Glossary

17 Glossary

This chapter provides information on the common terms related to various climate disclosure requirements and their descriptions. These terms and their descriptions have been adopted based on reference to the following standards and/or frameworks*:

Absolute emissions - Emissions attributed to a financial institution’s lending and investing activity. Expressed in tonnes CO2e.
Associated/affiliated company - The parent company has significant influence over the operating and financial policies of the associated/affiliated company, but not financial control.
Asset class - A group of financial instruments that have similar financial characteristics.
Attribution factor - The share of total greenhouse gas (GHG) emissions of the borrower or investee that are allocated to the loan or investments.
Avoided emissions - Emission reductions that the financed project produces versus what would have been emitted in the absence of the project (the baseline emissions). In the context of the Financed Emissions Standard, avoided emissions are only from renewable power projects.
Borrower A person or company that borrows money from a bank.
Business loan - On-balance sheet loans and lines of credit to businesses, nonprofits, and any other structure of organization that are not traded on a market and are for general corporate purposes (i.e., with unknown use of proceeds as defined by the GHG Protocol).
Climate impact - In the context of this Financed Emissions Standard, climate impact refers to the emissions financed by loans and investments.
Climate-Related Physical Risks - Risks resulting from climate change that can be event-driven (acute physical risk) or from longer-term shifts in climatic patterns (chronic physical risk). Acute physical risks arise from weather-related events such as storms, floods, drought or heatwaves, which are increasing in severity and frequency. Chronic physical risks arise from longer-term shifts in climatic patterns including changes in precipitation and temperature which could lead to sea level rise, reduced water availability, biodiversity loss and changes in soil productivity. These risks could carry financial implications for an entity, such as costs resulting from direct damage to assets or indirect effects of supply-chain disruption. The entity's financial performance could also be affected by changes in water availability, sourcing and quality; and extreme temperature changes affecting the entity's premises, operations, supply chains, transportation needs and employee health and safety.
Climate-Related Risks and Opportunities - Climate-related risks refers to the potential negative effects of climate change on an entity. These risks are categorised as climate-related physical risks and climate-related transition risks. Climate-related opportunities refers to the potential positive effects arising from climate change for an entity. Efforts to mitigate and adapt to climate change can produce climate related opportunities for an entity.
Climate-Related Transition Plan - An aspect of an entity’s overall strategy that lays out the entity’s targets, actions or resources for its transition towards a lower-carbon economy, including actions such as reducing its greenhouse gas emissions.
Climate-Related Transition Risks - Risks that arise from efforts to transition to a lower-carbon economy. Transition risks include policy, legal, technological, market and reputational risks. These risks could carry financial implications for an entity, such as increased operating costs or asset impairment due to new or amended climate-related regulations. The entity's financial performance could also be affected by shifting consumer demands and the development and deployment of new technology.
Climate Resilience - The capacity of an entity to adjust to climate-related changes, developments or uncertainties. Climate resilience involves the capacity to manage climate-related risks and benefit from climate-related opportunities, including the ability to respond and adapt to climate-related transition risks and climate related physical risks. An entity’s climate resilience includes both its strategic resilience and its operational resilience to climate-related changes, developments and uncertainties.
Climate risk - The potential for adverse effects on lives, livelihoods, health status, economic, social and cultural assets, services (including environmental), and infrastructure due to climate change.
CO2 equivalent (CO2-e) - The universal unit of measurement to indicate the global warming potential (GWP) of each of the six greenhouse gases, expressed in terms of the GWP of one unit of carbon dioxide. It is used to evaluate releasing (or avoiding releasing) different greenhouse gases against a common basis.
Commercial real estate (CRE) - This asset class includes on-balance sheet loans for specific corporate purposes, namely the purchase and refinance of CRE, and on-balance sheet investments in CRE. This definition implies that the property is used for commercial purposes, such as retail, hotels, office space, industrial, or large multifamily rentals. In all cases, the owner of the building (the borrower or investor) uses the property to conduct income-generating activities. This includes using the property for their own business as well as renting or leasing the property to tenants who use the property for either commercial or residential purposes.
Consumer finance - Finance provided to individual and household consumers, such as mortgages and motor vehicle loans.
Consolidation - Combination of GHG emissions data from separate operations that form part of one company or group of companies.
Control - The ability of a company to direct the policies of another operation. More specifically, it is defined as either operational control (the organization or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation) or financial control (the organization has the ability to direct the financial and operating policies of the operation with a view to gaining economic benefits from its activities).
Corporate debt - Money that is owed by companies rather than by governments or individual people.
Debt - A financing instrument that requires repayment by the borrower. In the context of this Financed Emissions Standard, debt refers only to the principal amount owed by the borrower and excludes interest.
