ESG glossary: sustainability terms from A to Z

The EU's carbon border adjustment mechanism requires importers to buy and surrender CBAM certificates for imported emissions-intensive goods (e.g. steel, cement, aluminium). Up to and including 50 tonnes of net mass per importer and calendar year, CBAM does not apply (except for electricity and hydrogen). Their price is based on the EU ETS price. The aim is to prevent carbon leakage and create a level playing field for producers inside and outside the EU.

The corporate carbon footprint measures the greenhouse gas emissions of a company and expresses them in CO2 equivalents. Under the GHG Protocol it covers scopes 1 and 2; scope 3 is optional there. It forms the basis for climate strategies, reduction targets and CSRD reporting.

CO2e is the unit that puts the climate impact of different greenhouse gases (e.g. methane, nitrous oxide) on a common scale, using CO2 as the reference gas. Over 100 years, one kilogram of methane equals approximately 27 kg CO2e under IPCC AR6; for fugitive and process-related methane of fossil origin, e.g. from gas pipelines or coal mining, 29.8 applies. Methane from the combustion of fossil fuels is valued at 27. The IPCC source used belongs in the report.

The EU supply chain directive applies from Jul 26, 2029 to companies with more than 5,000 employees and more than EUR 1,500m turnover. It requires them to exercise human rights and environmental due diligence in their chain of activities: fully upstream, downstream only for distribution, transport and storage that business partners carry out for the company. Use and disposal of products are not covered. It complements the CSRD with binding obligations to act - not merely to report.

The EU directive on mandatory sustainability reporting replaces the NFRD. Since Omnibus I the scope is far narrower, however: for financial years beginning on or after 1 January 2027 it applies only to companies with more than 1,000 employees on average and more than EUR 450m net turnover. Reports must be prepared under the ESRS, integrated into the management report and externally audited.

The CSRD concept under which companies must assess both their impacts on people and the environment (impact materiality) and the sustainability risks and opportunities that have financial implications (financial materiality). A topic is material if it is material from either perspective or from both; it then belongs in the sustainability report.

The European Single Electronic Format (ESEF) is the EU's digital reporting format, in which disclosures are tagged with XBRL. The duty to mark up sustainability information under Article 29d of the Accounting Directive 2013/34/EU never applied only to listed companies but to every reporting company. Only the tagging is suspended: until the ESEF regulation (EU) 2019/815 contains rules for tagging sustainability information, companies need not tag; there is no application date. Preparing the management report in the ESEF format (XHTML) remains mandatory.

ESG refers to the three dimensions along which companies are assessed for sustainability: environment (e.g. CO2 emissions, biodiversity), social (e.g. working conditions, human rights) and governance (e.g. compliance, transparency). ESG criteria underpin regulation, investor decisions and reporting.

The ESRS are the standards developed by EFRAG and adopted by the European Commission under which CSRD-obligated companies must report. They comprise two cross-cutting standards and ten topical standards covering environment, social and governance.

The European Commission's flagship policy programme aimed at making Europe climate-neutral by 2050. The Green Deal bundles, among others, the CSRD and CBAM; the EU Taxonomy stems from the older action plan on sustainable finance of 2018. The 2050 goal became binding with the European Climate Law, Regulation (EU) 2021/1119.

The EU classification system defines which economic activities qualify as environmentally sustainable, based on six environmental objectives: an activity must contribute substantially to one objective, must not significantly harm any of the others (Do No Significant Harm), must meet the minimum safeguards and must comply with the technical screening criteria. Companies subject to CSRD reporting must disclose under Article 8 of Regulation (EU) 2020/852 what share of their revenue, capital expenditure and operating expenditure is taxonomy-aligned.

The Greenhouse Gas Protocol is the internationally recognised standard for measuring and reporting greenhouse gas emissions. It defines the three scopes and provides the methodological foundation for the CCF, PCF and ESRS climate standards.

Greenwashing refers to the misleading presentation of products, services or companies as more environmentally friendly or sustainable than they actually are. The proposed Green Claims Directive is stalled: the Commission announced its withdrawal in 2025 but never formally withdrew it. The binding rule is the EmpCo Directive (EU) 2024/825, transposed in Austria via the UWG (BGBl. I Nr. 58/2026) and applicable since Sep 27, 2026.

IROs are the central output of the double materiality assessment under ESRS: companies identify their actual and potential, positive and negative impacts on people and the environment as well as their sustainability risks and opportunities. These can follow from their own impacts, but also from dependencies on resources or from external developments such as physical climate risks. The material IROs determine the scope of the report.

Limited assurance is the level of assurance the CSRD requires for the sustainability report. The originally planned move to reasonable assurance was dropped by Omnibus I. The auditor states that nothing has come to their attention suggesting material misstatement - a lower level of certainty than the 'reasonable assurance' of the financial statements.

Germany's Supply Chain Due Diligence Act requires companies above a certain size to exercise human rights and environmental due diligence along their supply chains. The annual reporting duty is to be dropped retroactively; the amending act had not been passed as of autumn 2026, and BAFA stopped accepting reports in November 2025. The due diligence duties themselves remain.

Net Zero refers to the goal of deeply cutting emissions across the entire value chain in line with the 1.5 °C pathway (the ESRS name about 90–95 %, with justified sectoral variations) and neutralising only the remaining residual emissions by permanently removing CO2 from the atmosphere. The Paris Agreement aims for a balance between emissions and removals in the second half of the century; the year 2050 comes from the IPCC 1.5 °C pathways and the EU Climate Law. For companies, SBTi standards define the scientifically recognised pathway; version 2.0 takes effect on Feb 1, 2027.

The product carbon footprint measures the greenhouse gas emissions and removals of a product in CO2 equivalents. For final products it covers the entire life cycle from raw material extraction to disposal; for intermediate products a justified partial PCF up to the factory gate (cradle-to-gate) is common. It underpins environmental product declarations and is increasingly a subject of supplier requirements.

The SBTi is an international initiative that helps companies set science-based climate targets. The ESRS ask whether climate targets are science-based and compatible with 1.5 °C, and which framework was used to set them. They do not name the SBTi.

The GHG Protocol divides emissions into three categories: Scope 1 (direct emissions from sources the company owns or controls, including the combustion of purchased fuels), Scope 2 (indirect emissions from the generation of purchased electricity, steam, heat and cooling that the company consumes itself) and Scope 3 (all other upstream and downstream emissions along the value chain, e.g. suppliers, employee travel, product use). Scope 3 represents the largest share for most companies.

The voluntary standard developed by EFRAG enables small and medium-sized enterprises to produce structured, comparable sustainability reports outside the CSRD obligation. It is frequently used at the request of banks, large customers or investors. Now the Voluntary Standard (VS): its successor applies since Sep 24, 2026 under Delegated Regulation (EU) 2026/1560. The VS standard is open to every undertaking without a CSRD duty and is designed for undertakings with up to 1,000 employees. The cap on data requests from the value chain contained in it applies to financial years from 2027.