ESG & Climate Disclosure

An adverse impact is a negative effect on people or the environment resulting from a company’s own operations, its subsidiaries, or through its value chain relationships. Under the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the European Sustainability Reporting Standards (ESRS E1–S4), companies must identify, prevent, mitigate, and account for actual and potential adverse impacts. The CSDDD (Directive (EU) 2024/1760) distinguishes between: actual adverse impacts (harm already occurring) and potential adverse impacts (harm that may occur if not prevented). Adverse impacts span environmental harm (e.g., GHG emissions, biodiversity loss, water pollution) and social harm (e.g., forced labour, unsafe working conditions, violation of human rights).

An annual sustainability statement is the formal ESG reporting output required under the EU Corporate Sustainability Reporting Directive (CSRD) (Directive (EU) 2022/2464). It forms part of a company’s management report and must be prepared in accordance with the European Sustainability Reporting Standards (ESRS). The statement must cover information on: environmental matters (climate, pollution, water, biodiversity, circular economy); social matters (own workforce, workers in value chain, affected communities); governance matters (business conduct); and the company’s due diligence process. From the 2024 financial year, Wave 1 companies (large public interest entities with >500 employees) must publish their first annual sustainability statements.

Biodiversity refers to the variety of life on Earth — ecosystems, species, and genetic diversity. Ecosystem services are the benefits that functioning ecosystems provide to humans and society (e.g., pollination, water purification, climate regulation, soil fertility). In ESG reporting, ESRS E4 (Biodiversity and Ecosystems) under the CSRD requires companies to disclose impacts, dependencies, risks, and opportunities related to biodiversity and ecosystems. The TNFD (Taskforce on Nature-related Financial Disclosures) framework provides voluntary guidance for nature-related financial disclosures, which ISSB is building on.

A carbon footprint is the total greenhouse gas (GHG) emissions — expressed in CO₂ equivalent (CO₂e) — caused directly and indirectly by an individual, organisation, product, or supply chain over a defined period. Organisational carbon footprints are measured using the GHG Protocol Corporate Standard (Scope 1, 2, and 3 emissions). Product carbon footprints are measured per unit of product over its lifecycle, typically using life cycle assessment (LCA) methodology per ISO 14067:2018 (Carbon Footprint of Products). GHG Protocol is currently updating its corporate suite of standards (final standard expected 2027).

Carbon neutrality means that an entity’s net GHG emissions equal zero through a combination of emissions reductions and carbon offsetting. A company claims carbon neutrality when residual Scope 1 and Scope 2 emissions (and sometimes Scope 3) are offset by verified carbon removal or avoidance credits. The ISO 14068-1:2023 standard (Carbon Neutrality) provides the international framework for credible carbon neutral claims. Carbon neutrality differs from Net Zero: carbon neutral focuses on balancing emissions with offsets; net zero requires deep absolute emissions reductions before any residual offsetting.

A carbon offset is a measurable, verifiable, and credible reduction or removal of GHG emissions from one source that is used to compensate for emissions produced elsewhere. Carbon offsets are generated through projects such as reforestation, renewable energy installation, methane capture, and direct air capture. The Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles (CCPs, published 2023) establish the quality standards for high-integrity voluntary carbon credits. Article 6.4 of the Paris Agreement establishes the international crediting mechanism (PACM), which became operational in 2025.

A circular economy is an economic model designed to eliminate waste and the continual use of resources by keeping products, materials, and substances in use for as long as possible through reuse, repair, remanufacturing, and recycling, in contrast to the linear ‘take-make-dispose’ economy. In ESG reporting, ESRS E5 (Resource Use and Circular Economy) under the CSRD requires companies to disclose resource inflows, outflows, waste generation, and circular economy practices. The EU Circular Economy Action Plan (2020) and Packaging and Packaging Waste Regulation (PPWR) (EU) 2025/40 provide the legislative framework.