Direct GHG emissions - Emissions from sources that are owned or controlled by the reporting company.
Double Counting - Occurs when GHG emissions (generated, avoided, or removed) are counted more than once in a GHG inventory or toward attaining mitigation pledges or financial pledges for the purpose of mitigating climate change.
Emissions The release of GHG into the atmosphere.
Emission Factor - A factor allowing GHG emissions to be estimated from a unit of available activity data (e.g. tonnes of fuel consumed, tonnes of product produced) and absolute GHG emissions.
Emission Intensity Metric - Emissions per a specific unit, for example: tCO2e/€M or $M invested, tCO2e/MWh, tCO2e/tonne product produced, tCO2e/MWh, tCO2e/ton product produced, tCO2e/€M or $M company revenue.
Emission Removals - The action of removing GHG emissions from the atmosphere and store it through various means, such as in soils, trees, underground reservoirs, rocks, the ocean, and even products like concrete and carbon fiber.
Environmentally Extended Input-Output (EEIO) Data - EEIO data refers to EEIO emission factors that can be used to estimate scope 1, 2, and upstream scope 3 GHG emissions for a given industry or product category. EEIO data is particularly useful in screening emissions sources when prioritizing data collection efforts.
Enterprise Value Including Cash (EVIC) - The sum of the market capitalization of ordinary shares at fiscal year end, the market capitalization of preferred shares at fiscal year-end, and the book values of total debt and minorities’ interests. No deductions of cash or cash equivalents are made to avoid the possibility of negative enterprise values.
Equity - The ownership of banks or investors in a company or project. There are various types of equity, but equity typically refers to shareholder equity, which represents the amount of money that would be returned to a company’s shareholders if all company assets were liquidated and all company debt were paid off.
Financed Emissions - Absolute emissions that banks and investors finance through their loans and investments.
Financial Institution A company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Financial institutions encompass a broad range of business operations within the financial services sector, including commercial banks, investment banks, development banks, asset owners/managers (mutual funds, pension funds, close-end funds, investment trusts), and insurance companies.
Finance Lease - A lease which transfers substantially all the risks and rewards of ownership to the lessee and is accounted for as an asset on the balance sheet of the lessee. Also known as a Capital or Financial Lease. Leases other than Capital/Financial/Finance leases are Operating leases. Consult an accountant for further detail as definitions of lease types differ between various accepted accounting principles.
Fixed Asset Investment - Equipment, land, stocks, property, incorporated and non-incorporated joint ventures, and partnerships over which the parent company has neither significant influence nor control.
Greenhouse Gases (GHG) - For the purposes of this standard, GHGs are the six gases listed in the Kyoto Protocol: carbon dioxide (CO2); methane (CH4); nitrous oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and sulphur hexafluoride (SF6).
GHG Accounting - A means of measuring the direct and indirect emissions to the Earth’s biosphere of CO2 and its equivalent gases from industrial activities.
GHG Accounting of Financial Portfolios - The annual accounting and disclosure of GHG emissions associated with loans and investments at a fixed point in time in line with financial accounting periods. This is also called portfolio GHG accounting.
GHG Credit - GHG offsets can be converted into GHG credits when used to meet an externally imposed target. A GHG credit is a convertible and transferable instrument usually bestowed by a GHG program.
GHG Offset - Offsets are discrete GHG reductions used to compensate for (i.e., offset) GHG emissions elsewhere, for example to meet a voluntary or mandatory GHG target or cap. Offsets are calculated relative to a baseline that represents a hypothetical scenario for what emissions would have been in the absence of the mitigation project that generates the offsets. To avoid double counting, the reduction giving rise to the offset must occur at sources or sinks not included in the target or cap for which it is used.
GHG Program - A generic term used to refer to any voluntary or mandatory international, national, sub-national, government or non-governmental authority that registers, certifies, or regulates GHG emissions or removals outside the company. e.g. CDM, EU ETS, CCX, and CCAR.
GHG Project - A specific project or activity designed to achieve GHG emission reductions, storage of carbon, or enhancement of GHG removals from the atmosphere. GHG projects may be stand-alone projects, or specific activities or elements within a larger non-GHG related project.
GHG Protocol Calculation Tools - A number of cross-sector and sector-specific tools that calculate GHG emissions on the basis of activity data and emission factors (available at www.ghgprotocol.org).
GHG Protocol Initiative - A multi-stakeholder collaboration convened by the World Resources Institute and World Business Council for Sustainable Development to design, develop and promote the use of accounting and reporting standards for business. It comprises of two separate but linked standards—the GHG Protocol Corporate Accounting and Reporting Standard and the GHG Protocol Project Quantification Standard.
GHG Protocol Project Quantification Standard - An additional module of the GHG Protocol Initiative addressing the quantification of GHGreduction projects. This includes projects that will be used to offset emissions elsewhere and/or generate credits. More information available at www.ghgprotocol.org.
