ESG GLOSSARY OF TERMS
Making sense of ESG: Terms, Meanings, FAQs, and Top Trends
Enhance Your ESG Footprint with AEI
At AEI, we understand the importance of Environmental, Social, and Governance (ESG) factors in today’s business landscape. Companies and investors alike are increasingly recognizing the impact of ESG on financial performance, and the need for comprehensive evaluation and analysis of these factors. As leaders in Environmental and Building Evaluation Consulting, Construction Services, Site Investigation, Remediation expertise, and Commercial Valuation services, we bring a wealth of expertise and knowledge to the ESG conversation.
Our team is dedicated to identifying potential risks and crafting effective solutions, ensuring that our clients stay ahead of the curve in this rapidly evolving field. Whether you are looking to deepen your understanding of ESG or in need of expert support to address ESG challenges, we are here to help. Browse our resources and contact us to learn more about how AEI can support your success in ESG.
ESG Overview and Terms:
ESG (Environmental, Social, and Governance) practices have become increasingly important in recent years, as they impact a company’s long-term performance and sustainability. Implementing ESG strategies not only helps organizations reduce their carbon footprint and address climate risk, but also enhances their reputation and boosts investor confidence. With ESG playing a significant role in the growth and success of businesses, it is essential to prioritize ESG goals and incorporate them into daily operations. Let’s take a closer look at ESG:
- Environmental: The environmental aspect of ESG focuses on the environmental impact of a company’s operations and activities. Environmental factors are important in commercial real estate decision-making because they can affect a property’s long-term value. Buildings that are energy-efficient and use renewable energy sources, for example, are more appealing to tenants, lenders, and investors, which can increase the property’s value.
- Social: The social dimension of ESG is concerned with a company’s impact on society and its stakeholders. As tenants and investors seek properties that align with their values and contribute to the communities in which they are located, social considerations are becoming increasingly important.
- Governance: The governance component of ESG focuses on a company’s management and operations, as well as their impact on stakeholders. Good corporate governance is important for ESG because it ensures that a company’s operations are transparent, accountable, and responsible, and that it aligns with the interests of stakeholders.
- Anti-Corruption: A company’s efforts to prevent and address corruption in its operations, such as bribery and fraud. Anti-corruption is important for ESG as it helps ensure that a company is operating in a responsible and ethical manner and that its activities align with stakeholders’ interests.
- Appliances: Energy-efficient appliances can help reduce a building’s energy consumption.
- ASHRAE Level 1: Establishes a baseline with respect to comparison to like buildings. The Level-1 audit is intended to help the energy team understand where the building performs relative to its peers; establish a baseline for measuring improvements; and decide whether further evaluation is warranted.
- ASHRAE Level 2: Evaluates building energy systems in detail to define potential improvements and outline financial government incentives. The Level-2 projects build on the findings of the Level-1 audit and evaluate building energy systems in detail to define a variety of potential energy-efficiency improvements. The Level-2 also will outline the range of potential financial incentives available from Federal, State, Local, and Utility sources.
- ASHRAE Level 3: Details a cost-benefit analysis to prepare owners and managers for significant capital investments. Should the Level-2 Audit reveal necessary system upgrades or retrofits, the Level-3 audit will provide clients a thorough and detailed understanding of the benefits, costs, and performance expectations prior to making significant investments
- Audit and Accounting: Practices a company uses to ensure that its financial statements are accurate, reliable, and transparent. Effective audit and accounting practices are important for ESG as they help ensure that a company is transparent and accountable in its financial reporting and that its activities align with stakeholders’ interests.
- Battery Storage: the storage of excess energy in batteries for later use, often used in conjunction with renewable energy systems.
- Biodiversity: The variety of life on Earth, including the diversity of species, ecosystems, and genetic diversity. Biodiversity is an important ESG issue because it is essential for maintaining a healthy planet and supporting human well-being.
- Business Ethics: a company’s principles and standards of behavior in its operations, such as fairness, integrity, and responsibility. Good business ethics are important for ESG as they help ensure that a company is operating in a responsible and ethical manner and that its activities align with stakeholders’ interests.
- Carbon Dioxide: Carbon dioxide (CO2) is a colorless and odorless gas that is produced by the burning of fossil fuels, the decomposition of organic matter, and other processes. It is considered a greenhouse gas (GHG) because it traps heat in the atmosphere and contributes to climate change.
- Carbon Finance: The financial transactions and mechanisms that support efforts to reduce greenhouse gas emissions or enhance carbon sinks. This can include investments in low-carbon technologies, carbon offset projects, and carbon credits.
- Carbon Footprint: The total amount of greenhouse gases (such as carbon dioxide) produced by human activities, including transportation, energy use, and industrial processes. Reducing carbon footprint is a key component of ESG strategies for companies and investors.