Climate risk refers to the financial and business risks arising from climate change, categorised as: (1) Physical risks — acute (extreme weather events: storms, floods, heat waves) and chronic (gradual changes: sea-level rise, temperature shifts, precipitation pattern changes); and (2) Transition risks — risks arising from the transition to a low-carbon economy, including policy and regulatory changes, technology shifts, market changes, and reputational impacts. Both IFRS S2 (Climate-related Disclosures) and ESRS E1 (Climate Change) require companies to disclose physical and transition climate risks and their financial implications.

The EU Corporate Sustainability Due Diligence Directive (CSDDD) (Directive (EU) 2024/1760) requires large companies to conduct mandatory human rights and environmental due diligence across their value chains. The CSDDD was published in the Official Journal on 5 July 2024 and entered into force on 25 July 2024. Companies in scope must: adopt and implement a due diligence policy; identify actual and potential adverse impacts on human rights and the environment in their operations and value chains; prevent, mitigate, or end identified impacts; establish or participate in a complaints mechanism; and publicly report on due diligence. Under Omnibus I (December 2025 provisional agreement): CSDDD application has been delayed by one year; scope is proposed to be reduced to companies with >1,000 employees and net turnover >€450M.

The EU Corporate Sustainability Reporting Directive (CSRD) (Directive (EU) 2022/2464) requires large companies to disclose standardised sustainability information in their annual management reports, prepared in accordance with the European Sustainability Reporting Standards (ESRS). The CSRD replaced the Non-Financial Reporting Directive (NFRD). Wave 1 (large public interest entities >500 employees) applied from the 2024 financial year, with reports published in 2025. The Stop-the-Clock Directive (Directive (EU) 2025/794, in force April 17, 2025) postponed Wave 2 and Wave 3 by two years. The Omnibus I provisional agreement (December 2025) proposes reducing scope to companies with >1,000 employees and net turnover >€450M, cutting the number of affected companies by approximately 80%.

Double materiality is the concept under the EU CSRD and ESRS requiring companies to assess sustainability topics from two perspectives simultaneously: (1) Financial materiality (also called ‘outside-in’): how sustainability risks and opportunities affect the company’s financial performance, cash flows, or access to capital; and (2) Impact materiality (also called ‘inside-out’): how the company’s activities, products, and value chain affect people and the environment. A topic is material if it is material from either or both perspectives. ESRS 1 (General Requirements) defines the Double Materiality Assessment (DMA) process. EFRAG’s proposed revised ESRS (exposure drafts, July 2025) simplifies the DMA process.

EFRAG is the European Financial Reporting Advisory Group, an independent body established under the CSRD (EU) 2022/2464 as the standard-setter for European Sustainability Reporting Standards (ESRS). EFRAG develops draft ESRS for adoption by the European Commission as delegated acts. EFRAG published the first set of draft ESRS in April 2022 and final recommendations in November 2022; the Commission adopted them in July 2023 (Delegated Regulation (EU) 2023/2772). EFRAG submitted simplified ESRS technical advice to the Commission in December 2025, following the Omnibus I mandate. Revised ESRS are expected to be adopted by the Commission in Q2 2026.

An Environmental Impact Assessment (EIA) is the formal process of identifying, predicting, evaluating, and mitigating the environmental consequences of a proposed project or activity before it is approved. In the EU, the EIA Directive (Directive 2011/92/EU, as amended by Directive 2014/52/EU) requires EIA for specified categories of public and private projects. In ESG reporting, EIA data informs ESRS E1–E5 disclosures on environmental impacts and forms part of the evidence base for double materiality assessment. EIA findings also feed into product and operational carbon footprints.

ESG stands for Environmental, Social, and Governance — the three categories used to evaluate a company’s sustainability performance, risks, and opportunities. Environmental criteria cover climate change, GHG emissions, pollution, water use, biodiversity, and circular economy. Social criteria cover human rights, labour practices, community relations, diversity, health and safety, and supply chain working conditions. Governance criteria cover corporate governance structures, anti-corruption, executive pay, board composition, and business ethics. ESG has no single universal regulatory definition but is operationalised through frameworks including CSRD/ESRS (EU), IFRS S1/S2 (global), GRI Standards, and SEC climate disclosure rules (US).

