A
Assurance, external
Assurance on sustainability information is a process in which an independent practitioner obtains either reasonable or limited assurance about the accuracy and reliability of the sustainability information and then based on the assurance obtained either expresses an opinion or a conclusion.
C
CDP
CDP (which was known as the Carbon Disclosure Project until the end of 2012) is a not-for-profit organization which aims to study the implications of climate change for the world’s principal publicly traded companies. It runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts, by helping persuade companies throughout the world to measure, manage, disclose and ultimately reduce their greenhouse gas emissions.
Controversy
In the ESG space, a controversy relates to an ESG-related event impacting negatively a company sustainability performance and exposes investments to a variety of risks including reputational, operational, legal, social, or of greenwashing. These controversies are monitored and analyzed by investors and external data providers screening all type of reliable and public sources.
Corporate Sustainability Reporting Directive (CSRD)
On 21 April 2021, the European Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would amend the existing reporting requirements of the Non-Financial Reporting Directive (NFRD). Compared to the NFRD, the CSRD extends the scope of requirements, requires audit, introduces more detailed reporting requirements , and requires companies to digitally “tag” the reported information.
Corporate [social] responsibility (CSR), Corporate sustainability
Corporate social responsibility (CSR, sometimes referred to as corporate responsibility or corporate citizenship) is a broad concept that can take many forms depending on the company and industry. In general, it is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public.
E
Engagement
Interactions between an investor (or an engagement service provider) and current or potential investees (e.g. companies), conducted with the purpose of improving practice on an ESG issue, changing a sustainability outcome, or improving public disclosure. Engagements can also be carried out with non-issuer stakeholders, such as policymakers or standard setters. Interactions that are not seeking change or an improvement in public disclosure are not considered engagement.
Environmental Management System (EMS)
An Environmental Management System (EMS) is a framework that helps an organization achieve its environmental goals through consistent review, evaluation, and improvement of its environmental performance. The assumption is that this consistent review and evaluation will identify opportunities for improving and implementing the environmental performance of the organization. The EMS itself does not dictate a level of environmental performance that must be achieved; each organization’s EMS is tailored to its own individual objectives and targets. One of the best known examples of an EMS is ISO 14001, a set of international standards and guidance documents for environmental management developed by the International Organization for Standardization (ISO).
Environmental factors (E)
Issues relating to the quality and functioning of the natural environment and natural systems. These include: biodiversity loss; greenhouse gas (GHG) emissions, climate change, renewable energy, energy efficiency, air, water or resource depletion or pollution, waste management, stratospheric ozone depletion, changes in land use, ocean acidification, and changes to the nitrogen and phosphorus cycles.
ESG integration
ESG integration is defined as the explicit and systematic inclusion of ESG issues in investment analysis and investment decisions. Put another way, ESG integration is the analysis of all material factors in investment analysis and investment decisions, including environmental, social, and governance (ESG) factors.
F
Fiduciary duty
A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the other’s best interests. For investors, fiduciary duty has been widely interpreted as the obligation of trustees and other fiduciaries to maximize investment returns. It is now commonly recognized that the pursuit of maximum investment returns requires the integration of environmental, social, and governance considerations, including the impacts on society and the environment, in making investment decisions.
Framework
As opposed to standards, frameworks are a set of concepts and principles for how information is structured and prepared, and what broad topics are covered. Sustainability frameworks such as the TCFD recommendations, the CDSB Framework, and the Framework establish useful conceptual schema for communicating the sustainability-related risks and opportunities faced by a business. Generally, frameworks help promote consistency of information, both between reporting entities and over time. Frameworks enable high-quality disclosure because they provide detailed guidance for preparing information related to governance, risk, and strategy, which helps companies report sustainability information with the same rigor as they do financial information.
G
GHG Protocol
The Greenhouse Gas Protocol (GHGP) provides accounting and reporting standards, sector guidance, calculation tools and trainings for businesses and local and national governments. It has created a comprehensive, global, standardized framework for measuring and managing emissions from private and public sector operations, value chains, products, cities and policies to enable greenhouse gas reductions across the board.