- Carbon Intensity: Carbon intensity refers to the amount of carbon dioxide emissions per unit of energy consumption or economic output. It is used as a measure of the efficiency and sustainability of energy systems and can be used to compare the emissions of different energy sources.
- Carbon Offset: A financial instrument that represents a reduction in greenhouse gas emissions and can be traded on carbon markets. Offsets are used to compensate for emissions that cannot be reduced directly and are generated by projects such as renewable energy, energy efficiency, and reforestation.
- Carbon Pricing: Carbon pricing refers to the use of economic incentives, such as taxes or cap-and-trade systems, to encourage the reduction of greenhouse gas emissions. By putting a price on carbon emissions, carbon pricing provides an economic incentive for companies and individuals to reduce emissions and invest in low-carbon technologies.
- Carbon Sequestration: Carbon sequestration refers to the process of capturing and storing carbon dioxide emissions, typically from power plants, so that they are not released into the atmosphere. This can be achieved using carbon capture and storage (CCS) technologies, or through the storage of carbon in forests and other land-based sinks.
- Carbon Sinks: Carbon sinks are natural or artificial reservoirs that absorb and store carbon dioxide emissions, thereby reducing their concentration in the atmosphere. Examples of carbon sinks include forests, soils, and oceans.
- CDP – Carbon Disclosure Project: a reporting framework focused on carbon emissions and climate change.
- Changes in Land Use: Changes in land use refers to alterations in the way that land is used for human purposes, such as for agriculture, forestry, or urbanization. These changes can result in the loss of wildlife habitats and can contribute to global warming and other environmental problems.
- Cleantech/Greentech: Cleantech and greentech are terms used to describe environmentally friendly and sustainable technologies, products, and services that are designed to reduce the impact of human activities on the environment.
- Community Engagement: The active involvement of companies and organizations in the communities in which they operate, including through philanthropy, volunteering, and other forms of civic engagement.
- Conference of the Parties (COP): The Conference of the Parties (COP) is the supreme decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC). The COP meets annually to assess progress in dealing with climate change and to negotiate and implement international agreements to address it.
- Consumer Protection: The protection of consumers from harmful products and practices, including through regulations and consumer advocacy.
- Contamination: the presence of harmful substances in water, such as chemicals or pathogens.
- Decarbonization: Decarbonization refers to the process of reducing the carbon intensity of energy systems and the economy as a whole. This can be achieved by low-carbon energy sources, energy efficiency, and other mitigation measure.
- Eco-Friendly: A term used to describe products, practices, and technologies that have a minimal impact on the environment and promote sustainability.
- Emergency Preparedness Plan: a plan outlining the steps a building or organization should take in the event of a natural disaster.
- Emissions: Emissions refer to the release of greenhouse gases (GHGs) and other pollutants into the atmosphere. Emissions can be caused by various human activities, including the burning of fossil fuels, deforestation, and industrial processes.
- Energy Audits: an assessment of a building’s energy usage and potential for improvement, including recommendations for energy efficiency upgrades.
- Energy Efficiency: The use of less energy to perform the same functions, reducing the amount of energy required to produce goods and services and minimizing greenhouse gas emissions.
- Energy Ordinances: refers to laws and regulations governing energy use and emissions within a particular jurisdiction.
- EnergyStar Score: a rating system developed by the US Environmental Protection Agency that rates the energy efficiency of buildings and products.
- Energy Use: Reducing energy use is a key aspect of ESG, as it can lower a building’s carbon footprint and reduce operating costs.
- EV Charging: refers to the charging of electric vehicles, which can be powered by renewable energy sources.
- Financial Risks: Financial risks refer to the potential impacts that climate change and other environmental, social, and governance (ESG) factors may have on the financial performance of companies and investments. Financial risks can include changes in market demand, regulatory requirements, and supply chain disruptions.
- Fuel Cell: refers to a type of technology that converts chemical energy into electrical energy, typically using hydrogen and oxygen.
- Green Building Certifications: certifications awarded to buildings that meet certain standards for sustainability and energy efficiency, such as LEED and BREEAM.
- Greenhouse Gas Emissions: Gases that trap heat in the atmosphere and contribute to climate change, such as carbon dioxide, methane, and nitrous oxide.
- GRESB – Global Real Estate Sustainability Benchmark: a benchmarking organization that assesses the sustainability performance of real estate portfolios and assets worldwide. The GRESB benchmark provides a comprehensive and standardized assessment of ESG practices in the real estate sector and helps real estate companies to improve their sustainability performance.
