Definitions of ESG Terms

Below we list definitions of key ESG words and terms that are used in ESG Navigator and in Gib Hedstrom’s articles and books.

·       Biodegradability: the capacity for biological degradation of organic materials by living organisms down to the base substances such as water, carbon dioxide, basic elements and biomass.
·       Biodiversity: A term used to describe the enormous variety of life on Earth. It can be used more specifically to refer to all of the species in one region or ecosystem. Biodiversity refers to every living thing, including plants, bacteria, animals, and humans.
·       Board: Refers to the external Board of Directors (as with all U.S.-based public corporations); the governing body with oversight fiduciary responsibility for the corporation [Note: the ‘Supervisory Board’ referred to often in Europe, consisting of the CEO and his/her direct reports, is not part of this section. That is covered under CEO Leadership and Culture and Organization.]
·       Brownfield Redevelopment: the expansion, redevelopment or reuse of land and property which may be complicated by the presence or potential presence of hazardous substances or contaminants.
·       Capital Expenditure (CapEx): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company.
·       Carbon-neutral: Having a net zero carbon footprint; achieving net zero carbon emissions by balancing a measured amount of carbon released (by a company, product, or activity) with an equivalent amount sequestered or offset, or buying enough carbon credits to make up the difference. Carbon neutral is not about achieving zero emissions.
·       Carbon Price: an instrument that captures the external costs of greenhouse gas (GHG) emissions and ties them to their sources through a price, usually in the form of a price on carbon dioxide (CO2) emitted; pricing can be set internally or through regulations.
·       CSO (Chief Sustainability Officer): The most senior person in the company with responsibility for overseeing sustainability policy, positioning and activities. Note: the person may or may not be officially designated as the CSO by the company; ESG Navigator does not presume an official CSO is necessary.
·       Circular Economy: An alternative to the traditional linear economy (make, use, dispose) in which resources remain in use for as long as possible, extracting the maximum value from them while in use, then recover and regenerate products and materials at the end of each product or service life.
·       Climate Change: Significant changes in global temperature, precipitation, wind patterns and other measures of climate that occur over several decades or longer.
·       Climate Risk: Includes both physical risks and transition risks:

§  Physical Risk: Risk to assets due to variables in the climate/weather system that reach values that affect human life adversely. Risks typically include fire, drought, flooding, water scarcity, etc.

§  Transition Risk: Risks from the transition of the economy/society to a clean, low-carbon economy. Risks typically include legislative, reputation and market risks.