The European Sustainability Reporting Standards (ESRS) are the mandatory disclosure standards under the CSRD (EU) 2022/2464, adopted by the European Commission as delegated acts. The first set of sector-agnostic ESRS (ESRS Set 1) was adopted in Commission Delegated Regulation (EU) 2023/2772 in July 2023, effective from January 2024. ESRS Set 1 comprises 12 standards: 2 cross-cutting (ESRS 1: General Requirements; ESRS 2: General Disclosures) and 10 topical (E1–E5: environmental; S1–S4: social; G1: governance). A Quick-Fix Delegated Act was adopted July 11, 2025 (published November 13, 2025). Revised simplified ESRS are expected from the Commission in Q2 2026 based on EFRAG’s December 2025 technical advice.

The EU Taxonomy Regulation (EU) 2020/852 is a classification system defining which economic activities are environmentally sustainable. Activities must meet four conditions to qualify as ‘taxonomy-aligned’: (1) make a substantial contribution to at least one of six environmental objectives; (2) do no significant harm (DNSH) to any of the other five objectives; (3) comply with minimum social and governance safeguards; and (4) comply with technical screening criteria set out in EU delegated regulations. The six objectives are: climate change mitigation; climate change adaptation; sustainable use and protection of water; transition to a circular economy; pollution prevention and control; and protection of biodiversity. The Taxonomy Climate Delegated Act was revised July 4, 2025, with simplifications applicable from January 1, 2026.

Financed emissions are the GHG emissions attributable to a financial institution’s loans, investments, and other financial activities, representing the institution’s contribution to the carbon footprint of its clients and investees. Financed emissions fall under Scope 3 Category 15 of the GHG Protocol Corporate Value Chain Standard. IFRS S2 requires financial institutions to disclose financed emissions. In December 2025, the ISSB issued targeted amendments to IFRS S2 GHG emissions disclosures clarifying that financial firms may limit reporting to financed emissions from loans and investments (assets under management), and that facilitated emissions from investment banking and insurance underwriting are excluded.

The Glasgow Financial Alliance for Net Zero (GFANZ) is a global coalition of financial institutions (banks, insurers, asset managers, asset owners) committed to accelerating the decarbonisation of the global economy and reaching net zero GHG emissions by 2050. GFANZ was established at COP26 in November 2021 and encompasses over 675 member firms managing over $150 trillion in assets. Member institutions must commit to: setting science-based net-zero targets covering all emission scopes; regularly reporting progress; reviewing targets every five years; and aligning portfolio activities with net-zero pathways.

The Greenhouse Gas (GHG) Protocol is the most widely used international accounting framework for quantifying and managing GHG emissions from private and public sector operations, value chains, and products. Developed by the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), the GHG Protocol’s Corporate Standard (2004) defines Scope 1, 2, and 3 emission categories. IFRS S2 mandates the use of GHG Protocol as the measurement standard for corporate GHG disclosures. The GHG Protocol is undergoing its first major revision of its corporate suite of standards, with updates to the Scope 3 standard currently under public consultation (final standard expected 2027). In September 2025, ISO and the GHG Protocol announced plans to harmonize their standards.

Governance in ESG refers to the internal systems, practices, and processes by which a company is directed and controlled, including: board composition, diversity, and independence; executive compensation and sustainability linkage; audit and risk management frameworks; anti-corruption and anti-bribery policies; transparency and disclosure; whistleblower protections; and political engagement. ESRS G1 (Business Conduct) under the CSRD covers: corporate culture, protection of whistleblowers, animal welfare, political engagement, management of relationships with suppliers, and corruption/bribery. IFRS S1 requires governance disclosures of sustainability-related financial information.

Greenwashing occurs when an organisation makes misleading, exaggerated, or unsubstantiated environmental or sustainability claims about its products, services, or operations. In the EU, the Greenwashing Directive (EU) 2024/825 (Empowering Consumers for the Green Transition Directive, applicable from March 2026) prohibits unsubstantiated sustainability claims, unverified environmental labels, and misleading claims about future sustainability performance. The Green Claims Directive (COM(2023) 166, under negotiation) will additionally require pre-substantiation of environmental claims before market use.

