ESG Glossary
We guide you step by step through the most important concepts and responsibilities related to sustainable development.
Materiality assessment
ESG materiality assessment – just like in accounting, it defines what a company should report. Every large organization should conduct such an assessment, and the results of this analysis will be used when working on an ESG report or strategy.
Important: whereas previously, companies used the GRI standards to present a materiality matrix indicating the materiality of a given ESG topic from the perspective of external stakeholders and from the perspective of the organization itself, the updated GRI Standards and future ESRSs introduce the principle of double materiality. The double materiality principle introduces a new definition and new parameters for the materiality of ESG issues for a company – we examine the negative impact of the company on the environment and people, and how ESG issues affect the company. Conducting a materiality assessment is a requirement set out in the GRI Standards 2021 and ESRS. At MATERIALITY, we conduct materiality assessments for clients in accordance with the new GRI Standards 2021 and ESRS guidelines.
CSDDD
It is an abbreviation for Corporate Sustainability Due Diligence Directive. It is an EU directive on due diligence in the field of corporate sustainability, which is currently being processed. This document will impose an obligation on companies to manage environmental and social risks both in the supply chain and throughout their value chain.
CO2 emissions
In ESG reporting, the term „CO2 emissions” actually refers to emissions of several greenhouse gases. At MATERIALITY, when working with clients, we educate them about what increases or reduces emissions, calculate CO2 emissions in scopes 1, 2, and 3 according to the proven and internationally recognized GHG Protocol methodology, and develop decarbonization plans.
ESRS
ESRS stands for European Sustainability Reporting Standards. The CSRD Directive introduces ESRS into non-financial reporting, which means that companies will no longer have the freedom to choose the standards according to which they want to report, as has been the case until now. Most companies have so far chosen GRI Standards, SIN (Non-Financial Information Standards) or simply reported in accordance with the provisions of the Polish Accounting Act, Article 49b. We already know that reports for 2024 will have to be published in accordance with the European ESRS standards. ESRS did not arise in a vacuum – they are very similar to the GRI Standards of October 2021, implement the TCFD guidelines, and also include elements from the American SASB standards, but in our opinion they are very demanding and force companies to collect and process non-financial data accurately and reliably. At MATERIALITY, we provide our clients with tools for collecting numerical data already in accordance with the requirements of the GRI Standards 2021 and ESRS, which guarantees good preparation for the upcoming obligations. You can find more practical tips on ESRS in our article HERE.
GOZ
Closed-loop economy, circular economy, circular economy—these terms are used interchangeably. CLE addresses issues such as raw materials and resources, waste, product and service quality, and business models that promote a shift away from linear systems. Descriptive and numerical indicators for the circular economy are present in the GRI Standards, ESRS, and Taxonomy, and are becoming increasingly important in the transition to environmentally sustainable business practices. The circular economy is an important area of ESG in the European Green Deal.
Climate risks
Well-identified and described climate risks are not only a fulfillment of TCFD guidelines, an essential element in reports according to future ESRS standards, but also valuable insight for the company, which then adds these risks to its management system in order to be more resilient to what lies ahead. We conduct climate risk assessments using our own proven methodology, and the client receives a full report categorizing the identified risks, threats, and opportunities related to climate change.
Non-financial reporting standards
Currently, the most popular international standards for sustainability reporting are the GRI Standards. In the Anglo-Saxon world, SASB standards are equally popular and, like the GRI Standards, are currently being updated. In Poland, the absolute minimum requirement is to report non-financial data in accordance with the requirements of the Accounting Act, Article 49b, which implements the principles of the NFRD Directive. Many companies prepare their first non-financial reports based on the Polish Non-Financial Information Standards (SINs). The most important standards currently are the ESRS (European Sustainability Reporting Standards), according to which companies' reports (already covered by the NFRD) for 2024 will have to be prepared. At MATERIALITY, we work with clients according to GRI Standard 2021 and already under ESRS.
EU taxonomy
The EU Taxonomy is a type of classification system that defines which part of a company's activities are environmentally sustainable. The taxonomy is, in fact, an „analytical overlay” on the financial statements, thanks to which, in its reports for 2021, the company showed what percentage of its turnover, CapEx, and OpEx is classified under the EU Taxonomy. In their 2022 reports, companies will not only have to classify their turnover, CapEx, and OpEx, but also check whether their activities meet the technical criteria of the Taxonomy. There are also plans for a social taxonomy, which will cover human rights issues in a similar way.
TCFD
TCFD stands for Task Force on Climate-related Financial Disclosures. These are guidelines for companies, first published in 2017, on how to report issues related to climate change. It is a set of recommendations developed by the international organization The Financial Stability Board, which quickly gained the support of financial institutions, investors, and other stakeholders. Reporting on climate issues in accordance with TCFD guidelines is not only good practice, but also demonstrates that an organization is managing its climate impact. The TCFD guidelines contain 11 specific recommendations (e.g., a description of how the management board and supervisory board oversee climate-related risks and opportunities, or the disclosure of greenhouse gas emissions in scopes 1, 2, and 3) divided into four thematic blocks: corporate governance and management system, strategy, risk management, and metrics and targets.
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