Sustainability and ESG Glossary

Sustainability and ESG involve a wide range of concepts, frameworks and reporting requirements, and the terminology is not always used consistently.

This sustainability and ESG glossary provides clear, practical explanations of key terms used across environmental, social and governance strategy, climate risk, materiality, social impact, governance, measurement and sustainability reporting. It is designed to help businesses understand not only what these terms mean, but why they matter commercially and where common misunderstandings can arise.

Explore the sections below or download the glossary for definitions of concepts including net zero, decarbonisation, climate risk, social licence to operate, materiality, greenwashing, Scope 1, 2 and 3 emissions, and Australian and international sustainability reporting standards.

UN Sustainable Development Goals (SDGs)

A set of 17 global goals agreed by almost every country to address major social, economic and environmental challenges by 2030.

Commercial relevance: They provide a shared language that investors, customers and governments already recognise, reducing the need to invent your own framework. Customers, investors and employees increasingly expect businesses to contribute meaningfully to wider social and environmental challenges.

Common misunderstanding: Treating the SDGs as a branding or marketing exercise rather than linking them to real business priorities and measurable outcomes.

Sustainability vs ESG

Sustainability is the broader goal of creating long-term positive outcomes for people and the environment, while ESG is how investors, insurers, regulators and boards assess sustainability risks and performance using data.

Commercial relevance: Reporting alone does not build resilience, trust or competitive advantage.

Common misunderstanding: Confusing ESG reporting with having an actual sustainability strategy. Many think ESG replaces sustainability; in reality, ESG is how sustainability is assessed and scrutinised.

Triple Bottom Line

The triple bottom line measures success across profit, people and planet, not just financial performance alone. It doesn’t replace financial results; it adds context about how those results are achieved.

Commercial relevance: Financial performance is increasingly judged in context of social and environmental outcomes, not independently of them.

Common misunderstanding: Talking about people and planet while still making decisions based only on short-term profit.

Purpose-led business

A business that is clear about why it exists beyond making money, and uses that purpose to guide strategy, decisions and trade‑offs, especially in uncertain or high‑risk situations.

Commercial relevance: Clear purpose helps attract talent, strengthen culture and build customer trust.

Common misunderstanding: Treating purpose as a branding slogan, when it is actually about decision‑making discipline.

Shared value

An approach where business success and positive social or environmental outcomes reinforce each other, for example, improving supply‑chain conditions in ways that also reduce operational risk and improve reliability.

Commercial relevance: The strongest long-term opportunities increasingly sit where commercial and societal value overlap.

Common misunderstanding: Treating impact as philanthropy disconnected from the business model.

Materiality

The issues that deserve priority because they are significant enough to influence business performance, stakeholder trust or decision-making.

Commercial relevance: Understanding material issues helps organisations focus resources where risk and opportunity are greatest.

Common misunderstanding: Assuming materiality means “everything that could be criticised,” which makes strategy unfocused and expensive.

Financial materiality

Risks and opportunities that could reasonably affect a business’s revenue, costs, assets, liabilities, access to finance, future profitability or long‑term viability.

Commercial relevance: These are the risks banks, insurers, investors and major customers pay attention to first because they can directly affect business value and continuity.

Common misunderstanding: Assuming only financial impacts matter, but regulators and communities increasingly disagree.

Materiality assessment

A structured process to determine which sustainability issues deserve priority, based on business risk, opportunity, and stakeholder perspectives.

Commercial relevance: Clear priorities improve decision-making, focus effort where it will protect or create value, reduce wasted effort and strengthen strategic focus.

Common misunderstanding: Not involving a broad cross-section of stakeholders in the assessment. Trying to prioritise every issue equally instead of focusing on what is genuinely material.

Impact materiality vs financial materiality

Impact materiality focuses on the organisation’s real world impacts on people/society and the environment, while financial materiality focuses on how sustainability issues affect the organisation financially.

  • Impact materiality: What real-world positive or negative impacts is the business causing, regardless of immediate financial effect.
  • Financial materiality: What could affect revenue, costs, assets or reputation.

Commercial relevance: External impacts increasingly influence investor confidence, regulation and market access.

Common misunderstanding: Viewing social and environmental impacts as separate from commercial outcomes.

Double materiality

Double materiality considers both how sustainability issues affect the business (financial materiality) and how the business affects society and the environment (impact materiality).

Commercial relevance: Regulators and markets increasingly expect both perspectives, not just financial risk. Issues affecting society often become financial, legal or reputational risks later.

Common misunderstanding: Only considering financial impacts while ignoring broader business impacts.