·       Closed-Loop: Also referred to as the circular economy, where materials, at the end of their useful life, are consistently repurposed, recycled, reused, reclaimed, restored, or otherwise converted to some use rather than discharged as waste.
·       Cradle-to-Cradle: A holistic framework for design of industry, products, buildings, or urban environments that seeks to create systems that are efficient and essentially waste free (The term Cradle to Cradle is a registered trademark of McDonough Braungart Design Chemistry / MBDC.)
·       Davos Manifesto: A set of ethical principles to guide companies in the age of the Fourth Industrial Revolution launched by the World Economic Forum.
·       Design for Environment (DfE): A design approach to reduce the overall human health and environmental impact of a product, process or service, where impacts are considered across its life cycle.
·       Ecosystem Services: Humankind benefits in a multitude of ways from ecosystems (e.g., cleaning drinking water, decomposing wastes, etc.). Collectively, these benefits are known as ecosystem services.
·       Enterprise Risk Management: Often a company’s formal risk management process, identifying events or circumstances relevant to the organization’s objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring process.
·       ESG (Environment, Social, Governance): The term often used by the investment community to refer to the three central factors in measuring the sustainability of an investment in a company or business. In ESG Navigator, the term ESG is used interchangeably with sustainability: ESG/Sustainability (ESG/S).
·       ESG Ratings and Rankings (also ESG Raters): Independent sustainability frameworks, ratings and rankings that major companies globally view as particularly influential or worthy. Common frameworks are CDP, GRI, SASB, and TCFD. ESG ratings targeted at investors include (for example):  Bloomberg; CDP; Dow Jones Sustainability Index (DJSI); FTSE4Good; MSCI; Morningstar/Sustainalytics. Other highly regarded ratings include EcoVadis and Global 100 Most Sustainable Companies.
·       External Sustainability Advisory Board: A group of sustainability experts or thought leaders from various external stakeholder groups, assembled to periodically advise the CEO and CSO.
·       Externalities: The cost or benefit that affects a party who did not choose to incur that cost or benefit. For example, manufacturing activities that cause air pollution or carbon emissions may impose health, cleanup, or other costs on society.
·       Footprint: A measure of an organization’s (or human’s) demand on the Earth’s ecosystems. Unless otherwise, in this context is used as a measure of the full impact across the supply chain of an organization’s operations, including, for example, consumption, use and emissions of energy, materials, resources, water, etc.
·       Full-Cost Accounting: A method of cost accounting that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social and economic costs and benefits for each proposed alternative. For example, full cost would assign a “cost of carbon” to address carbon risk associated with use of hydrocarbons.
·       Global Risks: refers to the major risks facing society globally. See annual summary by the World Economic Forum Global Risk Report (
·       Green Chemistry: The design of chemical products and processes that reduce or eliminate the use or generation of hazardous substances across the full life cycle of chemical production, from design and manufacture to product use and disposal.
·       Greenhouse Gas (GHG): The main greenhouse gases are water vapor (H2O), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
·       Impact Valuation: A tool to systematically collect and evaluate data to help identify, measure and value the impact of companies (including externalities) beyond products and profits.
·       Impact-Weighted Accounting: Analogous to full cost accounting, adjusting traditional accounting measures to consider the various types of impacts ESG might have – including product impacts, environmental impacts and employment impacts.
·       Integrated Report to Society: An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term. Typically, this means a combination of a company’s (financial) annual report with its sustainability report – in a single document.
·       Key Business Decisions: Hedstrom Associates defines key business decisions as the handful of major decisions the CEO and Board make each year – typically involving merger, acquisition or divestiture; large capital expenditure; new product launch; major research and development expenditure, etc.
·       Key Performance Indicator (KPI): A performance indicator or KPI is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages.
·       Key Sustainability Indicators (KSIs): Hedstrom Associates uses the term “key sustainability indicators” to characterize the specific items in the ESG Navigator rating system. ESG Navigator allows a user to rate a company on about 120 KSIs.
·       Lean Six Sigma: Lean focuses on analysing workflow to reduce cycle time and eliminate waste. Six Sigma focuses on achieving consistent results. The Lean Six Sigma certification validates professionals skilled in identifying risks, errors or defects in a business process and removing them.
·       LEED: Leadership in Energy and Environmental Design (LEED) is one of the most popular green building certification programs worldwide. It was developed by the non-profit U.S. Green Building Council.
·       Life-Cycle Assessment (LCA): A technique to assess environmental impacts associated with all stages of a product’s life (i.e., from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling). Also known as life-cycle analysis.
·       Living Wage Audit: An independent review to assess what percentage of a company’s workforce (full time employees, contractors, etc.) is earning a living wage or better (Living Wage Calculator is available, e.g., from MIT).
·       Material: Information is material if its omission or misstatement could influence the economic decision of users taken on the basis of the financial statements. (See Materiality.)
·       Materiality (also Materiality Assessment): A concept or convention within the financial community relating to the importance/significance of something relevant to the corporation. Information is material if its omission or misstatement could influence the economic decision of users taken on the basis of the financial statements. Materiality in relation to the inclusion of information in an integrated (financial and sustainability) report refers to matters that “could substantively affect the organization’s ability to create value over the short, medium and long term.”
·       Materiality Assessment: A process to identify, refine and assess potential ESG issues which are sufficiently important that they should inform corporate sustainability strategy and reporting. Unfortunately, GRI uses the term “materiality” in this context in a very broad way – any ESG issue that is important to stakeholders – whether or not it might have a (financially) material impact.
·       Natural Capital: The world’s stock of natural assets, providing critical services and resilience (e.g., supporting water cycles and soil formation; protecting communities from major storms, floods, fires, and desertification; absorbing carbon dioxide (CO2) to limit the pace of climate change).
·       Net Neutral (Environmental Impact): Refers to a situation where the sum of the full environmental impacts of an organization – across the full supply chain – is offset by the net reduction in environmental impact caused by use of the company’s products, services or solutions.
·       Net Positive (Environmental Impact): A situation where the sum of the full environmental impacts of an organization – across the full supply chain – is less than the net reduction in environmental impact caused by use of the company’s products, services or solutions. [Note: MIT has a “net positive” initiative as part of SHINE (Sustainability and Health Initiative for Net Positive Enterprise), – which aims to improve the scientific basis by which Net Positive is assessed (products, activities, companies, economic sectors, individuals, and groups).
·       Net Zero: Can be set as a target for all greenhouse gases or for CO2 only. Defined by the Paris Agreement as a balance between anthropogenic emissions by sources and removals by sinks of GHG. Note that Carbon Neutral means having a net zero carbon footprint; achieving net zero carbon emissions by balancing a measured amount of carbon released (by a company, product, or activity) with an equivalent amount sequestered or offset, or buying enough carbon credits to make up the difference.
·       NGO (Non-Governmental Organization): An organization that is neither a part of a government nor a conventional for-profit business; seen to represent “civil society.”
·       Precautionary Principle: If an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific consensus that the action or policy is not harmful, the burden of proof that it is not harmful falls on those taking an action.
·       Products, Services, and Solutions (PSS): Items or services sold by companies to satisfy a market need. From a sustainability context, shifting from selling products to leasing products or selling services is consistent with moving from a linear (“take – make – waste”) system to a closed-loop one whereby products, after their useful life, are recycled, reused, refurbished, or returned to some productive use.
·       RE100: A corporate leadership initiative led by The Climate Group and CDP, launched in 2014 – refers to targets for companies to move towards 100% renewable power.
·       REACH: A European regulation promulgated in 2006 that addresses the production and use of chemical substances, and their potential impacts on both human health and the environment.
·       Responsible Care® is a global, voluntary initiative developed autonomously by the chemical industry to demonstrate chemical industry’s desire to improve health, safety, and environmental performance. The vast majority of the largest chemical producers in the world have adopted Responsible Care.
·       Scenario Planning: is a structured way for organizations to think about the future and make flexible long-term plans. A group of executives sets out to develop a small number of scenarios—stories about how the future might unfold and how this might affect an issue that confronts them.
·       Scenario (climate-related): a future anticipated mean temperature rise based on an assumption of action or inaction by society on limiting carbon emissions.
·       Science-Based Targets: Refers to science-based emission reduction targets that are independently verified against a set of criteria developed by the Science Based Targets initiative (SBTi). These typically refer to energy and greenhouse gas reduction goals aligned with the 1.5°C or well-below 2°C criteria.
·       Scope 1 GHG Emissions: Direct emissions from owned or controlled sources.
·       Scope 2 GHG Emissions: Indirect emissions from the generation of purchased energy.
·       Scope 3 GHG Emissions: All indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.
·       Six Sigma: A set of techniques and tools for process improvement. Six Sigma strategies seek to improve the quality of the output of a process by identifying and removing the causes of defects and minimizing impact variability in manufacturing and business processes.
·       Stakeholder: Individuals or groups of people who can reasonably be expected to be significantly affected by an organization’s business activities, outputs or outcomes, or whose actions can reasonably be expected to significantly affect the ability of the organization to create value over time.

