ESG Glossary

Adverse Impact:

Adverse Impact refers to the negative effects caused by investment decisions or advice on Environmental, Social, and Governance (ESG) or sustainability factors. These impacts can include harm to the environment, negative social consequences, or governance issues that undermine long-term sustainability goals or values. It's a critical consideration in responsible investing to avoid or mitigate adverse effects on these aspects.

Benchmarking:

Benchmarking involves comparing the environmental, social, and governance (ESG) metrics of a company against those of other companies within the same industry or sector. This comparison helps investors, analysts, and stakeholders assess how well a company performs relative to its peers in terms of ESG factors, identifying strengths, weaknesses, and areas for improvement. It serves as a valuable tool in evaluating corporate sustainability and responsible investment practices.

Blue Hydrogen:

Blue hydrogen refers to hydrogen produced from natural gas through a process called steam methane reforming (SMR) or autothermal reforming. These processes involve converting natural gas into hydrogen and carbon dioxide (CO2). The term "blue" indicates that the CO2 produced during hydrogen production is captured and stored (carbon capture and storage, CCS) rather than being released into the atmosphere, thereby reducing greenhouse gas emissions compared to conventional hydrogen production methods.

Blue hydrogen is considered a transitional or intermediate step towards achieving cleaner energy systems, as it allows for the decarbonization of hydrogen production while leveraging existing infrastructure and technologies used in the natural gas industry. The captured CO2 can be permanently stored underground (carbon sequestration) or used for other industrial purposes, contributing to efforts to mitigate climate change by reducing overall emissions.

Carbon Capture and Storage:

Carbon capture and storage (CCS) is the process of capturing waste CO2 and placing it into a geological storage site in such a way that it will not enter the atmosphere and contribute to further global warming. CCS uses several technologies including absorption, chemical looping, and membrane gas separation.

Carbon Disclosure Project (CDP):

CDP is a global non-profit organization founded in 2000 and based in London. CDP solicits standardized climate change, water, and forest information from some of the world’s largest publicly traded companies through annual questionnaires sent on behalf of institutional investors endorsed as 'CDP signatories'. These shareholder requests encourage companies to disclose and be transparent about environmental risks.

Carbon Footprint:

A carbon footprint is a measure of the total amount of greenhouse gases, specifically carbon dioxide (CO2) and other greenhouse gases like methane (CH4), emitted directly or indirectly by human activities within a specific timeframe, usually expressed in equivalent tons of carbon dioxide (CO2e). It quantifies the impact of these emissions on the environment and climate change, encompassing activities such as energy consumption, transportation, production processes, and waste management. Reducing carbon footprints is a key focus in mitigating climate change and promoting sustainability.

Carbon Management and Accounting System (CMAB):

Carbon Market Adjustment Mechanism is a policy tool aimed at tackling carbon leakage and maintaining a fair competition environment for industries within the European Union (EU) that adhere to stringent carbon emission regulations. It seeks to deter companies from relocating production to countries with less stringent environmental standards and to promote global reductions in carbon emissions.

Carbon Pricing:

Carbon pricing refers to a fee or tax imposed on carbon emissions. It serves as a powerful incentive for emitters to reduce their CO2 emissions, thereby mitigating climate change. Carbon pricing can take the form of a direct carbon tax or be integrated into carbon emissions trading systems, where emission allowances are issued and traded among entities.

Carbon Sequestration:

Carbon sequestration is a proposed method aimed at reducing the buildup of greenhouse gases, mitigating climate change by storing CO2 and other carbon forms over the long term.

Carbon Tracker:

A non-profit organization based in London that studies the effects of climate change on financial markets. Carbon Tracker introduced the concept of a “carbon bubble,” highlighting the conflict between the ongoing expansion of fossil fuel projects and efforts to fight climate change.

Circular Economy:

A circular economy strives to preserve the value of products, materials, and resources by reintroducing them into the production cycle at the end of their lifespan, thus minimizing waste generation. This approach reduces the need for extracting new materials, leading to environmental benefits.

Climate Action Tracker:

The Climate Action Tracker is an independent scientific organization that monitors government efforts to decarbonize and evaluates them against the targets set by the Paris Agreement. The goal is to limit global temperature rise to well below 2°C above pre-industrial levels, aiming for 1.5°C by the end of the century.