Transition planning

A practical roadmap outlining how a business will adapt to a lower carbon, more regulated or changing future — including milestones, investments and trade-offs.

Commercial relevance: Without a plan, climate and regulatory risks look unmanaged to investors and insurers.

Common misunderstanding: Treating transition as a future issue rather than a current strategic priority.

Long-term value creation

Focusing on what will keep the business viable and competitive over years, not just quarters, including resilience to regulation, supply disruptions, workforce change and environmental limits.

Commercial relevance: Markets and boards are increasingly rewarding resilience over short-term optimisation because sustainable businesses are generally better positioned for long-term growth and stability.

Common misunderstanding: Prioritising short-term gains at the expense of resilience and future competitiveness.

Science-based targets

Climate targets aligned with what climate science says is necessary, rather than what feels convenient, to limit global warming.

Science-based targets are emissions reduction goals aligned with climate science and global temperature goals.

Commercial relevance: Targets without scientific credibility are increasingly challenged by investors and regulators. Credible targets improve investor confidence and reduce accusations of greenwashing.

Common misunderstanding: Setting vague climate goals without credible pathways or evidence.

Carbon accounting

The process of measuring and tracking greenhouse gas emissions so they can be managed, reduced, or reported credibly.

Commercial relevance: Reliable data is increasingly essential for reporting, procurement and investor expectations.

Common misunderstanding: Treating carbon data as approximate or optional.

Natural capital

The environmental systems such as water, land and ecosystems that businesses depend on, even if they don’t appear on a balance sheet.

Commercial relevance: Degraded natural systems increasingly affect supply chains, insurance, regulation and operational continuity.

Common misunderstanding: Treating natural resources as unlimited or outside business risk considerations.

Social capital

The strength of relationships with employees, communities, suppliers and society, including trust, cooperation and legitimacy.

Commercial relevance: Trust affects productivity, workforce retention, reputation and the ability to operate without disruption.

Common misunderstanding: Underestimating the business value of trust and strong relationships.

Net zero

Reducing emissions as much as possible and balancing remaining emissions through removal or offsetting, so total emissions are effectively zero.

Commercial relevance: Weak net-zero claims can undermine credibility and invite regulatory scrutiny.

Common misunderstanding: It is often treated as an offsets exercise rather than a transformation strategy. Offsetting should only be used for what cannot be eliminated. Assuming offsets alone are enough without reducing operational emissions.

Real zero

The genuine, absolute elimination of emissions, so that no greenhouse gases are emitted at the source across the system or activity. Nothing is released into the atmosphere that later needs to be compensated for.

Commercial relevance: Real zero reduces long‑term cost, regulatory, and transition risk by permanently eliminating emissions rather than relying on offsets.

Common misunderstanding: Many businesses think buying carbon offsets or reaching net zero claims is the same as real zero, when emissions are still being produced.

Net positive

Going beyond “less harm” to create more environmental or social benefit than damage over time. Leaving communities or the environment better off overall than before.

Commercial relevance: Stakeholders increasingly expect businesses to create value, not just reduce harm. It signals leadership but carries higher expectations and scrutiny.

Common misunderstanding: Using the term without evidence of measurable positive outcomes.

Carbon neutral

Balancing emissions through offsets or carbon removal activities, often without requiring deep reductions first. Easier to achieve than net zero, but increasingly scrutinised.

Commercial relevance: Poorly substantiated claims can create reputational and legal risk.

Common misunderstanding: Using carbon-neutral claims without transparency about offsets and reductions. It sounds strong but may not reflect real emissions reduction.

Decarbonisation

The process of systematically reducing carbon emissions across operations, products and value chains.

Commercial relevance: Lower-emissions businesses are increasingly preferred by investors, customers and procurement processes. Delayed action usually means higher costs later.

Common misunderstanding: Treating decarbonisation as only an environmental issue rather than a strategic one.

Nature positive

Actively restoring nature rather than just minimising damage. Protecting and restoring ecosystems so biodiversity improves over time.

Commercial relevance: Nature loss is becoming financially material across many sectors.

Common misunderstanding: Focusing only on emissions while overlooking broader nature impacts.

Climate risk (physical vs transition)

The two types of climate risk are:

  • Physical risks: Damage from climate impacts like floods, heat or storms
  • Transition risks: Risks from policy changes, technology shifts or changing markets as economies decarbonise

Commercial relevance: Climate risk now affects insurance, finance, operations, supply chains and market expectations.

Common misunderstanding: Thinking climate risk only relates to extreme weather events and ignoring policy or market shifts.

