CESGA key terms

The principle that a company reports both how sustainability matters affect its own financial performance (financial materiality) and how its activities affect people and the environment (impact materiality).

The assessment of whether a sustainability matter is significant enough to influence the economic decisions of investors and other users of financial statements, focusing on enterprise value.

The assessment of whether a company's activities, products, and value chain cause significant positive or negative effects on people or the environment, regardless of financial consequences.

European Sustainability Reporting Standards: the detailed disclosure requirements adopted under the EU Corporate Sustainability Reporting Directive, covering environmental, social, and governance topics through sector-agnostic and topical standards.

Corporate Sustainability Reporting Directive: EU legislation that expands mandatory sustainability reporting to large and listed companies, requires assurance, and mandates reporting in a digital, machine-readable format.

International Sustainability Standards Board: the standard-setting body that issued IFRS S1 and IFRS S2, aiming to create a global baseline for sustainability and climate-related financial disclosures.

The ISSB standard setting general requirements for disclosing sustainability-related financial information, including governance, strategy, risk management, and metrics and targets.

The ISSB climate-related disclosure standard, requiring information on physical and transition risks, climate resilience, greenhouse gas emissions, and climate-related targets.

Task Force on Climate-related Financial Disclosures: a framework organized around governance, strategy, risk management, and metrics and targets, which underpins many later climate disclosure standards.

Global Reporting Initiative Standards: widely used impact-focused sustainability reporting standards that emphasize an organization's effects on the economy, environment, and society.

Sustainability Accounting Standards Board Standards: industry-specific disclosure standards focused on financially material sustainability topics for investors, now maintained by the ISSB.

Direct greenhouse gas emissions from sources owned or controlled by the reporting company, such as fuel combustion in its own boilers, furnaces, or vehicles.

Indirect greenhouse gas emissions from purchased electricity, steam, heating, or cooling consumed by the reporting company, calculated using location-based or market-based methods.

All other indirect emissions in a company's value chain, including purchased goods, business travel, use of sold products, and end-of-life treatment, typically the largest emissions category.

Greenhouse gas emissions associated with loans and investments held by financial institutions, attributed to the institution through its lending and investing activities, usually reported as Scope 3 category 15.

Partnership for Carbon Accounting Financials: an industry initiative providing a standardized methodology for measuring and disclosing greenhouse gas emissions associated with financial portfolios.

The potential financial loss arising from the shift to a low-carbon economy, including policy changes, carbon pricing, technological disruption, and shifts in consumer or investor preferences.

The potential financial loss from climate-related hazards such as floods, heatwaves, droughts, and storms, classified as acute when event-driven and chronic when arising from longer-term shifts.

Assets that lose value prematurely or become unable to earn an economic return before the end of their expected life, often due to climate policy, market, or technology shifts.

The hypothesis that fossil fuel companies may be overvalued because markets do not fully price the risk that reserves cannot be burned under climate targets.

A method for exploring how a portfolio or company might perform under different plausible future pathways, such as a net-zero transition scenario versus a high-warming scenario.

A policy or market mechanism that puts a cost on greenhouse gas emissions, typically through emissions trading systems or carbon taxes, creating a financial signal to reduce emissions.

European Union Emissions Trading System: a cap-and-trade market covering power, industry, and aviation, where allowances are traded and the total cap declines over time.

Carbon Border Adjustment Mechanism: an EU measure that charges imports of carbon-intensive goods for embedded emissions, aiming to prevent carbon leakage under the EU ETS.

The practice of making misleading or unsubstantiated sustainability claims that exaggerate environmental credentials, potentially misleading investors and consumers and attracting regulatory scrutiny.

Sustainable Finance Disclosure Regulation: EU rules requiring financial market participants to disclose how they integrate sustainability risks and principal adverse impacts, and to classify products under Articles 6, 8, or 9.

Principal Adverse Impact indicators: mandatory metrics under SFDR used to measure and report the negative effects of investment decisions on sustainability factors.

A classification system defining environmentally sustainable economic activities using technical screening criteria, the do-no-significant-harm principle, and minimum social safeguards.

A principle requiring that an activity intended to contribute to one environmental objective does not significantly damage any of the other objectives, used within the EU Taxonomy.

The responsible management of capital by investors through engagement, voting, and monitoring to protect and enhance long-term value, including sustainability outcomes.

Dialogue between investors and companies to influence corporate behaviour, strategy, or disclosure, often focused on sustainability risks and long-term value creation.

The exercise of voting rights on behalf of shareholders at company meetings, used by asset managers to influence governance and sustainability-related resolutions.

The use of shareholder rights and public pressure, including resolutions and campaigns, to push companies toward changes in strategy, governance, or sustainability practices.

The systematic inclusion of environmental, social, and governance factors into investment analysis and decision-making alongside traditional financial factors.

An investment approach that excludes companies or sectors based on criteria such as involvement in tobacco, weapons, or fossil fuels, often driven by values or risk considerations.

An approach that selects companies with the strongest ESG performance relative to peers within a sector or universe, rather than excluding whole sectors.

An investment strategy that targets companies linked to a specific theme, such as clean energy, water, or social inclusion, rather than building a broad diversified portfolio.

Investing with the explicit intention of generating measurable positive social or environmental outcomes alongside financial returns, with defined measurement and reporting.

Sustainable Development Goals: the seventeen global goals adopted by the United Nations in 2015, covering poverty, climate, inequality, and other dimensions, used as a framework for impact alignment.

UN Principles for Responsible Investment: a voluntary initiative with six principles committing signatories to integrate ESG issues into investment analysis, ownership policies, and reporting.

An ongoing process by which companies identify, prevent, mitigate, and account for adverse human rights impacts in their operations and value chains, aligned with the UN Guiding Principles.

Sustainability considerations relating to people, including labour practices, health and safety, diversity, human rights, community relations, and product responsibility.

Considerations relating to corporate direction and control, including board composition, executive pay, shareholder rights, audit quality, and business ethics.

A shareholder vote on executive remuneration, often advisory, giving investors a formal channel to express views on pay structures and alignment with long-term performance.

The proportion of board members without material ties to management or major shareholders, generally seen as supporting effective oversight and reducing conflicts of interest.

The risk that environmental, social, or governance failures among suppliers, such as labour abuses or pollution, damage a company's operations, reputation, or financial performance.

Independent verification of sustainability disclosures by an external provider, giving users confidence in the accuracy and reliability of reported data, often required by regulation.