Global Warming Potential (GWP) - A factor describing the radiative forcing impact (degree of harm to the atmosphere) of one unit of a given GHG relative to one unit of CO2.
Green Power - A generic term for renewable energy sources and specific clean energy technologies that emit fewer GHG emissions relative to other sources of energy that supply the electric grid. Includes solar photovoltaic panels, solar thermal energy, geothermal energy, landfill gas, low-impact hydropower, and wind turbines.
Group Company / Subsidiary - The parent company has the ability to direct the financial and operating policies of a group company/subsidiary with a view to gaining economic benefits from its activities.
Global Trade Analysis Project (GTAP) database - GTAP is a global network of researchers and policy makers conducting quantitative analysis of international policy issues. GTAP is coordinated by the Center for Global Trade Analysis in Purdue University’s Department of Agricultural Economics. The centerpiece of the GTAP is a global database describing bilateral trade patterns, production, consumption, and intermediate use of commodities and services.
Home Equity Line of Credit (HELOC) - A revolving line of credit usually with an adjustable interest rate, which allows homeowners to borrow up to a certain amount over a period of time. HELOCs work in a manner similar to credit cards, where the homeowner can continuously borrow up to an approved limit while paying off the balance.
Home Equity Loan (HEL) - Sometimes referred to as a second mortgage, usually allows homeowners to borrow a lump sum against their current home equity for a fixed rate over a fixed period of time. Usually, home equity loans are used to finance large expenditures, such as home repairs or college tuition.
IFRS Sustainability Disclosure Standards - Standards of that name issued by the International Sustainability Standards Board.
Indirect GHG Emissions - Emissions that are a consequence of the operations of the reporting company, but occur at sources owned or controlled by another company.
Intensity Ratios - Ratios that express GHG impact per unit of physical activity or unit of economic value (e.g. tonnes of CO2 emissions per unit of electricity generated). Intensity ratios are the inverse of productivity/efficiency ratios.
Intergovernmental Panel on Climate Change (IPCC) - International body of climate change scientists. The role of the IPCC is to assess the scientific, technical and socio-economic information relevant to the understanding of the risk of human-induced climate change (www.ipcc.ch).
Internal Carbon Price - Price used by an entity to assess the financial implications of changes to investment, production and consumption patterns, and of potential technological progress and future emissions abatement costs. An entity can use internal carbon prices for a range of business applications. Two types of internal carbon prices that an entity commonly uses are: (a) a shadow price, which is a theoretical cost or notional amount that the entity does not charge but that can be used to understand the economic implications or tradeoffs for such things as risk impacts, new investments, the net present value of projects, and the cost and benefit of various initiatives; and (b) an internal tax or fee, which is a carbon price charged to a business activity, product line, or other business unit based on its greenhouse gas emissions (these internal taxes or fees are similar to intracompany transfer pricing).
Inventory - A quantified list of an organization’s GHG emissions and sources.
Inventory Boundary - An imaginary line that encompasses the direct and indirect emissions that are included in the inventory. It results from the chosen organizational and operational boundaries.
Investee Company or Investee Project- A company or project in which an investor makes a direct investment.
Investment - The term investment (unless explicitly stated otherwise) is used in the broad sense: “Putting money into activities or organizations’ with the expectation of making a profit.” Most forms of investment involve some form of risk taking, such as investment in equities, debt, property, projects, and even fixed interest securities which are subject to inflation risk, among other risks.
Known use of proceeds - Known use of proceeds relates to investments and loans for specific (corporate or consumer) purposes, i.e., the financial institution knows for what activity the money is used.
Kyoto Protocol - A protocol to the United Nations Framework Convention on Climate Change (UNFCCC). Once entered into force it will require countries listed in its Annex B (developed nations) to meet reduction targets of GHG emissions relative to their 1990 levels during the period of 2008–12.
Latest International Agreement on Climate Change - An agreement by states, as members of the United Nations Framework Convention on Climate Change, to combat climate change. The agreements set norms and targets for a reduction in greenhouse gases.
Life Cycle Analysis - Assessment of the sum of a product’s effects (e.g. GHG emissions) at each step in its life cycle, including resource extraction, production, use and waste disposal.
Listed equity and corporate bonds - This asset class includes all on-balance sheet listed corporate bonds and all on-balance sheet listed equity that are traded on a market and are for general corporate purposes, i.e., unknown use of proceeds as defined by the GHG Protocol.
Material Information - In the context of sustainability-related financial disclosures, information is material if omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports, which include financial statements and sustainability-related financial disclosures and which provide information about a specific reporting entity.
