- ESG Glossary
Environmental, Social & Governance Glossary
The Vinson & Elkins ESG Glossary is a repository of key terms, organizations and frameworks commonly used or referenced in the ESG space. Links to further Vinson & Elkins insights and external references are also included in the relevant entries.
“Bloomberg ESG” Bloomberg ESG provides a “1 to 100” score to companies based only on their level of ESG and sustainability disclosure. Bloomberg does not indicate whether it has a mechanism for companies to verify information or provide feedback on their ESG disclosure score. Bloomberg ESG’s webpage is available here.
“Carbon Tracker” is a non-profit headquartered in London that researches the impact of climate change on financial markets. Carbon Tracker popularized the notion of a “carbon bubble”, which describes the incompatibility between the continued development of fossil fuel projects and combating climate change. Carbon Tracker’s webpage is available here.
“CCAF” means the Center for Climate Aligned Finance. See also the glossary entry for “Center for Climate Aligned Finance”.
“CDP” was formerly the Carbon Disclosure Project. CDP solicits primarily climate-related information from companies annually by sending Climate Change, Water, and Forest Questionnaires. Companies that disclose information to CDP are assigned grades and are regularly benchmarked against their peers. CDP’s webpage is available here.
“CDSB” means the Climate Disclosure Standards Board. The CDSB is a standards-setting consortium of environmental non-governmental organizations and other groups that focuses its efforts on disclosures related to equating “natural capital” with “financial capital.” CDSB’s webpage is available here.
“Center for Climate Aligned Finance” means the organization founded in July 2020 by the Rocky Mountain Institute, together with Wells Fargo, Goldman Sachs, Bank of America, and JPMorgan Chase. CCAF encourages the financial sector’s “climate alignment” with the goals of the Paris Agreement and seeks to partner with financial, industrial and political stakeholders to “facilitate a transition in the global economy to net-zero emissions by mid-century.” CCAF’s webpage is available here.
“CERES” is a non-profit organization that leads a national coalition of investors, environmental organizations, and other public interest groups working with companies to address sustainability challenges such as climate change and water scarcity. CERES’ webpage is available here.
“Community Impact Investing” means directing investment capital to communities that are underserved by traditional financial services institutions. Such initiatives generally provide access to credit, equity, capital, and basic banking products that these communities would otherwise lack.
“CSR” means Corporate Social Responsibility. CSR is generally used to describe the intersection between a company’s governance and its ethical obligations to the communities with which it interacts.
“DJSI” means the Dow Jones Sustainability Index, which was launched in 1999 and tracks the stock performance of the world’s leading companies in terms of economic, environmental and social criteria. See also “RobecoSAM CSA”.
“Double Bottom Line” means the inclusion of both quantitative and qualitative analysis embraced by socially conscious investors, which extends the traditional bottom line measuring financial performance to include a “second” bottom line measuring non-financial performance measures, such as positive social impact.
“Environmental Justice” is often defined as the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies, although different organizations have their own unique definitions. The disproportionate impacts that Hurricane Katrina had on relatively poor areas, and the exposure of urban communities to environmental contaminants like lead, such as in the Flint, Michigan drinking water crisis, are often used as examples of environmental injustice.
“Equator Principles” or “EPs” are a risk management framework adopted by financial institutions for determining, assessing and managing environmental and social risk in project finance. The EPs are primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. The fourth iteration of the Equator Principles are available here.
“ESG” means Environmental, Social, and Governance. These terms refer to the three central factors typically used in evaluating the sustainability and ethical impact of a company or an investment.
“European Union Non-Financial Reporting Directive” means the European Commission’s requirement for large companies to disclose certain non-financial matters as part of their annual public reporting obligations, including anti-corruption, human rights, diversity, and environmental concerns. For more information, please see our post on this topic here.
“European Union Sustainable Finance Taxonomy” means the European Union Taxonomy Regulation, which establishes a uniform classification system, akin to a glossary, to ensure that participants in financial markets have a shared language for assessing the environmental sustainability of various activities. For more information, please see our post on this topic here.
“GRI” means the Global Reporting Initiative, an independent international organization that has been involved in sustainability reporting since 1997. GRI is the most widely used and most extensive voluntary reporting framework for ESG and sustainability topics. The latest version of its framework, the GRI Standards was published in 2016. GRI’s webpage is available here.
“GRI Standards” are a set of standards published by the GRI, which anticipate that companies will choose their own level of disclosure on a wide variety of ESG and sustainability topics and publish annual sustainability reports.
“Human Rights Watch” is an international non-governmental organization, headquartered in New York City, which investigates and reports on human rights abuses around the world. Human Rights Watch’s webpage is available here.
