Carbon and ESG terms, explained

Assurance is an independent practitioner’s examination of reported sustainability information, issued as limited assurance, where the conclusion is expressed negatively, or reasonable assurance, which is a materially higher bar and closer to a financial audit.

The practical difference is how much gets tested. Limited assurance samples; reasonable assurance traces. A process that survives the first does not automatically survive the second.

Audit and assurance →

B Corp certification assesses a whole company against verified standards covering governance, workers, community, environment and customers, and requires a change to the company’s articles committing it to consider all stakeholders.

BREEAM In-Use is a certification scheme that assesses the sustainability performance of an existing building in operation, as distinct from the BREEAM schemes applied to new construction and refurbishment.

The Corporate Sustainability Reporting Directive is the EU regime that requires in-scope companies to report sustainability information against the European Sustainability Reporting Standards, in the management report, subject to assurance.

The assurance requirement is what separates it from everything that came before. A figure that has never been tested by anyone outside the team producing it now has to withstand exactly that.

CSRD reporting →

EcoVadis is a supplier sustainability rating, assessed from submitted documentary evidence across environment, labour and human rights, ethics and sustainable procurement, and commonly requested by corporate customers as a condition of supply.

The EPRA Sustainability Best Practices Recommendations are the reporting measures listed property companies use to present environmental, social and governance performance in the annual report on a comparable basis.

Its value is comparability rather than ambition. Because every reporter uses the same measures and the same like-for-like rules, an analyst can put two portfolios side by side, which almost nothing else in this space allows.

The European Sustainability Reporting Standards are the reporting standards companies disclose against under CSRD, with ESRS E1 covering climate change and setting out the gross Scope 1, 2 and 3 disclosures.

GRESB is an annual investor-driven benchmark for real assets, scoring a portfolio on management and performance, with a large share of the performance score resting on energy, emissions, water and waste data coverage.

Coverage is scored as well as performance, so a portfolio with good numbers for half its assets can score below one with ordinary numbers for all of them. Data completeness is worth points on its own.

GRESB submissions →

The International Sustainability Standards Board sets the IFRS Sustainability Disclosure Standards, of which IFRS S1 covers general sustainability-related financial disclosure and IFRS S2 covers climate, carrying the TCFD structure forward.

NABERS UK is a rating scheme for the measured operational energy performance of offices, based on twelve months of actual metered consumption rather than a modelled design estimate.

Because it rates measured performance, it cannot be satisfied with a design specification. It is one of the few schemes where the data collection is the assessment.

The SASB Standards are industry-specific disclosure standards, now maintained under the ISSB, identifying the sustainability topics considered financially material to a given sector, including real estate.

SECR, Streamlined Energy and Carbon Reporting, is the UK regime requiring quoted companies, large unquoted companies and large LLPs to report their UK energy use, associated greenhouse gas emissions and at least one intensity ratio in their annual report.

It is a directors’ report disclosure, signed off by the board and filed with the accounts, which is a different standard of care from a voluntary sustainability report. The statutory intensity ratio also counts Scope 1 and 2 only, so it will not match a portfolio-wide intensity figure that includes Scope 3.

SECR reporting →

The Sustainable Finance Disclosure Regulation is the EU regime governing how financial market participants describe the sustainability characteristics of their funds and products, including disclosure of principal adverse impacts.

For a real estate fund it lands as a data request rather than a narrative exercise. The indicators have to be produced at asset level and aggregated, which is a reporting boundary problem before it is a disclosure one.

The Task Force on Climate-related Financial Disclosures set out a four-pillar structure for climate reporting, governance, strategy, risk management, and metrics and targets, which has since been absorbed into the ISSB standards and into UK and other national rules.

The four pillars survived the task force itself. Most disclosure regimes a UK property company now faces are recognisably the same structure with different labels on it.

Climate risk →

WELL is a certification for the effect of a building on the people in it, assessed across concepts including air, water, light, thermal comfort, sound and movement.

Activity data is the underlying physical quantity a calculation is applied to, such as kilowatt hours of electricity, cubic metres of gas, tonnes of waste or kilograms of refrigerant topped up.

Biogenic carbon dioxide is CO2 released from recently living material such as wood or biofuel, reported separately from the main gross total rather than added to it.

A carbon intensity is emissions expressed per unit of something else, typically per square metre of floor area, per full-time employee or per unit of revenue, so that portfolios and periods of different sizes can be compared.

The denominator decides the answer. Per square metre of net lettable area and per square metre of gross internal area are both defensible and produce different numbers, so which one is in use has to be stated wherever the figure appears.

