Guides for Best ESG Practices

Decoding ESG: Clearing up the most confused sustainability terms

Sustainability and ESG are full of buzzwords—some sound similar, while others are just plain confusing. Even professionals struggle to differentiate between Net Zero vs. Carbon Neutrality, ESG Reporting vs. ESG Disclosure, or Fair Trade vs. Ethical Sourcing.

Scris de

Teodora Grama

5m

July 9, 2025

Let’s break down these key concepts in a simple and clear way so that next time you hear them, you’ll know exactly what they mean!


Environmental terms: The carbon & climate puzzle


Carbon Neutral vs. Net Zero


Carbon Neutral means balancing CO₂ emissions through offsets like carbon credits or reforestation, without necessarily reducing emissions at the source. A company can continue emitting but compensate for it elsewhere.


Net Zero is a more ambitious goal requiring deep emission reductions across all greenhouse gases (CO₂, methane, nitrous oxide, etc.), with offsets used only for unavoidable emissions. The focus is on cutting emissions first, not just compensating for them.


Carbon Offsetting vs. Carbon Insetting


Carbon Offsetting: Paying for projects elsewhere (like tree planting) to balance your emissions.


Carbon Insetting: Reducing emissions within your own supply chain (e.g., switching to renewable energy in your factories).


Green Bond vs. Sustainability-Linked Bond


Green Bonds: Used only for green projects (e.g., renewable energy, energy-efficient buildings).


Sustainability-Linked Bonds: General financing, but interest rates depend on ESG performance (e.g., lower emissions → better interest rate).


Carbon Footprint vs. Ecological Footprint


Carbon Footprint: Measures greenhouse gas emissions from an individual, company, or product.


Ecological Footprint: Measures total resource consumption (land, water, materials) vs. Earth’s ability to regenerate them.

Climate Neutral vs. Carbon Neutral


Climate Neutral: Addresses all greenhouse gases (not just CO₂) and other environmental impacts (e.g., pollution, biodiversity).


Carbon Neutral: Focuses only on CO₂ emissions balance through reduction and offsets.

Climate Mitigation vs. Climate Adaptation


Climate Mitigation: Actions that reduce or prevent emissions (e.g., renewable energy, energy efficiency).


Climate Adaptation: Adjusting to existing climate change impacts (e.g., building flood defenses, drought-resistant crops).

Green Hydrogen vs. Blue Hydrogen


Green Hydrogen: Produced using renewable energy with zero emissions.


Blue Hydrogen: Produced from natural gas but with carbon capture to reduce emissions.

Bio-based vs. Biodegradable vs. Compostable


Bio-based: Made from renewable biological sources but not necessarily biodegradable.


Biodegradable: Breaks down naturally over time but may leave microplastics.


Compostable: Breaks down completely into organic matter under specific conditions.

Greenwashing vs. Bluewashing


Greenwashing: When companies mislead people about their environmental impact (e.g., "100% eco-friendly" with no proof).


Bluewashing: When companies exaggerate their social responsibility efforts (e.g., claiming to support fair labor but having poor working conditions).

Social terms: Fairness & ethical business


Just Transition vs. Climate Justice


Just Transition: Helping workers and industries shift to green jobs without job loss or economic harm.


Climate Justice: Ensuring climate policies don’t disproportionately harm marginalized communities (e.g., ensuring poor communities aren’t left behind in decarbonization efforts).


DEI vs. Social Equity


DEI (Diversity, Equity & Inclusion): Making workplaces diverse, fair, and inclusive.


Social Equity: A broader concept that ensures fairness in society beyond just workplaces (e.g., fair access to healthcare, education, and opportunities).


Fair Trade vs. Ethical Sourcing


Fair Trade: A certification ensuring workers are paid fairly and treated ethically (e.g., coffee, cocoa, textiles).


Ethical Sourcing: A company’s commitment to responsible supply chains, but without a certification.


Green HR vs. ESG Employee Engagement


Green HR: HR policies that support sustainability (e.g., remote work to cut emissions, eco-friendly offices).


ESG Employee Engagement: Employees actively participating in sustainability initiatives (e.g., volunteering for environmental projects, green training programs).


Human Rights Due Diligence vs. Modern Slavery Compliance


Human Rights Due Diligence: Companies assessing and managing risks of human rights violations (e.g., poor working conditions).


Modern Slavery Compliance: A stricter legal requirement to prevent forced labor and child labor in supply chains.


Living Wage vs. Minimum Wage


Living Wage: The amount needed for a decent standard of living (food, housing, healthcare).


Minimum Wage: The legal lowest hourly wage, which is often not enough for a good quality of life.

ESG Materiality vs. Double Materiality


ESG Materiality: What ESG issues impact a company’s financial performance.


Double Materiality: Looks at both financial impact and societal impact (how a company affects the environment and people).

Governance terms: Corporate sustainability rules


ESG Disclosure vs. ESG Reporting


ESG Disclosure: Sharing raw data on ESG performance (e.g., carbon emissions, gender diversity).


ESG Reporting: A structured report that puts ESG data into context (trends, goals, comparisons).


ESG Risk vs. ESG Impact


ESG Risk: How external ESG factors affect a company’s financial performance.


ESG Impact: How a company’s own operations affect people, the planet, and society.

ESG vs. CSR vs. SDGs


ESG (Environmental, Social, Governance): A framework used for investors to evaluate a company’s non-financial performance.


CSR (Corporate Social Responsibility): A company’s voluntary efforts to improve social and environmental impact.


SDGs (Sustainable Development Goals): Global goals set by the UN to tackle sustainability challenges.

ESG Ratings vs. ESG Scores


ESG Ratings: Third-party agencies (like MSCI, Sustainalytics) give companies a ranking based on ESG performance.


ESG Scores: Individual companies or investors calculate their own ESG performance metrics.

Stakeholder vs. Shareholder Capitalism


Shareholder Capitalism: A company’s main focus is profit for investors.


Stakeholder Capitalism: A company balances profits with social and environmental impact (e.g., caring about employees, customers, and the planet, not just investors).


Green Taxonomy vs. ESG Regulation


Green Taxonomy: A classification system for what is truly green (EU Green Taxonomy sets rules for which projects are eco-friendly).

ESG Regulation: Legal rules for how companies must report and manage ESG risks (e.g., CSRD in the EU).