The Global Reporting Initiative (GRI) Standards are the world’s most widely used voluntary sustainability reporting framework, enabling organisations to report on their environmental, social, and governance (ESG) impacts in a standardised, comparable way. GRI Standards are structured as: GRI 1 (Foundation 2021), GRI 2 (General Disclosures 2021), and topic-specific standards (GRI 300 series: environmental; GRI 400 series: social). The GRI Standards use an impact materiality perspective (focusing on actual and potential impacts on people and the environment). GRI and the ESRS are aligned through an interoperability mapping developed jointly by GRI and EFRAG.

Human rights due diligence (HRDD) is the ongoing process through which companies identify, prevent, mitigate, and account for how they address actual and potential adverse human rights impacts in their operations and value chains. The UN Guiding Principles on Business and Human Rights (UNGPs, 2011) provide the foundational HRDD framework. In the EU, the CSDDD (Directive (EU) 2024/1760) mandates HRDD as a legal obligation for companies above defined thresholds. The OECD Due Diligence Guidance for Responsible Business Conduct (2018) provides operational guidance aligned with the UNGPs.

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is the International Sustainability Standards Board’s (ISSB) overarching standard requiring entities to disclose material information about sustainability-related risks and opportunities. Issued in June 2023 and effective from January 1, 2024 (with earlier application permitted), IFRS S1 sets out the: objective of sustainability-related financial disclosures; general requirements for how to prepare and present disclosures; and four core pillars (Governance, Strategy, Risk Management, and Metrics & Targets) applicable across all sustainability topics. IFRS S1 must be applied together with IFRS S2.

IFRS S2 Climate-related Disclosures is the ISSB standard requiring entities to disclose information about climate-related risks and opportunities. Issued June 2023, effective January 1, 2024. IFRS S2 builds on TCFD recommendations and requires disclosures across four pillars: Governance (board oversight of climate risks); Strategy (climate risks and opportunities, scenario analysis, transition plan); Risk Management (how climate risks are identified and managed); and Metrics and Targets (GHG emissions — Scope 1, 2, and 3 — and other climate metrics). IFRS S2 mandates the use of GHG Protocol for emissions measurement. In December 2025, the ISSB issued targeted amendments to IFRS S2 GHG emissions disclosures (effective for reporting periods beginning January 1, 2027).

Impact materiality (also called ‘inside-out’ materiality) is one of the two dimensions of the CSRD’s double materiality concept. A sustainability topic is impact-material when the company’s own activities or value chain relationships cause, contribute to, or are directly linked to significant actual or potential adverse or positive impacts on people or the environment. Under ESRS 1, impact materiality assessment considers: the severity of the impact (scale, scope, irremediability for actual impacts; severity and likelihood for potential impacts); the company’s ability to influence the impact; and whether the impact is actual or potential.

A Life Cycle Assessment (LCA) is a systematic analytical method for evaluating the environmental impacts of a product, service, or process across all stages of its life: from raw material extraction through manufacturing, distribution, use, and end-of-life disposal or recycling. LCA is standardised under ISO 14040:2006 (Principles and Framework) and ISO 14044:2006 (Requirements and Guidelines). LCA quantifies impacts across multiple environmental categories: climate change (GHG emissions), water use, land use, eutrophication, acidification, toxicity, and resource depletion. LCA provides the methodological foundation for product carbon footprints (ISO 14067) and eco-design requirements.

A materiality assessment is the process by which a company identifies and prioritises the sustainability topics most relevant to its business, stakeholders, and impacts. Under the CSRD/ESRS framework, companies must conduct a Double Materiality Assessment (DMA) covering both financial materiality (impact on the company) and impact materiality (the company’s impact on people and the environment). GRI Standards use an impact-only materiality concept. IFRS S1/S2 use financial materiality only (the ‘outside-in’ perspective). The EFRAG revised ESRS (July 2025 EDs) simplify the DMA process, making it more principles-based and less prescriptive.

