global warming. The most abundant and potent greenhouse gases are carbon dioxide, methane, ozone, nitrous oxide, water vapor, and fluorinated gases.


Promoting a product, service, or company as more environmentally friendly than it actually is by falsely advertising environmental benefits. This can be done intentionally or unintentionally by making unsubstantiated claims.


With more than 10,000 reporters in 100 countries, the Global Reporting Initiative is an independent, international standards-setting organization that lays out a set of standards to help businesses and governments understand and communicate their impact on ESG-related issues.

Human capital management (HCM)

HCM transforms traditional human resources functions like recruiting, training, compensation, and performance management into opportunities to drive engagement, productivity, and business value. The main principle of HCM is considering the workforce as a core business asset rather than a cost of doing business.

Just transition

Just transition is a framework and set of principles and practices developed primarily by the trade union movement to cover a range of social initiatives and interventions needed to secure workers’ rights and livelihoods amidst the global transition toward sustainable production.


The United Nations created the International Panel on Climate Change to provide scientific assessments on climate change, its impact, anticipated risks, as well as suggestions for mitigation. IPCC releases periodic assessments of the scientific underpinnings for global climate change and its consequences. The world’s governments look to the IPCC as the official advisory body on the state of climate change science.

Lifecycle analysis (LCA)

A lifecycle analysis (LCA) is a method used to evaluate the overall environmental impact of a product throughout its entire life cycle, from material extraction to manufacturing, distribution, use, and recycling and/or disposal.


Materiality is a measure of the importance of certain topics and information during the investment process. The more significant a topic is, the more material it is, and vice versa. ESG materiality refers to the financial significance of a specific metric as part of a company’s overall ESG strategy, and material factors differ across industries and individual businesses.

Aerial image of forest representing ESG initiatives


MWBE stands for Minority and Women Owned Business Enterprises. In most states, business can complete a development program to achieve official MWBE certification. There are also some certifications run by government agencies and private organizations. MWBE certification can help enterprises gain access to new business opportunities and reach a broader network of resources.

Net zero

Net zero refers to buildings with zero net energy consumption, meaning the amount of energy used at the property is equal to the amount of renewable energy created on-site.

Physical risks

Financial costs and losses resulting from the increasing severity and frequency of extreme climate change-related weather events, longer-term gradual shifts of the climate, and indirect effects of climate change such as loss of ecosystem services.


Renewable Energy Certificates (also known as green tags, renewable energy credits, renewable electricity certificates, or tradable renewable certificates) are non-tangible energy commodities in the U.S. that represent proof of 1 megawatt-hour of electricity being generated from an eligible renewable energy source and used in a shared system of power lines.

Renewable energy

Energy attained from perpetual natural sources that are constantly replenished, such as collection of energy with solar panels or wind turbines.


Resilience is a measure of how well a business, process, or asset is prepared for potentially disruptive events and changing conditions. Resilience-boosting initiatives include earthquake-proofing or installing features designed to combat negative effects from long-term risks like climate change.

Responsible investing

A philosophy that includes ESG factors during the investment selection, portfolio construction, and monitoring processes, with the goal of maximizing opportunities, ensuring high performance and returns, and mitigating risks.

Responsible sourcing

Responsible sourcing is a voluntary corporate commitment to actively consider environmental and social matters when managing supplier relationships. This process often involves extensive supply chain due diligence and constructing appropriate policies and assessments for suppliers.


The Sustainability Accounting Standards Board is an independent standards board that is has become the default ESG framework for the investor and financial community. Companies leverage and use SASB Standards to provide annual updates on their ESG performance, focusing on financially material performance data. SASB is overseen by the Value Reporting Foundation, a global nonprofit organization that offers resources to help companies and investors develop a shared understanding of enterprise value.


The Science Based Targets initiative (SBTi) defines and promotes best practices in climate- and emissions-related target setting. The SBTi works with companies to define their path to reduce emissions and provides official validation for targets.

Aerial image of forest representing ESG initiatives

Science-based targets

Science-based targets provide a roadmap for companies to future-proof growth by creating a roadmap of how much to reduce carbon emissions and how quickly the reduction needs to happen.

Scope 1 emissions

Scope 1 emissions are greenhouse gas emissions that a company is directly responsible for, such as emissions from on-site burning of fossil fuels or emissions from fleet vehicles.

Scope 2 emissions

Scope 2 emissions are greenhouse gas emissions from sources that a company owns, controls, or purchases, such as the generation of electricity or heat purchased from a utility provider.

Scope 3 emissions

Scope 3 emissions are greenhouse gas emissions from sources a company doesn't own or control but are related to its operations, such as employee travel/commuting or contracted solid waste and wastewater disposal. Emissions from vendors and throughout the supply chain are included in Scope 3.

SEC Climate & ESG Task Force

The U.S. Securities and Exchange Commission (SEC) recently announced the formation of a Climate and ESG Task Force within their Division of Enforcement. This new task force will work to develop initiatives that will proactively identify ESG-related misconduct.

Single-use plastic

A single-use plastic is a plastic product (made primarily through fossil fuel-based chemicals) that is used once or for a short period of time before disposal. These items are most commonly used for packaging and serviceware.

Social factors

The "S" in ESG, social factors relate to how a company treats employees and the community, including things like employee engagement, human rights, workforce health and wellbeing, consumer protection, and diversity and inclusion.


A group with an interest in a company that can impact or be impacted by business performance. Stakeholders were previously defined as groups like investors, employees, and customers, but the definition has since expanded to include local and global communities, governments, and more.

Stranded asset

An asset that once produced value or profit, but no longer does due to changes like market and demand shifts, technological advances, capital reallocation, changing societal habits, and more.


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 (or, more informally as profit, planet and people).

Aerial image of forest representing ESG initiatives

Sustainable Packaging

The development and use of packaging that has positive sustainability benefits based on a number of criteria, including health and safety, meeting market criteria for cost, sourcing, manufacturing, and production, and distribution using renewable energy, optimizing the use of recycled materials, designing to increase life cycle, and minimizing overall environmental footprint.


Developed by the Financial Stability Board (FSB), the Task Force on Climate-related Financial Disclosures (TCFD) was developed to provide recommendations for more effective climate-related disclosures that promote more informed investment, credit, and insurance underwriting decisions, thereby helping stakeholders to better understand the financial system’s exposure to climate-related risks.

Transition risks

Risks related to the process of shifting toward a low-carbon economy, such as carbon taxes, changing consumer and market behavior, and increased legislation and regulation.


Transparency in ESG refers not just to disclosing and communicating performance (whether positive or negative) related to ESG matters, but also proactive disclosure of issues like regulatory non-compliance and litigation. Companies demonstrating ESG transparency ensure their ESG information is accurate, accessible, and does not mislead its stakeholders.


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


The United Nations’ Sustainable Development Goals (SDGs) are a set of 17 interlinked global goals designed to promote prosperity while protecting the planet. They were established in 2015 to be achieved by 2030.

Zero waste

Principles that focus on preventing the generation of waste by redesigning products, rethinking product use, and reusing products with the goal of sending no waste to landfill.

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Last Updated: 4/15/2022