Mortgages - This asset class includes on-balance sheet loans for specific consumer purposes—namely the purchase and refinance of residential property, including individual homes and multi-family housing with a small number of units. This definition implies that the property is used only for residential purposes and not for commercial activities.
Motor Vehicle Loans - This asset class refers to loans and lines of credit to businesses and consumers for specific (corporate or consumer) purposes—namely the finance of one or several motor vehicles.
Operating Lease - A lease which does not transfer the risks and rewards of ownership to the lessee and is not recorded as an asset in the balance sheet of the lessee. Leases other than Operating leases are Capital/Financial/Finance leases. Consult an accountant for further detail as definitions of lease types differ between various accepted financial standards.
Paris Agreement - The Paris Agreement, adopted within the UNFCCC in December 2015, commits participating countries to limit global temperature rise to well-below 2°C above preindustrial levels and pursue efforts to limit warming to 1.5°C, adapt to changes already occurring, and regularly increase efforts over time.
Primary Users of General Purpose Financial Reports (Primary Users) - Existing and potential investors, lenders and other creditors.
Project Finance - This asset class includes all on-balance sheet loans or equities to projects for specific purposes, i.e., with known use of proceeds as defined by the GHG Protocol. The financing is designated for a defined activity or set of activities, such as the construction and operation of a gas-fired power plant, a wind or solar project, or energy efficiency projects.
Reporting Entity - An entity that is required, or chooses, to prepare general purpose financial statements.
Scenario Analysis - A process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty.
Science-based Reduction Targets (SBTs) - Targets adopted by companies to reduce GHG emissions are considered science-based if they are in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement—to limit global warming to well-below 2°C above preindustrial levels and pursue efforts to limit warming to 1.5°C.
Scope - Defines the operational boundaries in relation to indirect and direct GHG emissions.
Scope 1 Emissions - Direct GHG emissions that occur from sources owned or controlled by the reporting company—i.e., emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.
Scope 2 Emissions - Indirect GHG emissions from the generation of purchased or acquired electricity, steam, heating, or cooling consumed by the reporting company. Scope 2 emissions physically occur at the facility where the electricity, steam, heating, or cooling is generated.
Scope 3 Emissions - All other indirect GHG emissions (not included in Scope 2) that occur in the value chain of the reporting company. Scope 3 can be broken down into upstream emissions and downstream emissions:
- Upstream emissions include all emissions that occur in the life cycle of a material/product/service up to the point of sale by the producer, such as from the production or extraction of purchased materials.
- Downstream emissions include all emissions that occur as a consequence of the distribution, storage, use, and end-of-life treatment of the organization’s products or services.
Scope 3 Category 15 (Investments) Emissions - This category includes scope 3 emissions associated with the reporting company’s loans and investments in the reporting year, not already included in scope 1 or scope 2.
Sequestered Emissions - Refers to atmospheric CO2 emissions that are captured and stored in solid or liquid form, thereby removing their harmful global warming effect.
Sovereign Debt - This asset class includes sovereign bonds and sovereign loans of all maturities issued in domestic or foreign currencies. Both sovereign loans and bonds lead to the transfer of funds to the country, which in turn creates a debt obligation to be repaid by the borrowing country.
Stationary Combustion - Burning of fuels to generate electricity, steam, heat, or power in stationary equipment such as boilers, furnaces etc.
Sustainability-Related Financial Disclosures - A particular form of general purpose financial reports that provide information about the reporting entity’s sustainability related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term, including information about the entity’s governance, strategy and risk management in relation to those risks and opportunities, and related metrics and targets.
Total Balance Sheet Value - A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholders’ equity. The balance sheet value refers to the sum of total equity and liabilities, which is equal to the company’s total assets.
United Nations Framework Convention on Climate Change (UNFCCC) - Signed in 1992 at the Rio Earth Summit, the UNFCCC is a milestone Convention on Climate Change treaty that provides an overall framework for international efforts to (UNFCCC) mitigate climate change. The Kyoto Protocol is a protocol to the UNFCCC.
Unknown Use of Proceeds - Unknown use of proceeds refers to investments and loans for general (corporate or consumer) purposes, i.e., the financial institution does not know exactly for what activity the money is used, which holds for general-purpose loans.
Unlisted Equity - All on-balance sheet equity investments to businesses, nonprofits, and any other structure of organization that are not traded on a market and are for general corporate purposes, i.e., with unknown use of proceeds as defined by the GHG Protocol. Unlisted equity is also referred to as equity investments in private companies (i.e., the financial institution obtains shares of the company).
Users of General Purpose Financial Reports (users) - See Primary users of General Purpose Financial Reports (primary users). These definitions describe the same population.
Value chain emissions - Emissions from the upstream and downstream activities associated with the operations of the reporting company.
Vehicle make - The name of the company that manufactures the vehicle. Vehicle model The product name of the vehicle.