ESG Glossary — The A to Z

ESG (Environmental, Social, and Governance) refers to a set of criteria that investors use to evaluate companies' sustainability practices and ethical behaviour. The ESG framework is designed to measure a company's impact on society and the environment beyond its financial performance. The rise of ESG investing has led to a proliferation of ESG-related terms that can be confusing to those new to the field. 

This glossary aims to demystify the key terms related to ESG, enabling investors, businesses, and individuals to navigate the complex landscape of sustainable and responsible practices. By familiarising ourselves with these concepts, we can better assess ESG performance, promote positive change, and contribute to a more sustainable future.

Environmental

Biodiversity — 

The variety of life forms, including species, genes, and ecosystems, within a given area. Preserving biodiversity is crucial for ecosystem stability and resilience.

Carbon Footprint —

The total amount of greenhouse gases, mainly carbon dioxide, emitted directly or indirectly by an individual, organisation, or product over its lifecycle.

Climate Change —

Refers to long-term alterations in temperature patterns, resulting from human activities, primarily greenhouse gas emissions. It encompasses global warming, rising sea levels, extreme weather events, and related ecological disruptions.

Renewable Energy —

Energy obtained from sources that can be naturally replenished, such as solar, wind, hydro, or geothermal power, with minimal environmental impact.

Social

Diversity and Inclusion —

The practice of actively promoting and valuing differences in race, ethnicity, gender, age, sexual orientation, disability, and other characteristics to create a more equitable and representative society.

Human Rights —

Fundamental rights and freedoms to which all individuals are entitled, including but not limited to the right to life, liberty, and security; freedom from discrimination; and the right to fair working conditions.

Stakeholders —

Individuals, groups, or organisations that have an interest or are affected by the activities and performance of a company, including employees, customers, communities, investors, and suppliers.

Supply Chain —

The sequence of activities and processes involved in the production and distribution of goods or services, including sourcing raw materials, manufacturing, transportation, and delivery.

Governance

Board Diversity —

The representation of individuals from diverse backgrounds, experiences, and perspectives on a company's board of directors to foster better decision-making and oversight.

Shareholder Activism —

The practice of shareholders using their ownership rights to influence a company's behaviour or policies, typically to promote ESG considerations or improve corporate governance.

Executive Compensation —

The financial rewards, including salary, bonuses, and stock options, provided to senior executives, which are often linked to the company's financial performance, ESG goals, and long-term sustainability.

Ethical Leadership —

The demonstration of integrity, transparency, and accountability by leaders in managing and making decisions, promoting responsible practices throughout an organisation.

Conclusion

Understanding the key terms related to ESG is essential for engaging in sustainable investing, corporate decision-making, and responsible consumption. This glossary provides a foundation for comprehending the language surrounding ESG concepts, empowering individuals and businesses to evaluate performance, set targets, and contribute to positive change. 

As ESG continues to shape investment landscapes and corporate strategies, being well-versed in these terms will enable us to navigate the complexities of sustainability, promote ethical practices, and work toward a more sustainable and equitable future.