Adaptation vs mitigation

Mitigation addresses the causes of climate change, while adaptation prepares for its impacts.

  • Mitigation: Reducing fossil fuel use and emissions
  • Adaptation: Preparing for the impacts that are already happening or unavoidable

Commercial relevance: Businesses need both emissions reduction and preparedness strategies.

Common misunderstanding: Focusing only on emissions reduction while ignoring operational resilience.

Resilience

The ability of a business to withstand shocks, adapt and continue operating through disruption or change.

Commercial relevance: Resilient businesses recover faster, maintain stakeholder trust and protect value during disruption.

Common misunderstanding: Assuming resilience is only about crisis response.

Biodiversity

The variety of life that supports stable ecosystems, food systems and supply chains.

Commercial relevance: Biodiversity loss can destabilise the availability and costs of raw materials.

Common misunderstanding: Viewing biodiversity as only an environmental concern for conservation groups.

Circular economy

Designing products and systems to reduce waste and rely less on new resources by keeping materials in use longer, reusing, repairing and recycling materials and products.

Commercial relevance: Can reduce costs, improve efficiency and create new revenue opportunities. Reduces exposure to resource shortages and price volatility.

Common misunderstanding: Treating recycling alone as a circular economy strategy.

Regenerative vs sustainable

Sustainable aims to maintain systems without further harm, while regenerative aims to actively restore and improve them.

Commercial relevance: Regenerative approaches are increasingly associated with innovation and long-term resilience.

Common misunderstanding: Using the terms interchangeably when they represent different ambition levels.

Common misunderstanding: Regenerative approaches are often adopted without a clear understanding of the operational shift required.

Social licence to operate

Ongoing public acceptance for a business to operate, based on trust, behaviour and perceived fairness rather than legal approval alone.

Commercial relevance: Community opposition can delay projects, increase costs and damage reputation, resulting in approvals being withdrawn or projects failing.

Common misunderstanding: Assuming legal approval automatically equals public support.

Modern slavery

Situations where people cannot freely leave unsafe or unfair work conditions or are exploited through forced labour, debt bondage or coercion, often hidden in supply chains.

Commercial relevance: Supply chain failures can create serious legal, procurement and reputational consequences.

Common misunderstanding: Assuming it only occurs overseas or in illegal industries.

Human rights

The basic rights and freedoms that all people should be able to enjoy safely and fairly, which businesses are expected to respect across operations and supply chains.

Commercial relevance: Human rights risks increasingly influence investor decisions, procurement and regulation.

Common misunderstanding: Treating human rights as separate from business operations and assuming compliance ends at their own operations; supply chains matter.

Diversity, equity and inclusion (DEI)

Ensuring different people are represented (diversity), treated fairly (equity) and able to contribute meaningfully (inclusion).

Commercial relevance: Diverse teams are linked to stronger decision making and innovation. Inclusive organisations are often more innovative, adaptable and attractive to talent.

Common misunderstanding: Treating DEI as a compliance or HR-only issue. Conflating it with having hiring quotas.

Just transition

Ensuring workers and communities are supported and not left behind as industries and economies change.

Commercial relevance: Poorly managed transitions create workforce, political and reputational risks.

Common misunderstanding: Overlooking the human and regional impacts of transition decisions.

Social impact

The real world effects a business has on people’s lives and communities, whether intended or not.

Commercial relevance: Ignoring impact often leads to backlash or regulatory intervention. Strong social outcomes help build trust, reputation and long-term legitimacy.

Common misunderstanding: Measuring activity instead of actual outcomes or change.

Safe and fair work

Work that protects health and safety, provides fair pay, and respects basic rights.

Commercial relevance: Unsafe and unfair workplaces increase legal risk, costs, employee turnover, reputation damage and productivity losses.

Common misunderstanding: Focusing only on physical safety while ignoring culture and psychological safety.

Shareholders vs Stakeholders

Shareholders own the business, while stakeholders are all groups that have a stake in it or are affected by it, including employees, customers, communities, and suppliers.

Commercial relevance: Poor stakeholder relationships can damage reputation, approvals, workforce stability and long-term value.

Common misunderstanding: Prioritising shareholder returns while overlooking stakeholder impacts that later create risk.

Governance

How decisions are made, overseen and held to account. The system of leadership, oversight, accountability and decision-making within a business.

Commercial relevance: Investors, business partners and regulators see weak governance as unmanaged risk.

Common misunderstanding: Viewing governance as paperwork rather than leadership behaviour and accountability.