Net zero means achieving a balance between the greenhouse gases emitted and those removed from the atmosphere, such that net GHG emissions equal zero. Under the Science Based Targets initiative (SBTi) Corporate Net Zero Standard (2021), achieving net zero requires: (1) reducing absolute Scope 1, 2, and 3 GHG emissions by at least 90% from a base year (or 95% in some sectors) by no later than 2050; and (2) neutralising any residual (remaining <5–10%) emissions through permanent carbon removal (not offsets). The Paris Agreement’s 1.5°C pathway aligns with global net zero GHG emissions by mid-century. Net zero differs from carbon neutral: carbon neutral allows offsetting all current emissions; net zero requires near-total elimination.

The Non-Financial Reporting Directive (NFRD) (Directive 2014/95/EU) was the predecessor EU sustainability reporting framework to the CSRD, requiring large public interest entities with >500 employees to disclose non-financial information on environmental, social, employee, anti-corruption, and human rights matters. The NFRD was criticised for lack of consistency, comparability, and depth of disclosure. It was replaced by the CSRD (Directive (EU) 2022/2464), which introduced mandatory ESRS standards and expanded scope. Entities already reporting under the NFRD (approximately 11,000 companies) were the original Wave 1 CSRD entities.

The EU Omnibus I package refers to the European Commission’s proposals published February 26, 2025 (COM(2025) 801 and COM(2025) 812) and the subsequent December 2025 provisional agreement between the European Parliament and Council to significantly simplify EU sustainability reporting and due diligence requirements. Key changes under the provisional agreement: CSRD scope reduced to companies with >1,000 employees and net turnover >€450M (reducing coverage by approximately 80%); Wave 2 and Wave 3 CSRD delayed by two years (Stop-the-Clock); CSDDD application delayed one year; ESRS simplified (revised standards expected Q2 2026); EU Taxonomy reporting simplified. On February 24, 2026, the EU Council officially approved the Omnibus I directive.

The Paris Agreement is the legally binding international climate treaty adopted at COP21 on December 12, 2015 and entered into force on November 4, 2016 under the UN Framework Convention on Climate Change (UNFCCC). Its central aim is to limit global average temperature increase to well below 2°C above pre-industrial levels and pursue efforts to limit it to 1.5°C. Parties (countries) must submit Nationally Determined Contributions (NDCs) and progressively strengthen them every five years. The Paris Agreement’s Article 6 establishes international carbon markets. Net zero GHG emissions globally by mid-century is required to achieve the 1.5°C goal.

The Responsible Business Alliance (RBA) Code of Conduct is the leading industry standard for social, environmental, and ethical responsibility in global supply chains, primarily used in the electronics and technology sectors. It covers: labour standards (freely chosen employment, working hours, wages, humane treatment); health and safety; environmental management (emissions, water, waste, hazardous substances); ethics (anti-corruption, intellectual property, privacy); and management systems. Companies joining the RBA commit to implementing the Code across their operations and supply chain. The current version is RBA Code of Conduct v9.0 (2023).

The SASB (Sustainability Accounting Standards Board) Standards are sector-specific sustainability accounting standards developed to help companies disclose financially material ESG information to investors. SASB Standards cover 77 industry-specific sectors and provide standardised metrics for each. The ISSB incorporated the SASB Standards into IFRS S2 as industry-specific disclosure requirements. Following the merger of SASB into the IFRS Foundation in 2022, the ISSB now maintains and develops SASB Standards. SASB is closely aligned with financial materiality and investment decision-relevant metrics.

Science-based targets are GHG emission reduction targets aligned with the latest climate science, specifically what is needed to limit global warming to 1.5°C above pre-industrial levels, consistent with the Paris Agreement. The Science Based Targets initiative (SBTi) validates corporate targets against its criteria. Companies can set: near-term targets (covering 5–10 years, minimum 42% absolute Scope 1 and 2 reduction by 2030 from a base year); and long-term targets (net-zero by 2050 or earlier, with 90–95% absolute reduction). SBTi issued updates to the Corporate Net Zero Standard in 2025 and separately developed FLAG (Forests, Land, and Agriculture) targets for land-sector emissions.

