The term "sustainable" is widely applied to any practice that minimize

What noun does the pronoun "it" in A) refer to? Either: "The term 'sustainable'", or "building material"?

Technically, it can and does refer to "building material" in A) because that is the closest noun to the pronoun, and it still can logically fit with the sentence. However, it clearly changes the intended meaning of the sentence, which is another red flag.

You should always be careful in making assumptions about "implicit" connections to pronouns.

Beautiful question!!!! Got trumped.
Thanks for the explanation MacAtAdmissionHacks


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The term "sustainable" is widely applied to any practice that minimizes environmental impact, but in the case of building material it is a substance that is recycled or contains lower volumes of volatile organic compounds.
A) it is a substance that is - Correct
B) it is a substance - "a substance" (subject) has no verb
C) they are substances that are - Plural usage is incorrect
D) it designates a substance that is - It would have been correct if it was " it is designated to a substance that is" ... if the non underlined part would have been " the term 'sustainable' applies to... ' then option D would have been correct
E) it is in reference to a substance - Wordy and sane error as option B

Designates seems redundant, Can we get the OE?

Official Explanation from Gmatfree:

Creating a filter: when we read the original sentence, we should examine the pronoun "it." The reference is clear: "it" refers to the first three words of the sentence, "the term `sustainable.'" But that means the sentence isn't saying what it's trying to say. It's saying, "The term `sustainable' is a substance" that does some things. But the term "sustainable" isn't a substance; it's a term, a word. We need something more like, "The term `sustainable' means a substance," or, better, it refers to a substance that is recycled. We'll look for that.

Applying the filter: Looking for that in the answer choices, we find (D), which uses a different verb but is otherwise exactly what we were looking for. Choice (E) is a little awkward and is missing the words "that is," distorting the meaning of the end of the sentence. The correct answer is (D).

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