o  “Internal stakeholders” = the board (or equivalent), management, employees and owners.

o  “External stakeholders” = communities, government, NGOs, suppliers, customers and consumers.

·       Supply Chain: The system of organizations, people, activities, information and resources involved in moving a product or service from point of origin to point of consumption. Supply chains underlie value chains because, without them, no producer can provide customers what they want, when they want it, and at a price they will pay.
·       SDGs (Sustainable Development Goals): A set of 17 “Global Goals” with 169 targets between them, adopted by 193 member countries of the United Nations, intended to galvanize and guide the world’s efforts to eradicate poverty, end hunger and address climate change by 2030.
·       Sustainability (see also ESG/Sustainability): The pursuit of a business growth strategy that creates long-term shareholder value by seizing opportunities and managing risks related to the company’s environmental and social impacts. Sustainability includes conventional environment, health and safety (EHS) management; community involvement and philanthropy; labor and workplace conditions as well as elements of corporate citizenship, corporate governance, supply chain and procurement.
·       Sustainability Principles: Various ways of characterizing the concept of sustainability, the most common of which is to meaningfully advance progress on the Sustainable Development Goals (SDGs). Another example would be the four system conditions of The Natural Step.
·       TCFD (Task Force on Climate-related Financial Disclosures): This industry-led task force, established by the Financial Stability Board issued its final report in June 2017. The report includes recommendations to industry for disclosure to investors, following a simple structure (that is almost identical to ESG Navigator): Governance; Strategy; Risk (ESG Navigator has separate sections for Environmental and Social); Metrics (ESG Navigator folds this under Governance).
·       Tier 1 Supplier: a manufacturer who provides products (or services) directly to a company without dealing with a middleman or other manufacturers.
·       Total Societal Impact: The full economic, social, and environmental impact (both positive and negative) of a company’s products, services and solutions (PSS); operations; core capabilities; and activities.
·       Total Societal Value: The value to society, measured by an analysis of the full economic, social, and environmental cost, impacts, and benefits – across the full value chain. (Connected to Total Societal Impact)
·       Traceability (also Traceable): The ability to identify and trace  (e.g., from raw material extraction to product end-of-life) the history, distribution, location and use of products, parts and materials, to ensure the reliability of sustainability claims, in the areas of environment, human rights, anti-corruption, etc.
·       UNGC: The United Nations Global Compact is a non-binding United Nations pact to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation.
·       Unwritten Rules of the Game: how employees generally describe “the way things work around here.”
·       Value Chain: The process by which a company adds value to an article, including during production, transportation, marketing and the provision of after-sales service.
·       Waste Electrical & Electrical Equipment (WEEE): The waste generated from electrical devices and household appliances like refrigerators, televisions, and mobile phones, etc.  To address the issues, the WEEE Directive and the Directive on the Restriction of the use of certain Hazardous Substances in electrical and electronic equipment (RoHS Directive) were established.
·       Water Positive: the term typically refers to the quantity (vs. quality) of water; water positive refers to replenishing more water than we use – and especially to putting back more water in stressed water basins.
·       Water-neutral: Refers to a situation where an organization is returning to surface water or ground water the volume of water it uses – across the full supply chain – at a level of purity that is of the same or higher quality of the receiving body or aquifer.
·       Zero Waste to Landfill: is a set of principles focused on waste prevention that encourages the redesign of resource life cycles so that all products are reused. The goal is for no trash to be sent to landfills, incinerators, or the ocean.


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