Scope 1 emissions are direct GHG emissions from sources owned or controlled by a company — including: stationary combustion (boilers, furnaces, turbines); mobile combustion (company vehicles, ships, aircraft); process emissions (chemical or biological reactions); and fugitive emissions (refrigerants, leaks from equipment). Scope 1 emissions must be disclosed under all major reporting frameworks: IFRS S2 (mandatory), ESRS E1 (mandatory), California SB 253 (mandatory for companies with >$1B revenue doing business in California). Emissions are measured and reported in tonnes of CO₂ equivalent (CO₂e) using GHG Protocol methodology.

Scope 2 emissions are indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by a company but produced outside its direct control. The GHG Protocol Scope 2 Guidance (2015) requires companies to report Scope 2 using two methods: Location-based (using average electricity grid emission factors); and Market-based (using contractual instruments such as Energy Attribute Certificates (EACs), PPAs, or supplier-specific emission rates). Both methods must be disclosed where there is a significant difference. The GHG Protocol’s draft update (public consultation 2025) proposes hourly matching requirements for market-based claims.

Scope 3 emissions are all indirect GHG emissions that occur in a company’s value chain, excluding Scope 1 and 2 emissions. The GHG Protocol Corporate Value Chain (Scope 3) Standard (2011, under revision) categorises Scope 3 into 15 categories: upstream (Categories 1–8: purchased goods and services, capital goods, fuel and energy activities, upstream transportation, waste, business travel, employee commuting, upstream leased assets) and downstream (Categories 9–15: downstream transportation, processing of sold products, use of sold products, end-of-life treatment, downstream leased assets, franchises, investments). Scope 3 is mandatory under IFRS S2, California SB 253, and ESRS E1.

The Sustainable Finance Disclosure Regulation (SFDR) (Regulation (EU) 2019/2088) requires financial market participants (fund managers, insurance-based investment products) and financial advisers to disclose how they integrate sustainability risks into their investment decisions and how their products impact sustainability. SFDR classifies financial products as: Article 6 (no sustainability objective, just risk disclosure); Article 8 (environmental or social promotion); Article 9 (sustainable investment objective). SFDR also requires disclosure of Principal Adverse Impacts (PAIs) on sustainability factors at entity and product level. The Commission proposed targeted amendments to SFDR in 2024 as part of broader sustainability simplification.

The Social (S) dimension of ESG encompasses a company’s relationships with and impacts on its workforce, supply chain workers, customers, communities, and wider society. Under ESRS, social topics are covered across four standards: ESRS S1 (Own Workforce); ESRS S2 (Workers in the Value Chain); ESRS S3 (Affected Communities); and ESRS S4 (Consumers and End-Users). Social key performance indicators include: living wages, gender pay equity, lost-time injury rates, female leadership representation, modern slavery due diligence, supplier audit findings, and community investment. The CSDDD makes supply chain human rights due diligence legally mandatory for large companies.

Stakeholder engagement is the ongoing process of identifying, mapping, prioritising, and meaningfully interacting with those affected by or with an interest in a company’s activities. Under ESRS 2 (General Disclosures), companies must disclose: their stakeholder engagement activities; how stakeholder input has informed the sustainability strategy and materiality assessment; and how they respond to stakeholder concerns. Under the CSDDD, companies must establish grievance mechanisms allowing workers, communities, and affected persons to raise concerns. GRI 2-29 and 2-30 require disclosures on stakeholder engagement approach.

The Stop-the-Clock Directive (Directive (EU) 2025/794) is the EU directive that postponed by two years the application of CSRD reporting requirements for Wave 2 and Wave 3 companies. It entered into force on April 17, 2025. Wave 2 companies (large EU companies not qualifying as public interest entities, previously required to report for the 2025 financial year) are now required to report for the 2027 financial year at the earliest. Wave 3 (listed SMEs, non-EU large companies) were also delayed. Wave 1 companies (large public interest entities reporting from 2024 FY) were not affected. The directive also delayed the first phase of CSDDD requirements by one year.

Supply chain transparency refers to the extent to which a company knows, discloses, and can demonstrate the origin, composition, social, and environmental conditions of its supply chain — from raw material extraction through all production tiers to final product delivery. Regulatory drivers for supply chain transparency include: CSDDD (human rights and environmental due diligence); CSRD/ESRS S2 (workers in the value chain); EU Deforestation Regulation (EUDR); EU Forced Labour Regulation; US Uyghur Forced Labor Prevention Act (UFLPA); and the EU Battery Regulation due diligence requirements.