GHG emissions
A greenhouse gas (GHG) is a gas that contributes to the greenhouse effect, and thus has a direct effect on climate change, by absorbing infrared radiation. GHG includes carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). GHG emissions are measured in carbon dioxide equivalents (CO2e). When estimating its GHG emissions, an organization should differentiate between Scope 1, Scope 2, and Scope 3.
Scope 1 emissions are direct emissions from owned or controlled sources (e.g. natural gas used to heat buildings, fuel for the organization’s fleet).
Scope 2 emissions are indirect emissions from the generation of purchased energy. Depending on the country’s or state’s electric mix (share of nuclear, renewable, coal, oil, gas consumed to produce the electricity consumed), a same amount of electricity consumed can lead to different amount of Scope 2 GHG emissions.
Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.
Global Reporting Initiative (GRI)
The Global Reporting Initiative (GRI) is an independent, international, and non-governmental organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts. They provide standards for sustainability reporting called the GRI Standards.
Governance factors (G)
Issues relating to the governance of companies and other investee entities. In the listed equity context these include: board structure, size, diversity, skills and independence, executive pay, shareholder rights, stakeholder interaction, disclosure of information, business ethics, bribery and corruption, internal controls and risk management, and, in general, issues dealing with the relationship between a company’s management, its board, its shareholders and its other stakeholders. This category may also include matters of business strategy, encompassing both the implications of business strategy for environmental and social issues, and how the strategy is to be implemented. In the unlisted asset classes governance issues also include matters of fund governance, such as the powers of Advisory Committees, valuation issues, fee structures, etc.
Greenwashing
The act of making false or misleading claims about the environmental benefits or performance of a product, service, technology, or organization.
I
Impact
A result or effect that is caused by or attributable to a project or program. Impact is often used to refer to higher level effects of a program that occur in the medium or long term, and can be intended or unintended and positive or negative.
Integrated reporting
A process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation. Integrated reporting brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how the organization demonstrates stewardship and how it creates value, now and in the future.
International Capital Markets Association (ICMA)
The International Capital Markets Association (ICMA) is a not-for-profit membership association committed to serving the needs of its wide range of member firms active in the international debt capital markets. It mainly aims to provide a basis for joint examination and discussion of questions relating to the international capital and securities markets and to issue rules and make recommendations governing their operations. ICMA currently has more than 600 members active in all segments of the sell-side and buy-side international debt capital markets in over 60 jurisdictions.
International Financial Reporting Standards (IFRS)
The IFRS Foundation is a not-for-profit international organization responsible for developing a single set of high-quality global accounting standards, known as IFRS Standards. Their mission is to develop standards that bring transparency, accountability and efficiency to financial markets around the world. IFRS Standards are now required in more than 140 jurisdictions, with many others permitting their use.
International Integrated Reporting Council (IIRC)
The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia and NGOs. Together, this coalition shares the view that communication about value creation, preservation or erosion is the next step in the evolution of corporate reporting. In June 2021, the IIRC merged with SASB to become the Value Reporting Foundation.
International Organization of Securities Commissions (IOSCO)
The International Organization of Securities Commissions (IOSCO) is the international body that brings together the world’s securities regulators and is recognized as the global standard setter for the securities sector. Its membership regulates more than 95% of the world’s securities markets in more than 130 jurisdictions: securities regulators in emerging markets account for 75% of its ordinary membership. IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation. It works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda.
International Sustainability Standards Board (ISSB)
On 3 November 2021, the IFRS Foundation Trustees announced the creation of a new standard-setting board—the International Sustainability Standards Board (ISSB).
The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
The IFRS Foundation will also complete consolidation of the Climate Disclosure Standards Board (CDSB—an initiative of CDP) and the Value Reporting Foundation (VRF—which houses the Integrated Reporting Framework and the SASB Standards) by June 2022.