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Sustainability Glossary

Have you come across sustainability related words and phrases that you're unsure of? Check out our continually updated glossary for some definitons!

Environmental, Social and Governance (ESG)

  • The term ESG (Environmental, Social and Governance) refers to three factors that are often used to understand a company’s exposure to business risks and opportunities that go beyond traditional financial analysis. ESG analysis assesses the company’s relationships with key stakeholders (beyond shareholders), compliance with social and environmental regulation, and the adequacy of a company’s governance processes. Strong positive ESG performance is often an indication of a well-managed company.
    • Environmental factors relate to the overall environmental impact of a company and examine if a company is managing or offsetting them appropriately. Examples include (but are not at all limited to): waste reduction, recycling rates, use of energy efficient infrastructure, environmental cleanup/remediation programs, carbon reduction programs, etc.
    • Social factors comprise how companies engage their stakeholders, including employees, suppliers, communities.  Typical social measurements include commitments to ethically sourced labour, commitments to gender/racial parity in management positions, using local small businesses/contractors, investing in educational and training programs, etc.
    • Governance factors typically deal with how the company runs itself through its policies and compliance programs. These may include reporting of executive pay, commitments to diversity at the board or in management positions, compliance with international standards, transparency in financial reporting, and commitments to and reports on relevant sustainability issues
  • In the context of investing, ESG analysis is most often used by sophisticated investors to assess if a company appropriately manages sustainability-related risks. ESG factors are also used by savvy investors to track company sustainability performance over time to signal possible future downside risks (or upside opportunities).

Ethical Investing/Responsible Investing/Sustainable Investing

  • Ethical/responsible/sustainable investing are a range of approaches to help investors place their capital in companies that are consistent with their values, preferences, and interests. Ethical investing “filters out” investments that are considered to be “harmful” by some investors. Examples include tobacco, gambling, guns, alcohol, or for political reasons (such as to reduce exposure to Apartheid).

  • As per the United Nations’ “Principles of Responsible Investment”, responsible investing is an approach to investing that aims to incorporate environmental, social and governance factors (ESG) into investment decisions to better manage risk and generate sustainable, long-term returns.

  • Sustainable investing can refer to responsible investing, or in some cases, to investing that seeks out the “best-in-class” companies in an industry, even if that industry might otherwise be considered to have ESG risks (such as oil). Choosing the “best-in-class” means that an investor can participate in a company’s growth even if it is in a controversial industry.

  • Often investors using these approaches will actively participate in a company’s governance practices (for example by exercising its rights as a shareholder at the annual meeting to promote positive change).

Impact/Environmental Impact/Social Impact/Economic Impact

  • Impacts refer to the effects (positive or negative) that a business venture may have on the environment or society that it operates in. For example, if an oil company builds a facility in a remote location, the increased employment and increased incomes that the project may bring about are positive social and economic impacts, but oil spills and increased emissions are negative environmental impacts.   Good corporate citizens work to reduce or mitigate negative impacts and increase and bring about positive impacts.

Impact Investing

  • The term “impact investing” refers to investments made into companies, funds or organizations with the intention to create tangible positive impact and financial return. Impact investing differs from other responsible investment approaches in that it seeks a measurable impact alongside financial return.

  • See the LCI literature review here for more information about impact investing

Social Enterprise

  • While social enterprise has a number of definitions (see the LCI literature review here for more details on how social enterprise is viewed by academics and practitioners),social enterprise is generally understood to refer to market-based approaches to improve social and environmental issues. Social enterprises differ from charitable organizations in that they usually have a market-based approach to solve these problems and, at the same time, aim to generate returns for their investors. 

Social Finance

  • Social finance is an approach to managing capital for social or environmental benefit. Typically it refers to the private and public investment market, but occasionally includes the innovative use of government funds, such as sovereign funds that have a social or environmental mandate. Social enterprises, impact investments and co-operatives are some examples of organizations that seek to access social finance.

Social Innovation

  • Social innovation refers the process of developing innovative solutions to solve significant social and environmental challenges. Typically the process includes a wide range of stakeholders and seeks to find breakthrough ideas that can have a large-scale effect on improving peoples’ lives or solving complex problems. Examples include using behavioural economics insights to help consumers save more money or increase rates of voluntary organ donations. Or, using design thinking to reconfigure a product (like recycling bins) or service (like waiting lines in a hospital).

  • More information about social innovation can be found in the LCI literature review here.

Shareholder/Stockholder

  • An individual or institution (such as an investment house or investment group) that owns a corporation, typically in the form or a stock or share. The more stock owned by a shareholder/stockholder, the greater their ability to influence the policies, programs and business investments of the companies they hold stock in.

Stakeholder

  • Stakeholders are people who are directly or indirectly affected by an organization’s policies and actions. They include internal stakeholders (such as employees, customers and shareholders) or external stakeholders (such as the general public, activist groups and communities). Stakeholder theory is an important concept in sustainability, broadening the conversation beyond those directly involved in companies to include those who may be impacted by a company.

Sustainability

  • There are many scholarly and public definitions of sustainability. At the Lee-Chin Institute, sustainability is about environmental, social and governance risks – and opportunities – for companies.

  • Sustainability has become the most-used term to describe the evolving relationship between business and society. Other terms include corporate citizenship, corporate social responsibility or sustainable business. As the conversation about business and society continues, more and perhaps better terms will likely be used.

Sustainable Development

  • Sustainable development has been defined in a number of ways by a number of actors (usually dependent on their industry and specific goals), but the most quoted definition is that of the UN’s Brundtland Commission, which defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This concept extends beyond the scope of business to include other major societal actors – such as local, national and international governments, cooperation organizations like the World Bank, NGOs and civil society.

  • When applied to business, this definition sometimes comprises other related concepts, such as sustainability, the Triple Bottom Line, Impact Investing, Responsible Investing, ESG and CSR.

 

Triple Bottom Line

  • Triple Bottom Line (also known as TBL or 3BL) accounting adds two additional “bottom lines,” social and environmental. The term, which is intended to broaden the conversation about the net impacts of business, was coined and popularized by John Elkington.

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