A conversion factor turns a unit of activity, a kilowatt hour, a litre, a tonne, a mile, into a quantity of greenhouse gas, and the UK government publishes a new set annually for company reporting.

Because the set is republished every year, the same consumption produces a different figure depending on which year’s factors were applied. Which set produced a number is part of the number.

Carbon governance →

A diversion rate is the share of waste kept out of landfill by weight, and it is not the same as a recycling rate because energy recovery counts as diversion but not as recycling.

The two are quoted interchangeably and differ by a lot. A portfolio sending most of its residual waste to incineration can report near total diversion and a modest recycling rate at the same time, both correctly.

The waste duty of care requires anyone producing, carrying or disposing of waste to ensure it is handled safely and transferred only to an authorised person, evidenced by waste transfer notes and carrier registrations.

It is the one waste obligation that is enforceable against the producer regardless of who actually mishandled the material, which is why the carrier licences and the transfer notes are worth holding as records rather than as a folder.

Embodied carbon is the emissions associated with producing, transporting, installing, maintaining and eventually disposing of the materials in a building, as distinct from the operational carbon of running it.

On a retrofit decision the two work against each other. A deep intervention that lowers operational carbon spends embodied carbon to do it, and the payback is measured in years of avoided operational emissions.

F-gases are fluorinated greenhouse gases used as refrigerants in chillers, air conditioning and heat pumps, regulated because of their very high global warming potential relative to carbon dioxide.

They only enter the carbon account when they leak, and a leak is evidenced by the quantity recharged at a service visit. That makes maintenance records, not meters, the source data for a material part of Scope 1.

A factor set is a complete, dated collection of conversion factors published together, such as the UK government’s greenhouse gas conversion factors for a given reporting year.

Pinning a figure to the factor set that produced it is what lets a prior period stay stable when a new set is published. Without it, a baseline moves quietly every summer.

Carbon governance →

The Greenhouse Gas Protocol is the accounting standard that almost every carbon disclosure regime is built on, defining the organisational boundary, the three scopes, and the rules for recalculating a baseline when the portfolio or the method changes.

Global warming potential is the factor used to express a non-CO2 greenhouse gas as a quantity of carbon dioxide equivalent, and the values are revised by the IPCC between assessment reports.

Refrigerants are where this bites in property. Restating a portfolio from one assessment report’s values to the next can move a Scope 1 figure without a single kilogram of gas changing hands.

Gross calorific value, or higher heating value, includes the energy recovered from condensing the water vapour in flue gases; net calorific value excludes it, and the two produce different emissions figures from the same gas consumption.

UK gas bills are issued on a gross basis, so a factor applied on a net basis to a billed quantity produces a figure that is wrong by a consistent few per cent and looks entirely plausible.

Lifecycle modules are the standard stages a whole life carbon assessment is divided into, from product and construction (A), through use (B) and end of life (C), to benefits and loads beyond the boundary (D).

Quoting an embodied carbon figure without saying which modules it covers makes it meaningless. An A1 to A3 number and an A to C number describe the same building and differ by a wide margin.

A location-based Scope 2 figure applies the average emissions intensity of the grid the building sits on, ignoring whatever the electricity contract says.

A market-based Scope 2 figure applies the emissions intensity of the electricity actually contracted for, using supplier-specific factors and instruments such as REGO certificates.

Both figures have to be reported, and they can differ enormously for the same building. A market-based number near zero alongside an unchanged location-based number describes a procurement decision, not a reduction in energy used.

Operational carbon is the emissions from running a building, principally the energy used for heating, cooling, ventilation, lighting and equipment across the year.

A Renewable Energy Guarantee of Origin is a certificate evidencing that a megawatt hour of electricity was generated from a renewable source, used to support a market-based Scope 2 claim.

Scope 1 covers direct emissions from sources an organisation owns or controls, which in a property portfolio usually means gas burned on site, oil, on-site generation, fleet fuel and refrigerant leakage.

Refrigerant leakage is the line most portfolios miss. It is not metered, it surfaces only through service records, and a single leak from a large chiller can outweigh a building’s entire gas consumption.

Scope 2 covers indirect emissions from purchased electricity, heat, steam and cooling, reported on both a location-based and a market-based basis.

Scope 3 covers indirect emissions across the value chain that the organisation does not own or control, which for a landlord includes tenant energy use in let space, purchased goods and services, waste, water, business travel and the upstream emissions of the fuels it buys.

For most property portfolios Scope 3 is the majority of the footprint and the part with the least direct data behind it. Downstream leased assets is usually the single largest category and the hardest to evidence.

