Welcome to our new series "What do we mean when we say..."! Sustainability is a hot topic these days, but what exactly do we mean when we say things like “Scope 1 and 2” or “materiality assessment”?
The basics: 10 key sustainability terms
Sustainability is a broad issue area, and it can impact different companies in different ways. As you start thinking about sustainability in relation to your business, knowing concepts and acronyms will help you better understand what is—and isn’t—relevant to your organization. And as you engage further, keep tabs on Cascade's sustainability-related blog posts for additional topics.
ESG - Environmental, social, and governance
ESG is sometimes used as short-hand for sustainability, and it represents the three primary areas of corporate responsibility.
Environmental: climate and greenhouse gas emissions (GHG), biodiversity, waste, water, etc.
Social: health and safety, employee benefits, community engagement, human rights, diversity and inclusion, child labor, etc.
Governance: governance structure and composition, roles and responsibilities, accounting practices, etc.
Carbon footprint
Carbon footprint describes the GHG emissions caused by a business. These could be emissions from powering the business, like emissions from electricity, natural gas, or diesel gasoline. They could also be emissions from transportation within the business, or emissions from a business process–for instance, the process to create clinker, a main ingredient of cement, produces CO2 as a part of its chemical reaction.
In addition to carbon footprint, it may also be referred to as a “greenhouse gas inventory”, “carbon accounting”, or “GHG emissions”. A carbon footprint establishes a baseline of the amount of emission sources generated by an organization in a given year. Generally speaking, a carbon footprint should be developed according to the GHGP standards. What are GHGP standards, you say? Up next…
The Greenhouse Gas Protocol (GHGP)
GHGP is the internationally-recognized nonprofit that established the Corporate Accounting and Reporting Standard for measuring and reporting GHG emissions. This guidance is the foundation for defining how businesses, governments, and other entities categorize and report carbon emissions for a business.
Renewable energy
Energy that is provided by a source which is not depleted upon consumption. Examples include solar, wind, geothermal energy, and hydropower. Renewable energy does not contribute to a company’s carbon footprint as these sources produce little to no carbon.
Scope 1, Scope 2, and Scope 3 emissions
The GHGP standard categorizes greenhouse gas emissions as either Scope 1, 2, or 3 emissions. Scope 1 emissions are direct emissions coming from the company, such as natural gas to heat buildings, a gas-oven, fuel in a company owned truck, or fossil fuels used by the company.
Scope 2 is purchased electricity.
Scope 3 is indirect emissions, which is the most difficult category to track and measure because data comes from suppliers and may or may not be tracked. There are 15 Scope 3 categories, including purchased goods and services, employee commute, business travel, waste, upstream transportation, and downstream transportation.
Materiality assessment
A process to determine the most important issues facing a business. The assessment typically consists of stakeholder interviews and surveys to gather data and multiple perspectives. The result is a “materiality matrix” that shows which topics are most critical to the company and its stakeholders. The results provide a roadmap that guides business decisions around sustainability issues.
Raters and Rankers
This is a group of nonprofit and for-profit organizations that…rate and rank organizations’ sustainability activities. Yeah, pretty self-explanatory. Their role is to evaluate a company’s ESG disclosures and help others in the market assess if the company is above average, average, or below average. Each rater and ranker has a unique approach to the categories they review, and whether the scored companies are proactive or passive in the review process. Common examples include EcoVadis, CDP, S&P Global ESG, Sustainalytics, and MSCI.
Science-Based Targets Initiative (SBTi)
SBTi is a leading international framework for setting climate targets designed to align with what the latest science tells us about the pace and amount of GHG reductions required to prevent the worst effects of climate change. Companies submit plans to SBTi for approval, which a business does to indicate that it’s serious about its climate ambitions. SBTi approval also gives trading partners and interested stakeholders more confidence in the company’s emission reduction targets.
Climate target
A specific statement that explains a company’s goal for reducing their impact on the climate. A climate target should include a baseline year, baseline amount of carbon emissions, target year, target amount of emissions, and % reduction. The most effective climate targets are near-term and supported by action plans to meet the target.
Greenwashing
When a business makes environmental claims that are beyond the reality of what has been implemented. Greenwashing claims may be overly broad, intentionally confusing or misleading, or not possible to substantiate, all in an effort to appear as if the company is engaging in more environmentally-friendly and/or emission-reducing activities than they really are.
Some final thoughts
These 10 key terms about sustainability are just scratching the surface but hey, you gotta start somewhere, right? As you think about what your business needs, you can dig in more on topics that are relevant to your specific situation.
About the Author
Todd Weinstein, president at ESG Owl, is a contributing author to Cascade Advisory. Todd has a passion for helping small and medium-sized manufacturing companies leverage sustainable business practices to drive the bottom line. Todd’s experience helping companies assess their sustainability risks and develop sustainability strategies enables his clients to derive business value from sustainability initiatives. Todd has experience spanning areas such as company policy development, carbon footprint reporting, customer and compliance reporting, climate target setting, renewable energy, carbon credits, and more.
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