Sustainability reporting assurance is the independent third-party verification that a company’s sustainability disclosures are free from material misstatement and prepared in accordance with the applicable reporting standards. Under the CSRD (EU) 2022/2464, mandatory limited assurance of sustainability statements is required from the first year of reporting; reasonable assurance (the higher standard) is expected to become required from 2028 onwards for EU reporters. The Omnibus I provisional agreement clarifies that limited assurance applies and sets maximum financial penalties for supervisory authorities at 3% of the company’s net worldwide turnover.

Sustainability-linked finance refers to financial instruments (loans, bonds, export credit) whose financial terms — typically the interest rate or coupon — are tied to the borrower’s performance against predefined sustainability KPIs and sustainability performance targets (SPTs). Unlike green bonds (where proceeds are restricted to specific green projects), sustainability-linked instruments impose no use-of-proceeds restrictions; instead, they incentivise overall sustainability performance improvement. Sustainability-Linked Loan Principles (SLLP) and Sustainability-Linked Bond Principles (SLBP) are published by LMA and ICMA respectively.

The TCFD (Task Force on Climate-related Financial Disclosures) is the framework established in 2015 by the Financial Stability Board (FSB) for voluntary climate-related financial disclosure. The TCFD Recommendations (2017) organise disclosures under four pillars: Governance; Strategy (including scenario analysis); Risk Management; and Metrics and Targets. The TCFD framework was incorporated in full into IFRS S2 (ISSB, June 2023), making it the de facto global standard for climate-related financial disclosures. The FSB formally disbanded the TCFD in 2024, transferring monitoring to the IFRS Foundation, as ISSB has now taken over TCFD’s role.

A transition plan is a time-bound, company-specific strategy for achieving a significant transformation of a company’s business model and operations to align with a low-carbon economy, specifically the 1.5°C pathway of the Paris Agreement. Transition plans must include: current GHG emission levels and absolute reduction targets (Scope 1, 2, and 3); actions and investments to achieve targets; capital allocation plans; governance and risk management for climate-related risks; and interim milestones. Under IFRS S2, transition plan disclosure is a requirement. Under ESRS E1 (Climate Change), transition plan disclosures are required for CSRD-scoped companies. The Omnibus I provisional agreement specifies that CSRD transition plan reporting requirements remain unchanged.

The UN Sustainable Development Goals (SDGs) are the 17 global goals adopted by all 193 UN Member States in 2015 as part of the 2030 Agenda for Sustainable Development. The SDGs address poverty, health, education, gender equality, clean energy, climate action, biodiversity, and justice. In ESG reporting, SDGs are used as an alignment framework to show how a company’s activities and ESG strategy contribute to global development goals. GRI Standards include SDG mapping. ESRS and IFRS S1/S2 do not mandate SDG alignment but many companies voluntarily map their material topics to relevant SDGs.

A value chain encompasses all activities, resources, people, organisations, and processes involved in creating and delivering a product or service — from raw material extraction through production, distribution, use, and end-of-life. In ESG reporting, value chain is a key concept: under ESRS 1, material impacts, risks, and opportunities must be assessed across the company’s upstream value chain (suppliers, raw materials), own operations, and downstream value chain (distributors, customers, end users). Value chain Scope 3 GHG emissions (Categories 1–15) represent the emissions associated with all value chain activities beyond the company’s direct control.

Wave reporting refers to the phased implementation schedule of the EU CSRD (Directive (EU) 2022/2464), under which different categories of companies are required to begin CSRD sustainability reporting at different times. Following the Stop-the-Clock Directive (Directive (EU) 2025/794, in force April 17, 2025) and Omnibus I: Wave 1 (large public interest entities >500 employees): 2024 FY reporting (reports published 2025) — unchanged. Wave 2 (large EU companies not qualifying as PIEs): delayed from 2025 FY to 2027 FY at earliest. Wave 3 (listed SMEs): removed from mandatory CSRD scope under Omnibus I’s proposed revised thresholds (>1,000 employees / €450M turnover).