Scope 3 →

Transmission and distribution losses are the electricity lost in the grid between generation and the meter, reported by the consuming organisation in Scope 3 alongside the Scope 2 figure for the electricity itself.

The waste hierarchy ranks the ways of dealing with waste in order of environmental preference, from prevention and reuse, through recycling and other recovery, to disposal as the last resort.

A waste transfer note is the document recording a transfer of non-hazardous waste between parties, identifying the waste, its quantity, the parties and the destination, and it has to be retained for two years.

Well-to-tank emissions are the upstream emissions from extracting, refining and delivering a fuel or generating and delivering electricity, before it is consumed, and they are reported in Scope 3 rather than in Scope 1 or 2.

An audit trail is the record of who changed what, when, and why, held alongside the data rather than reconstructed from it afterwards.

A baseline is the reference year a portfolio measures its reduction against, and it has to be recalculated when the organisational boundary changes materially or when the calculation method itself changes.

A baseline that moves for the wrong reason is the most damaging error available, because every percentage reduction ever published against it moves with it.

Calculation lineage is the recorded chain connecting a reported figure back through every step that produced it, to the invoice, meter reading or submission it came from and the factor set applied to it.

It is what turns "where did this number come from" from an investigation into a lookup. A figure without lineage is not wrong, it is simply unevidenced, and those are treated identically once someone independent starts testing.

Data lineage →

Data coverage is the share of a portfolio actually reporting, measured as the periods a building holds data for against the periods the reporting window expects, rather than the accuracy of the figures it holds.

Coverage and quality are separate failures and get confused constantly. A portfolio can hold precise half-hourly readings for sixty per cent of its assets and nothing at all for the rest, and only one of those problems is fixed by better metering.

Data lineage →

A data quality grade records how a figure was obtained, typically distinguishing metered readings from invoiced quantities, from estimates, and from benchmarks applied where nothing was available.

Grading is what lets a portfolio report honestly on incomplete data. An estimated figure carried openly as an estimate is disclosable; the same figure presented as measured is the thing that fails assurance.

Estimated data is consumption derived rather than read, for example by extrapolating from a partial year, applying a benchmark for a comparable building, or apportioning a whole-building figure across occupiers.

An evidence pack is the assembled set of source documents and calculation records supporting a disclosure, produced for an auditor, an assurance provider or a lender carrying out due diligence.

Audit and assurance →

Factor versioning is holding every published conversion factor set separately and recording which one produced each figure, so a new release does not silently rewrite the periods that were calculated under the old one.

Carbon governance →

An organisational boundary defines which assets’ emissions an organisation reports, consolidated either by operational control, by financial control, or by equity share.

In real estate the choice decides how joint ventures, managed assets and part-owned buildings are treated, and it is the single assumption most likely to make two portfolios’ figures incomparable.

Period locking closes a reporting period so the figures in it cannot be changed without a recorded, authorised reopening.

The test is not whether people are told to leave a closed period alone. A control that depends on nobody touching the file is a convention, and an assurance provider will treat it as one.

Carbon governance →

A restatement is a formal correction of a previously published figure, disclosed as a restatement with the reason given, rather than a quiet edit to the underlying data.

A building management system is the controls platform that runs a building’s heating, cooling, ventilation and sometimes lighting, and which holds operational data such as temperatures, run hours and plant status.

It is a control system first and a data source second. Its point names are usually local to the installer, which is why extracting reportable data from one is a mapping exercise rather than a connection.

Integrations →

Common parts are the areas of a building a landlord retains and operates rather than demising to a tenant, such as reception, lifts, plant rooms, corridors and shared toilets.

Common parts energy is usually the only consumption a landlord meters directly, which makes it the only part of a multi-let building it can report without either sub-metering or a tenant data request.

An Energy Performance Certificate rates a building from A to G on modelled energy efficiency, assessed against a standardised use pattern rather than against how the building is actually run.

It is a design and fabric rating, not a consumption measurement, which is why a building can hold a good EPC and a poor measured performance at the same time. The two answer different questions and are routinely quoted as if they answered the same one.

A green lease clause is a lease provision addressing the environmental performance of a building, most usefully the obligation on each party to share energy, water and waste data with the other.

A data sharing clause and a data sharing process are different things. Most portfolios have the clause and no route for the data to actually arrive, which means the entitlement is never exercised.

Green lease clauses and carbon data →

Half-hourly data is electricity consumption recorded in half-hour intervals and collected automatically from the meter, as opposed to a single periodic read or an estimated bill.

The interval is what makes it diagnostic rather than just accurate. Baseload visible overnight and at weekends is the clearest evidence available that plant is running when the building is empty.

