ESG glossary: we'll help you navigate the basics

One comes across the topic of ESG at every turn today. If you are interested in this topic, or if you are going to prepare a non-financial report in the next few years, the following lines will help you get to grips with the basic concepts. These acronyms and terms should definitely not escape your attention if you want to navigate the world of sustainability.

Sustainability Statement

The official name of the otherwise used term ESG report. This is a "new" feature that will be included in the company's annual report, the content of which will be a sustainability report according to ESRS (European Sustainability Reporting Standards - see below) and a taxonomy report.

NFRD (Non-Financial Reporting Directive)

This is the original Non-Financial Reporting Directive, which was replaced by the CSRD from 1 January 2024 (see below). The reporting obligation under the NFRD applied only to the largest companies in the EU, in the Czech Republic it applied to only a few dozen companies and did not provide sufficiently detailed and high-quality ESG reporting content overall. This is now changing with the CSRD, which requires reporting according to uniform standards.

CSRD (Corporate Sustainability Reporting Standards)

The Directive is effective from January 1, 2024.

The Directive introduces an obligation for companies to report on sustainability according to ESG standards. In addition, the CSRD extends this obligation to many more companies (almost 50,000 in the EU, more than 1,000 in the Czech Republic). Which companies and when this obligation applies can be found in our article.

The goal is to increase the transparency of companies and their value chains, reduce greenwashing, and ensure sufficient data for economic transformation and decision-making by financial institutions.

ESRS (European Sustainability Reporting Standards)

These are mandatory EU standards to which companies under the CSRD's remit must align their non-financial reporting. The ESRS standards aim to ensure that the information companies report is comparable, relevant and credible. Inter-comparability is important for financial institutions that are obliged to report ESG data under the SFDR and to channel finance into the transformation of the economy towards sustainability.

DMA (Double Materiality Assessment)

Companies that are required to report under the CSRD are required to carry out a ''double materiality assessment'' to determine which sustainability issues are most important to the organization. The principle of double materiality leads companies to approach sustainability from two different perspectives: 1) Financial materiality: includes all external sustainability impacts that could internally affect the company's future profitability. 2) Impact materiality: includes all impacts of the company's business activities on the environment and on people along its value chain.

We already have a lot of experience in assessing dual materiality for our clients. Based on this experience, we have compiled 5 important things you should know about double materiality, especially if you are just starting out.

EFRAG (European Financial Reporting Advisory Group)

EFRAG is an advisory organisation affiliated to the European Commission. In January 2020, it was mandated by the Commission to develop standards for sustainability reporting. A first prototype standard for climate data reporting was presented by the working group in October 2021.

In early 2022 , EFRAG established a dedicated sustainability reporting pillar, which includes the Sustainability Reporting Board, of which Filip Gregor of Frank Bold, who was also involved in the original working group, is a member. The final draft standards were presented by EFRAG in November 2022 and the European Commission adopted the final European Sustainability Reporting Standards (ESRS) on the basis of the draft.

SFDR (Sustainable Finance Disclosure Regulation)

Regulation on sustainability-related disclosures in the financial services sector, effective from March 10, 2021. Simply put - the Regulation introduced ESG reporting obligations for banks and investors. The SFRD obliges banks and investors to disclose, among other things, information on the sustainability impacts of their investments, on the integration of sustainability-related risks into investment decisions, and introduces criteria for green investments.

Taxonomy EU

A guide to channeling finance into sustainable projects. The EU Taxonomy provides precise criteria that economic activities must meet to qualify as sustainable and therefore eligible for sustainable project finance. Such activities are then referred to as 'taxonomy compliant activities'.

How to turn the taxonomy report obligation into an opportunity for your company? Read the article: Your company can also benefit from EU Taxonomy. We show examples of specific opportunities in three sectors

Taxonomy-eligible

Taxonomy eligibility is an assessment of whether a particular activity falls within the scope of the taxonomy at all. An economic activity is considered eligible if it is included in the regularly updated list of activities covered by the delegated acts of the Taxonomy Regulation.

Taxonomy-aligned

It is a positive assessment that the taxonomy-eligible activity meets the requirements of the taxonomy, i.e. it contributes substantially to at least one of the six objectives of the taxonomy, does not harm any other objective, and meets the requirements for compliance with the so-called minimum safeguards.

EPBD (Energy Performance of Building Directive)

Revised Energy Performance of Buildings Directive, aiming at a complete decarbonisation of the European building stock. It therefore introduces, among other things, a new zero-emission standard for new buildings (ZEB) and mandatory renovation of existing buildings with the worst performance.

ZEB (Zero-Emission-Building)

A standard that describes what zero-emission buildings should look like. All new buildings will have to meet this standard from 2030. A zero-emission building is one that requires zero or very low amounts of energy to cover its consumption, produces zero carbon emissions from on-site fossil fuels and zero or very low operational greenhouse gas emissions. The ZEB makes maximum use of on-site or nearby renewable resources to cover residual consumption.

Carbon footprint

The carbon footprint measures the impact of human activity on the environment and climate change. It is an indicator of the consumption of energy, products and services, expressing the amount of greenhouse gases generated by a particular activity or product. It can be determined at different levels: national, urban, individual, company or product level.

GHG Protocol (Greenhouse Gas Protocol)

The GHG Protocol provides standards and tools for the consistent assessment of companies' emissions outputs. The GHG classifies emissions into three "scopes".

Need help with your emissions assessment? We can help you calculate your carbon footprint from Scope 1, 2 and 3.

Scope 1

Direct greenhouse gas emissions resulting from activities that are carried out within the organisation. These are emissions that are directly caused by the company's activities. These include, for example, emissions from the burning of fossil fuels (heating, operation of factories or production facilities) or emissions from company cars.

Scope 2

Indirect greenhouse gas emissions resulting from the purchase of energy for the organisation. These emissions are not generated directly by the organisation, but are associated with the energy that the organisation purchases and consumes. An example of Scope 2 emissions are those from the generation of the electricity consumed, which the company purchases from its supplier.

Scope 3

Indirect greenhouse gas emissions resulting from activities that are associated with the firm but occur outside its control. These are emissions associated with the entire life cycle of the product or service offered by the company - from the production of raw materials, through processing, distribution, use and disposal. Examples include emissions from the processing of the wood needed to produce its own products, emissions from the transport it orders to deliver its products to customers, emissions from the processing of waste, etc.

Reporting Scope 3 emissions is likely to be the most challenging for Czech companies. You can read how to deal with these emissions in our article.

Get ready for ESG reporting

These topics are just a basic overview, an introduction to the world of ESG and corporate sustainability. If you need help to get a better understanding of the topics - to calculate your carbon footprint, to introduce the issue of double materiality and its assessment, or to prepare a full ESG report - please do not hesitate to contact us. We will be happy to guide you through the entire process.