“IIRC” means the International Integrated Reporting Council. The IIRC formed the Integrated Reporting Framework, which seeks for companies to calculate and publish in consolidated reports their contributions to, and impacts on, six “capitals”: financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital. The International Integrated Reporting Council’s webpage is available here.
“ISS” means Institutional Shareholder Services, Inc., which launched an Environmental & Social QualityScore Disclosure and Transparency Signal scoring tool that provides a metric for institutional investors to use, together with ISS’ Governance QualityScore, to more fully evaluate the ESG risk of their portfolio companies. ISS’ webpage is available here.
“Integrated Reporting” or “IR” is the process that results in the communication of a company’s performance and strategy across a broad array of ESG factors, with equal weight given to financial and non-financial data, and with the interests of investors and other stakeholders considered equally. Integrated reporting is the goal of many that push for greater ESG disclosure—the aim is to redefine the concept of “materiality” in public reporting.
“ISO 26000” means the International Organization for Standardization Standard 26000. The ISO publishes many different operational standards for companies, with ISO 26000 covering “socially responsible” processes that companies may implement and report. The International Organization for Standardization Standard 26000 webpage is available here.
“MSCI”, or “Morgan Stanley Capital International” seeks to rate companies based on ESG risks and management’s response to those risks. MSCI considers 37 ESG indicators in its ratings. Data is collected from publicly available sources and monitored on an ongoing basis, but each company also receives an annual in-depth review. MSCI has a formal data verification process that companies may use to verify and comment on data. MSCI’s webpage is available here.
“Negative Screening” means the strategy of avoiding investing in companies whose products and business practices are harmful to individuals, communities, or the environment. It is a common mistake to assume that SRI “screening” is simply exclusionary, or only involves negative screens. In reality, SRI screens are being used more and more frequently to identify and invest in companies that are leaders in adopting clean technologies, managing environmental impacts, and integrating exceptional social and governance practices. See also the glossary entry for “Positive Screening”.
“NFRD” means the European Union Non-Financial Reporting Directive; please see the entry in this glossary, available here, for more detail.
“OECD MNEs” are the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises. The OECD MNEs provide “recommendations for responsible business conduct in a global context” and recommend for multinational companies to take specific actions with regards to human rights, employment, the environment, corruption, consumers, science and technology, competition, and taxation. The OECD MNEs are available here.
“PACTA” means the Paris Agreement Capital Transition Assessment, a tool developed by 2DII to allow investors and financial institutions to assess the extent to which their portfolios’ attributable GHG emissions are aligned with certain climate scenarios and allow such institutions to stress test their portfolios. For more information, please see our post on this topic here.
“PCAF” means the Partnership for Carbon Accounting Financials, a partnership within the financial sector to develop and implement a consistent approach for the accounting and disclosure of GHG emissions associated with financial institutions’ loans and investments. For more information, please see our post on this topic here.
“Portfolio Tilting” means an investment strategy that overweighs a particular investment style.
“Poseidon Principles” means the global framework for assessment and disclosure of the climate alignment of ship finance portfolios. The framework was designed to be consistent with the policies and goals of the International Maritime Organization, including the ambition to reduce annual GHG emissions from the shipping sector by at least 50% by 2050. For more information, please see our post on this topic here.
“Positive Screening” means the act of including strong CSR performers or otherwise incorporating positive CSR factors into the investment analysis process. Generally, socially conscious investors seek to own profitable companies that make positive contributions to society, and avoid those that do not. “Buy” lists may include enterprises with, for example, good employer-employee relations, strong environmental practices, products that are safe and useful, and operations that respect human rights around the world. See also the glossary entry for “Negative Screening”.
“Principles for Responsible Banking” refers to the set of guidelines developed in coordination with the United Nations for banks to incorporate ESG and sustainability issues in their decision-making. More information on the Principles for Responsible Banking is available on their webpage here. The six principles are:
- Principle 1: We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.
- Principle 2: We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the most significant impacts.
- Principle 3: We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.
- Principle 4: We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.
- Principle 5: We will implement our commitment to these Principles through effective governance and a culture of responsible banking.
- Principle 6: We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.
Formal implementation of these principles requires the disclosure of certain assessment and reporting information.
“Principles for Responsible Investment” refers to the organization that established a set of guidelines in coordination with the United Nations for investors to incorporate ESG and sustainability issues in their decision-making and to seek disclosure from companies in which they invest. More information on the Principles for Responsible Investment is available on their webpage here. The six principles are:
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
- Principle 6: We will each report on our activities and progress towards implementing the Principles.
Formal implementation of these principles requires the disclosure of certain assessment and reporting information.
“R-Factor” is short for “Responsibility-Factor”, which is a transparent ESG scoring system developed by State Street Global Advisors. It measures the performance of a company’s business operations and governance as it relates to financially material ESG issues facing the company’s industry.