- GRI – Global Reporting Initiative: an international organization that develops and maintains a sustainability reporting framework. Companies use this framework to disclose information about their environmental, social, and governance (ESG) performance. The GRI framework helps companies to be transparent about their sustainability practices and provides stakeholders with relevant and comparable information.
- Hazardous Building Materials: refers to materials used in construction that can be harmful to human health, such as asbestos, lead, radon, and mold.
- Hazardous Waste: refers to waste that is potentially dangerous or harmful to human health or the environment, such as chemicals or radioactive materials.
- HVAC: Heating, Ventilation, and Air Conditioning. The HVAC system is critical to the energy efficiency and comfort of a building.
- Indoor Air Quality: refers to the quality of air within a building, including factors such as temperature, humidity, and contaminants.
- Internal Controls: The processes and practices a company uses to ensure that its operations are efficient, effective, and compliant with applicable laws and regulations. Strong internal controls are important for ESG as they help ensure that a company is operating in a responsible and effective manner and that its activities align with stakeholders’ interests.
- IRC – Integrated Reporting Council: a global non-profit organization that promotes integrated reporting, a holistic approach to financial and non-financial reporting.
- Life Cycle Assessment: A comprehensive analysis of the environmental impacts of a product, process, or service over its entire life cycle, from raw materials extraction to disposal.
- Life Safety Systems: refers to the systems and equipment in place to ensure the safety of building occupants in the event of an emergency, such as fire alarms and sprinkler systems
- Lighting: Energy-efficient lighting systems can reduce a building’s energy consumption.
- Mitigation Measures: refers to the measures taken to reduce the likelihood and impact of natural hazards, such as elevating buildings in flood-prone areas.
- Natural Capital: The stock of natural resources, such as forests, soils, and minerals, that provide benefits to humans and support life on Earth.
- Net Zero Goals: refers to the goal of reducing greenhouse gas emissions to a level that is equal to or less than the amount being removed from the atmosphere, effectively reaching net zero emissions.
- Ocean Acidification: Ocean acidification is the process by which the ocean’s pH decreases as a result of increasing levels of carbon dioxide in the atmosphere. This acidification has negative impacts on marine ecosystems, including coral reefs and shellfish populations.
- Ozone Depletion: Ozone depletion is the reduction of the ozone layer in the stratosphere, which protects life on Earth from harmful UV radiation. This reduction is caused by human activities, particularly the release of chlorofluorocarbons (CFCs) into the atmosphere.
- Physical Climate Risk/Natural Hazards of Property: refers to the potential dangers posed by the physical climate, such as flooding, hurricanes, or earthquakes, and the impact they may have on a building or property.
- Product Responsibility: The responsibility of companies to ensure that their products are safe, ethical, and sustainable, and to minimize any negative impact they may have on the environment or human health.
- Raw Materials Usage: Raw materials usage refers to the extraction, processing, and use of natural resources, such as minerals, fuels, and timber, for the production of goods and services. High levels of raw materials usage can result in environmental degradation, depletion of natural resources, and increased greenhouse gas emissions.
- Regulatory Compliance: a company’s adherence to applicable laws and regulations in its operations. Regulatory compliance is important for ESG as it helps ensure that a company is operating in a responsible and legal manner and that its activities align with stakeholders’ interests.
- Renewable Energy: Energy sources that are replenished naturally, such as wind, solar, and hydropower. Renewable energy is seen as an important ESG issue because it reduces dependence on finite fossil fuels and helps mitigate climate change.
- Resiliency Measures: refers to the measures taken to prepare for and recover from the impacts of natural hazards, such as reinforcing structures or installing backup power systems.
- Retro-commissioning: the process of improving the energy efficiency of a building through optimization of existing systems and equipment.
- Risk Management: the processes and practices a company uses to identify, assess, and manage potential risks to its business, such as environmental, social, or financial risks. Effective risk management is important for ESG as it helps ensure that a company is prepared to address potential risks and minimize their impact on its operations and stakeholders.
- Roof: The roof can play an important role in a building’s energy efficiency, such as through insulation and reflective coatings.
- SASB – Sustainability Accounting Standards Board: a non-profit organization that provides sector-specific standards for sustainability reporting.
- SDG – Sustainable Development Goals: The Sustainable Development Goals (SDGs) are 17 global goals set by the United Nations to end poverty, protect the planet, and ensure peace and prosperity for all by 2030. The SDGs cover a wide range of issues, including poverty, hunger, health, education, gender equality, clean water, energy, and sustainable cities, among others.
- Sensors, Monitors, Controls: These technologies help to optimize a building’s energy use, by monitoring and controlling various systems such as lighting and HVAC.
- Solar: refers to energy derived from the sun, typically using photovoltaic panels.
