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Sustainability finance tools

A variety of financial instruments that take ESG factors into account when determining more attractive loan conditions or new investments. A sustainability-linked loan (or ESG-linked loan) is one example of this, where the terms of the loan are linked to the borrower's score on ESG indicators, including carbon reduction targets. Both the terms and indicators are tailored to the specific industry of the borrower.

ESG Benchmarking

The process of comparing a company's ESG performance to competitors in its industry. This can often be challenging as there is not a universal standard to normalize the data and easily compare it. Undergoing this process allows companies to identify the strengths and weaknesses of their ESG practices, ensure compliance with regulatory requirements, and leverage their ESG performance to apply for sustainability finance tools.

Third Party Assurance

The verification and validation of your sustainability report by an independent and qualified external auditor. The review process can be conducted to examine your data, methodologies, and disclosures against established standards, frameworks, or principles (e.g. the Carbon Disclosure Project (CDP), Corporate Sustainability Reporting Directive (CSRD), and many more). There are two different levels of assurance that can be received, limited (lower cost but less rigorous) and reasonable (more thorough and provides a higher level of confidence in the ESG data).

ESG rating

A score used to compare the ESG activities of different companies, that is commonly used by investors and customers to evaluate a company's risk and impact. Some popular ratings providers include: The Carbon Disclosure Project (CDP), MSCI, and Sustainalytics, among others. To achieve an ESG rating, companies typically have to undergo third party assurance for their ESG data in accordance with the rating agency's criteria.

Scope 3 emissions

Indirect emissions involved in producing a product, including upstream and downstream emissions. Upstream emissions relate to those activities that support the production of your product before manufacturing (ie. production and transportation of raw materials, business travel, capital goods, etc.) and Downstream emissions support the distribution and end-of-life of your product (processing of sold products, waste disposal, use of product, etc.) Scope 3 emissions are often the hardest to collect and typically account for the majority of emissions stemming from a product's production (for non-vertically integrated companies.

Scope 2 emissions

Emissions resulting from energy that was purchased by an organization from external sources (primarily electricity and steam). Like scope 1 emissions, scope 2 emission data sources range from meter readings and invoices (most accurate), to company-wide financial data (least accurate). Scope 2 emission calculations require additional data on the electricity mix of a regional or national power grid in a given year.

Scope 1 emissions

Greenhouse gasses that are directly emitted from the company's operational facilities and on-site vehicles. This can be the result of fossil fuel combustion (ie. burning coal for electricity, or gasoline from cars and trucks) or the release of refrigerants from industrial facilities. Data sources used for calculating scope 1 emissions can range from meter readings and invoices (most accurate), to company-wide financial data (least accurate).

Carbon Footprint

A measure of the greenhouse gas emissions released into the atmosphere by a person, company, product, or activity. A larger carbon footprint indicates a bigger contribution to climate change. Calculating a carbon footprint involves summing up GHG emissions produced in three main categories: Scope 1, 2, and 3 emissions, and the final sum is typically presented in units of Carbon Dioxide Equivalent (CO2e).

Greenhouse gasses (GHG)

Gasses that allow light and heat from the sun to enter the earth's atmosphere, but trap heat on earth, preventing it from being released back into space. These gasses are believed responsible for human-caused (anthropogenic) climate change. The main GHG's that have an effect on climate change include: carbon dioxide (CO2), nitrous oxide (N2O), methane gas (CH4), refrigerant gasses (HFC's).

Double Materiality Assessment

Evaluates not just how the company’s operations affect the broader environment and society, but how external environmental and social issues may impact the company's financial performance and reputation. The CSRD mandate requires companies to report only on ESG issues deemed material, supported by their double materiality assessments. This approach provides a comprehensive understanding of risks and opportunities essential for navigating today's business landscape.

Materiality Assessment

An inclusive exercise where companies engage with stakeholders to identify the most significant ESG factors relevant to them. This process recognizes all key stakeholders to the company, such as investors, customers, employees, communities, ESG rating agencies, regulatory bodies, among others. Companies then compile material topics relevant to each stakeholder group and prioritize them based on their potential impact on the company's long-term performance and reputation.

ESG assessment

A detailed review of the Environmental, Social, and Governmental factors affecting a company and its stakeholders, including investors, employees, customers, communities, and shareholders. By considering these factors, stakeholders can get a more holistic and comprehensive view of the company's risks, opportunities, and impact. An ESG assessment provides a holistic view of a company's risks, opportunities, and impact. It examines the company's environmental impact (e.g., pollution, greenhouse gas emissions, biodiversity, water usage), social impact (e.g., employee welfare, community engagement, labor rights), and governance practices (e.g., corporate conduct, ethics, conflicts of interest).

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