Insight Article: Your Essential Terminology Guide for Sustainability in Business
Everyone is talking about sustainability, at home, at work on the news, and rightly so, it is arguably the most fundamental subject of our day. However, we are not all sustainability experts, and the terminology can appear complex and constantly changing. That’s where we come in, we have asked our SKCI ESG experts to put together an overview of some of the key sustainability terms, and a little bit about why they are important, to help you navigate this subject.
Sustainability – ‘Meeting the needs of today without compromising the ability of future generations to meet their needs.’ (Brundtland Commission) There are 3 key pillars economic, environmental, and social. Other people like to add additional pillars eg resources, culture, responsible management. There are no hard and fast rules to the boundaries of sustainability and sustainability is generally applied as ‘an umbrella of doing good.’
ESG – Environmental, Social and Governance. These three non-financial factors play a key role in identifying how an organisation operates. Investigating these areas in your organisation identify material risks and opportunities for growth. Unlike the term sustainability, ESG has boundaries that investors and other stakeholders can better relate to.
CSR – Corporate Social Responsibility. This is an internal organisations methodology of demonstrating how they are being responsible to their community, both for people and for the environment. This includes the staff and the local neighbourhood of the office location. It is a business model to give back and make a positive impact to those around them.
Net Zero – Reduce as much of your organisations GHG emissions as possible and then remove what you must produce from the atmosphere.
Carbon neutral – Remove the Carbon from the atmosphere that your organisation produces but not make any reductions in the first place. This term is often mistaken for Net Zero. Yes your net emission is zero but there is no change in the amount of carbon produced.
This table may be easier to identify the differences between the two terms.
Table: What Is The Difference Between Net Zero and Carbon Neutral?
Carbon zero – Produce no carbon. This is usually applied to a product where no carbon has been emitted during its production.
GHG – Green House Gases. The Kyoto Protocol agreed that there are 6 greenhouse gases which are all contributing to global warming because they trap extra heat inside our atmosphere causing climate change.
CO2e – Each GHG traps heat at different rates and have different lifespans making their contribution to climate change extremely diverse. So, to align them in terms of damage they are compared against CO2 according to their Global Warming Potential (GWP).
Below is a table showing the real world increase over time of 6 GHGs and where they come from in everyday life. By recognising the sources and how they interact with daily lives may be enlightening and influence people’s decision-making processes.
Table: Comparing the Amount & Impact of GHGs Over Time
KEY: ppm – parts per million by volume, ppb – parts per billion by volume, ppt – parts per trillion by volume.
*Authors note – This table was initially taken from University of Arkansas 2016 and as I was updating the concentrations I found a report released by Bristol University 21 Jan 2020 which showed that HFC-23 has been eliminated from the atmosphere due to an agreement in Canada made in 2016. India and China also agreed to voluntarily reduce their HFC-23 emissions. I have kept it in as a point of interest on how countries can work together on such potent emissions.
Kyoto Protocol – An international treaty that commits states to reduce greenhouse gas emissions. This was made at the 1992 United Nations Framework Convention of Climate Change.
Reporting Frameworks – A report that organisations can use to disclose their activities linked to climate related issues. They create a way for stakeholders to understand what an organisation is doing and to compare against other organisations. Example of frameworks are:
- TCFD – Task Force for Climate-Related Financial Disclosures
- GRI – Global Reporting Initiatives
- CDSB – Climate Disclosure Standards Board
- SASB – Sustainability Accounting Standards Board
- ISO – International Organization for Standardization
- IR – Integrated reporting
Regulations – Climate related reporting is only mandatory for large organisations although it is likely that medium sized companies will soon have report publicly. Many large corporations are also demanding that their supply chains actively disclose their positions to remain contracted to supply. Examples are:
- CSRD – Corporate sustainability reporting directive
- Mandatory climate risk reporting (alignment to TCFD)
- EU taxonomy regulation
- SFDR – Sustainable financial disclosures regulation
Global Goals and Principles – These are elements that promote ambition for countries, states, cities, and corporations to aim to. They may have criteria to join or just set targets and agenda for organisations to follow. Examples are:
- UN Global Compact
- SDGs – UN Sustainable Development Goals
- Greenhouse Gas Protocol
- PRI – Principles for Responsible investment
ESG Ratings and Indices – Financial Investors are looking more and more at the ESG positioning of organisations and need to compare like for like. There isn’t a universally accepted standard so many agencies have formed and will score ESG elements differently. These agencies usually operate independently and look for publicly disclosed information to base their ratings on. Examples are:
- Dow Jones Sustainability Indexes
This is by no means an exhaustive list; however, we hope this helps you feel confident in the next company sustainability or ESG strategy meeting.
Essentially organisations need to effect change by implementing their ESG and CSR strategies. Net-zero is the next milestone, for which it’s essential to measure emissions and use reporting frameworks. Together we are looking towards global goals to make the world a better place.