- SRI – Socially Responsible Investing: an investment approach that considers both financial returns and social and environmental impact. Investors who follow SRI principles seek to invest in companies that have positive ESG practices and avoid companies that have negative ESG practices.
- Stakeholder Engagement: Refers to a company’s communication and interaction with its stakeholders, including shareholders, employees, customers, and local communities, to understand and address their concerns and expectations. Stakeholder engagement is important for ESG as it helps companies identify potential ESG risks and opportunities and ensure that their activities align with the values and interests of their stakeholders.
- Stormwater: refers to water that falls as precipitation and flows over land and impervious surfaces, rather than infiltrating into the ground.
- Structural Risks: refers to the potential dangers posed by the physical structure of a building, such as structural failures or collapse.
- Supply Chain Management: a company’s practices and policies related to managing its suppliers and ensuring they meet ethical and environmental standards.
- Sustainable Development: A development path that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.
- TCFD – Task Force on Climate-related Financial Disclosures: a voluntary reporting framework that provides guidelines for disclosing financial risks and opportunities related to climate change.
- Transparency: a company’s openness and accessibility in sharing information about its operations, performance, and governance. Transparency is important for ESG as it helps ensure that a company is accountable and responsible in its activities and that stakeholders have access to information to make informed decisions.
- UNGC – United Nations Global Compact: a voluntary initiative that encourages businesses to align their strategies and operations with ten universally accepted principles in the areas of human rights, labor, environment, and anti-corruption.
- UNPRI – United Nations Principles for Responsible Investment: UNPRI is a set of six principles for responsible investment established by the United Nations in 2006. The principles encourage investors to integrate ESG considerations into investment decisions, engage with companies on ESG issues, and report on their responsible investment activities.
- Waste Management: The collection, transport, treatment, and disposal of waste, with a focus on reducing the negative impact of waste on the environment and human health.
- Water Management: The process of managing water resources in a sustainable manner, including ensuring access to clean drinking water, reducing water waste, and protecting water ecosystems.
- Windows: The type and quality of windows can impact a building’s energy efficiency.
ESG Frequently Asked Questions:
- What is the purpose of ESG?
ESG is used to assess the sustainability and societal impact of an investment in a company or organization. It considers a company’s environmental impact, its treatment of employees, customers and other stakeholders, and its governance practices.
- Why is ESG important?
ESG is important because it helps investors to understand the risks and opportunities associated with their investments. It also helps companies to improve their sustainability practices, reduce their negative impact on the environment, and improve their relationships with stakeholders.
- How is ESG measured? ESG is measured by evaluating a company’s performance on environmental, social, and governance factors. This can be done through publicly available data, such as annual reports and sustainability reports, or through specialized ESG rating agencies.
- What are some common ESG metrics?
Common ESG metrics include greenhouse gas emissions, energy consumption, employee diversity and engagement, supply chain management, and anti-corruption practices.
- What is the difference between ESG and sustainability?
ESG and sustainability are related, but ESG focuses more specifically on the impact of a company’s operations on the environment, society, and governance. Sustainability, on the other hand, refers to the ability of an organization to meet the needs of the present without compromising the ability of future generations to meet their own needs.
- Why are more investors focusing on ESG?
More investors are focusing on ESG because they recognize that a company’s ESG performance can have a significant impact on its financial performance. ESG factors can also be an indicator of a company’s long-term prospects and its ability to manage risks.
ESG Top 5 Trends in CRE:
- Increased focus on energy efficiency and sustainable building design: As more companies set ambitious carbon reduction goals, they are looking to reduce the environmental footprint of their buildings by incorporating features such as green roofs, solar panels, and high-efficiency heating and cooling systems.
- Growth in the use of data and technology to track and measure sustainability performance: Real estate companies and investors are using data and technology to track and measure the environmental, social, and governance (ESG) performance of their buildings and portfolios. This includes using building management systems to monitor energy and water usage, and software to track and report on emissions, waste, and other sustainability metrics.
- Greater emphasis on social and community impact: Real estate companies are placing a greater emphasis on the social and community impact of their developments. This includes investing in affordable housing, providing community spaces, and supporting local businesses.
- Rising demand for sustainable finance: As the real estate industry becomes more focused on ESG issues, there is a growing demand for sustainable finance options such as green bonds, impact investing, and environmental, social, and governance focused (ESG) funds.
- Growing awareness of the risks and opportunities associated with climate change: Companies and investors are becoming more aware of the risks and opportunities associated with climate change and the need to take action to mitigate those risks and capitalize on opportunities. This includes investing in properties and developments that are resilient to the impacts of climate change and transitioning away from fossil fuel-based energy sources.
If you are interested in ESG consulting or have any questions, please reach out to speak with one of our environmental and sustainability professionals.