“Resiliency” is a term broadly used to describe a company’s ability to withstand certain changes in the marketplace and environment.
“RobecoSAM CSA” is the RobecoSAM Corporate Sustainability Assessment, which is an ESG and sustainability questionnaire that is sent to companies annually. RobecoSAM uses the results of the questionnaire to benchmark companies, provide a sustainability score, and to create the DJSI (defined elsewhere in this glossary). RobecoSAM allows companies who pay for their services to receive individual feedback and to discuss their scores with a RobecoSAM representative. The RobecoSAM webpage is available here.
“SASB” means the Sustainability Accounting Standards Board. The SASB finalized industry-specific voluntary reporting frameworks for “material” ESG and sustainability topics in late 2018. The SASB encourages companies to disclose “material” ESG and sustainability information on identified topics in annual financial reports. SASB’s webpage is available here.
“SBTI” or the “Science Based Targets Initiative” means the collaboration between CDP, the UNGC, World Resources Institute, and the World Wide Fund for Nature that requests for companies to create and publish targets to reduce greenhouse gas emissions in line with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius compared to pre-industrial temperatures. SBTI’s webpage is available here.
“SRI” means Socially Responsible Investing, and refers to an investment discipline that considers ESG criteria to generate long-term competitive financial returns and positive societal impact through targeted investment decision-making.
“SSEI” means the Sustainable Stock Exchanges Initiative. The SSEI is a UN Partnership Programme intended to provide a global platform for exploring how exchanges, in collaboration with investors, companies, regulators, policymakers and relevant international organizations, can enhance performance on ESG issues and encourage sustainable investment, including the financing of the UN Sustainable Development Goals. The SSEI webpage is available here.
“Stranded Assets” means assets that experience premature or unanticipated devaluations, write-downs, or conversion to liabilities, or that are no longer economically viable to exploit. In the fossil fuel context, this could be used to describe resources that would not be extracted and consumed, but that would remain stranded in the ground.
“Sustainability” is a term broadly used to describe the ability to balance between meeting a given set of current needs without compromising the ability of future generations to meet their own needs.
“Sustainability Report” means the report produced by an organization to inform stakeholders about its policies, programs, and performance regarding ESG and other matters. Sustainability reports, sometimes referred to as corporate citizenship reports, or CSR reports, are usually voluntary, and are sometimes independently audited and/or integrated into financial reports. There is a growing trend toward integration and assurance.
“Sustainalytics” provides companies with an ESG risk rating score out of 100 and across five risk levels (negligible, low, medium, high and severe) based on industry-specific ESG indicators. Sustainalytics identifies areas of exposure to material ESG issues, analyzes management’s responses to manageable areas of exposure, provide discounts for controversies, and assign an overall ESG Risk Rating. Sustainalytics does not indicate whether it has a mechanism for companies to verify information or provide feedback on their ESG disclosure score. The Sustainalytics webpage is available here.
“TCFD” means the Taskforce on Climate-related Financial Disclosures. The TCFD published international recommendations for companies to disclose climate-related financial and physical risks and opportunities in 2017, which call for companies to undertake climate scenario analysis and report on their findings. The TCFD recommendations have been integrated into many of the other ESG and sustainability reporting frameworks, but companies have also published standalone TCFD reports. The TCFD webpage is available here.
“Triple Bottom Line” or “TBL” or “3BL” means the accounting framework originally developed in an effort to measure sustainability. TBL goes beyond traditional measures to incorporate three additional dimensions of performance: social, environmental (or ecological) and economic.
“UNGC” means the United Nations Global Compact, a non-binding United Nations pact to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. The UNGC webpage is available here.
“UNPRB” means the United Nations Principles for Responsible Banking; please see the entry in this glossary, available here, for more detail.
“UNPRI” means the United Nations Principles for Responsible Investment; please see the entry in this glossary, available here, for more detail.
“UNSDGs” means the United Nations Sustainable Development goals, which are goals set to be achieved by nations and companies by 2030 and that provide a general backdrop for the UNGC. The UN PRI is a set of guidelines for investors to incorporate ESG and sustainability issues in their decision-making and to seek disclosure from companies in which they invest. More information on the UNSDGs is available on the United Nations webpage here.
“Vice Stocks” or “Sin Stocks” means stocks of companies either directly or indirectly associated with activities considered by some to be unethical or immoral, such as tobacco, conflict diamonds, certain weapons, or gambling.
“WFE ESG Guidance and Metrics” mean the World Federation Exchanges ESG Guidance and Metrics, which are published for member exchanges to consider to “introduce, improve or require ESG reporting in their markets. More information on the WFE is available on their webpage here.