Assurance

Independent verification of sustainability information (similar to financial audits) to improve credibility and reliability.

Commercial relevance: It increases credibility in a sceptical market. It strengthens trust with investors, regulators and customers.

Common misunderstanding: Treating assurance as optional while making strong public claims.

Greenwashing

Overstating or misrepresenting sustainability performance claims.

Commercial relevance: Greenwashing can lead to reputational damage, regulatory action and loss of trust.

Common misunderstanding: Making broad sustainability claims without evidence or transparency.

Greenhushing

Not talking about sustainability efforts at all due to fear of criticism or scrutiny.

Commercial relevance: Avoiding the conversation can weaken leadership positioning and stakeholder confidence.

Common misunderstanding: Assuming silence is safer than transparent communication. Silence can still erode trust if expectations aren’t managed.

Transparency

Being open about how decisions are made, performance, limitations, trade offs and where gaps or challenges remain.

Commercial relevance: Transparency builds credibility and long-term trust even when performance isn’t perfect.

Common misunderstanding: Only sharing positive information while hiding challenges or trade-offs.

Scope 1, 2 and 3 emissions

Categories that capture direct emissions, purchased energy emissions and value chain emissions.

  • Scope 1: Direct emissions from owned operations
  • Scope 2: Emissions from purchased electricity and energy
  • Scope 3: Emissions across the value chain (suppliers, customers, logistics)

Commercial relevance: Reporting Scope 1, 2 and 3 emissions is mandatory under the new Australian sustainability reporting requirements (although there is a one-year relief period for Scope 3 emissions). Emissions are subject to strong stakeholder scrutiny.

Common misunderstanding: Ignoring supply chain (Scope 3) emissions because they are harder to measure, despite being the largest source of climate risk.

Global Reporting Initiative (GRI)

A widely used, globally recognised framework for reporting sustainability impacts and performance.

Commercial relevance: It helps explain risks beyond financial metrics alone. Consistent reporting improves comparability, trust and stakeholder understanding.

Common misunderstanding: Treating GRI as a compliance exercise instead of a strategic reporting tool.

ISSB / IFRS Sustainability Standards

Global standards designed to help investors understand financially relevant sustainability risks and opportunities.

Commercial relevance: Increasingly the baseline for investor expectations. Investors increasingly expect sustainability risks to be treated like other business risks.

Common misunderstanding: Assuming sustainability reporting sits outside mainstream financial reporting.

Taskforce on Climate related Financial Disclosures (TCFD)

A framework for reporting how climate-related risks and opportunities affect strategy, governance and financial planning.

Commercial relevance: Climate-related financial risk is now a board and investor issue. Widely adopted and embedded into regulation.

Common misunderstanding: Treating climate disclosures as a communication exercise rather than strategic risk management.

EU Corporate Sustainability Reporting Directive (CSRD)

European regulation mandating detailed sustainability reporting for many organisations operating in or with the EU.

Commercial relevance: Global supply chains and investors are increasingly bringing international reporting expectations to Australian markets. Affects non EU companies operating with Europe.

Common misunderstanding: Assuming non-European businesses are unaffected.

Australian Sustainability Reporting Standards (ASRS)

Australia’s broader sustainability reporting framework under which sustainability disclosures are being standardised and mandated.

Commercial relevance: Reduces inconsistency and reporting confusion over time. Strong reporting processes can improve risk visibility, investor confidence and strategic planning.

Common misunderstanding: Viewing the standards as only a reporting burden.

AASB S1 and S2

Australian sustainability disclosure standards aligned with global frameworks, focusing on general sustainability (S1) and climate related financial disclosure (S2).

Commercial relevance: Signals where Australian regulation is heading. Sustainability disclosures are rapidly becoming part of mainstream governance and financial accountability.

Common misunderstanding: Assuming sustainability reporting remains voluntary or peripheral.

Voluntary vs mandatory disclosure

Voluntary disclosure is reporting done by choice, while mandatory disclosure is required by regulation or law.

  • Voluntary: Optional reporting often for leadership or market signalling
  • Mandatory: Legally required reporting.

Commercial relevance: Early preparation reduces future compliance pressure and strengthens market readiness. Voluntary today often becomes mandatory tomorrow.

Common misunderstanding: Waiting for mandatory requirements before building capability.

Integrated reporting

Combining financial and non-financial performance reporting into a single view of how a business creates value over time.

Commercial relevance: Demonstrates how sustainability directly links to value creation. Integrated thinking improves strategic alignment and decision-making across the organisation.

Common misunderstanding: Treating sustainability and financial performance as separate conversations.

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