Landlord-controlled consumption is energy the landlord procures and operates, covering common parts, central plant and landlord services, as opposed to energy contracted directly by a tenant within its demise.

The Minimum Energy Efficiency Standards make it unlawful to let or continue to let a substandard commercial property in England and Wales, with compliance assessed on the building’s EPC rating and a register of exemptions.

It is a lettability question before it is a sustainability one. An asset that cannot lawfully be let is an asset with no income, which is why MEES exposure tends to reach the investment committee well before the carbon figures do.

A Meter Point Administration Number is the unique identifier for an electricity supply point in Great Britain, and it stays with the supply point when the supplier or the occupier changes.

It is the only reliable key for joining consumption data to an asset. Matching on site name across a supplier file, a lease schedule and an asset register is how the same building ends up counted twice.

Net lettable area is the floor area a tenant actually leases and pays rent on, excluding common parts and plant, and it is the usual denominator for apportioning shared consumption where no sub-metering exists.

A recharge is the sum billed to a tenant for its share of landlord-procured energy or services, calculated from the allocation method the lease specifies.

A recharge is the one carbon-adjacent number a tenant has a direct financial reason to challenge, so the calculation behind it has to be reproducible line by line rather than defensible in principle.

Tenant allocation →

Sub-metering is the installation of meters downstream of the incoming supply so consumption can be attributed to a specific demise, floor or item of plant rather than to the building as a whole.

It is the difference between allocating a tenant’s carbon and apportioning it. An apportionment can be defended as reasonable; a sub-meter reading does not have to be defended at all.

Tenant allocation →

Tenant allocation is the apportionment of a building’s consumption and emissions to individual occupiers, by lease terms, by floor area or by measured consumption, so each party can report its own share.

The method has to match what the lease says rather than what is easiest to calculate, because the output is a schedule a tenant can dispute and a landlord has to be able to substantiate line by line.

Tenant allocation →

Carbon pricing applies a monetary value to a tonne of emissions, either externally through a compliance scheme or internally as a shadow price used to test investment decisions on the same basis as any other cost.

Cost and carbon →

Double materiality is the requirement to report both how sustainability matters affect the company financially and how the company’s activities affect people and the environment, with either direction alone being enough to make a topic reportable.

It is the assessment that decides what a CSRD report has to contain, so it is done first and everything else follows from it.

Net zero is a state in which emissions have been reduced as far as the relevant standard requires and only a defined residual remains, neutralised by permanent removals, as distinct from offsetting a footprint that has not been reduced.

Net zero pathways →

Physical risk is the financial risk from the climate itself, covering acute events such as flooding and storms and chronic shifts such as rising mean temperatures and overheating hours.

Climate risk →

Principal adverse impacts are the negative sustainability effects of investment decisions, reported under SFDR against a defined set of indicators including greenhouse gas emissions, energy performance and exposure to fossil fuels.

A Representative Concentration Pathway is one of the standard climate futures used to model physical risk, describing a level of greenhouse gas concentration this century against which flood, heat and storm exposure can be assessed per asset.

Physical risk is only meaningful against a stated pathway and a stated year. An asset described as at risk of flooding, with neither, is a statement that cannot be acted on or challenged.

Climate risk →

A science-based target is an emissions reduction target validated as consistent with a defined global warming pathway, typically covering a near-term horizon and a long-term net zero commitment.

Validation is judged on the baseline and the boundary as much as on the ambition, so the target is only as durable as the recalculation policy sitting underneath it.

Social value is the wider community and economic benefit delivered alongside a contract or a development, measured in the UK against the National Themes, Outcomes and Measures framework and weighted in public sector procurement.

Because the National TOMs attach a proxy monetary value to each measure, social value is one of the few ESG outputs that arrives as a figure in pounds, which is why it reaches a bid team faster than a carbon number does.

Social value →

Stranding risk is the risk that an asset becomes unlettable, unsaleable or uneconomic to hold before the end of its expected life because it no longer meets regulatory or market expectations on energy and carbon performance.

A sustainability performance target is the specific, measurable threshold written into a sustainability-linked facility that the borrower’s margin is tested against, such as an emissions intensity or an EPC improvement across a defined portfolio.

A sustainability-linked loan is a facility whose margin moves according to the borrower’s performance against agreed sustainability performance targets, with the targets and the verification method written into the loan documentation.

The margin adjustment is contractual, so the reporting behind it is contractual too. Missing a target costs basis points; being unable to evidence that you met one costs the same.

Transition risk is the financial risk arising from the move to a lower-carbon economy, including regulation, carbon pricing, changing tenant and investor requirements, and the cost of bringing an asset up to standard.

Climate risk →