Founded in 2009 and headquartered in Berlin, the Climate Action Tracker is a collaboration between two German organizations: Climate Analytics and New Climate Institute. It tracks data from 36 countries plus the EU, encompassing approximately 80% of global greenhouse gas emissions and about 70% of the world's population.

Climate Bonds:

Climate bonds are debt instruments designed to fund projects that address climate-related challenges, such as wind farms, solar and hydropower plants, and infrastructure like rail transport and sea walls in vulnerable coastal cities. Despite their purpose, only a fraction of these bonds have been officially labeled as green or climate bonds by the issuers. For more detailed information, you can visit the Climate Bond Initiative’s website.

Climate Bonds Initiative (CBI):

An investor-focused non-profit international organization dedicated to mobilizing the $100 trillion bond market for climate change solutions. Their mission involves promoting investment in projects and assets essential for a swift transition to a low-carbon, climate-resilient economy. The strategy includes fostering a robust Green and Climate Bonds Market that enhances capital accessibility for climate projects in both developed and emerging markets, establishing aggregation mechanisms for fragmented sectors, and assisting governments in accessing debt capital markets.

Climate Change:

Climate change refers to the sustained alteration in the typical weather patterns that characterize Earth's local, regional, and global climates over an extended period.

Climate Change Adaptation:

"Economic activities that mitigate or prevent adverse impacts of current and future climate change, thereby avoiding exacerbation or shifting of negative effects." (Refer to the European Commission's proposal for a regulation on the establishment of a framework to facilitate sustainable investment – "Taxonomy proposal", May 2018).

Climate Change Mitigation:

"Economic activities are deemed to significantly contribute to climate change mitigation if they effectively stabilize greenhouse gas concentrations in the atmosphere, preventing dangerous anthropogenic interference with the climate system through the avoidance or reduction of greenhouse gas emissions, or by enhancing greenhouse gas removals." (Taxonomy proposal, May 2018).

Example: The UN-REDD Programme is the United Nations Collaborative Programme on Reducing Emissions from Deforestation and forest Degradation (REDD+) in developing countries.

Climate Clock:

A climate clock serves as a visual representation of the remaining carbon emissions that can be released into the atmosphere without exceeding the limits set by the Paris Agreement. Two prominent examples include the MCC Carbon Clock, managed by German scientists, and a grassroots Climate Clock initiated by a network of activists.

Climate Disclosure Standards Board (CDSB):

A voluntary reporting framework for disclosing material environmental information in mainstream financial reports, including natural capital and climate change-related information.

Climate Finance (Adaptation / Mitigation):

Local, national, or transnational financing, sourced from public, private, and alternative funding channels, aimed at supporting mitigation and adaptation actions to address climate change.

Climate Funds:

Climate funds are investment portfolios that focus on purchasing equities or bonds issued by companies aligned with the objectives of the Paris Agreement. They may also target sovereign bonds issued by governments actively reducing greenhouse gas emissions to mitigate their impact on global warming.

Climate Risks:

Physical risks refer to the harm inflicted on companies and assets due to the direct impacts of unpredictable and severe weather events. Examples include heat waves, droughts, rising sea levels, storms, and flooding. These events can lead to secondary financial impacts such as reduced crop yields, loan defaults, supply chain disruptions, political instability, insurance claims, legal liabilities, or conflicts.

Community Impact Investing:

Channeling investment capital to communities neglected by traditional financial institutions, Community Impact Investing typically provides access to credit, equity, capital, and fundamental banking services that these communities would otherwise lack.

Corporate Citizenship:

The concept that corporations possess both rights and responsibilities toward the societies and jurisdictions in which they operate, and that they are also stakeholders within society themselves.

Corporate Governance:

The set of rules, practices, and processes by which a company is managed and its management is supervised is known as corporate governance.

Corporate Responsibility: 

Corporate responsibility refers to the obligation of corporations to generate profit in an ethical manner, while also taking responsibility for their impact on the environment and society at large.

Corporate Social Responsibility (CSR):

Corporate social responsibility (CSR) is the responsibility of corporations to contribute positively to society. It involves a corporation's self-regulation aimed at achieving societal goals of a philanthropic, activist, or charitable nature. This can include engaging in or supporting volunteering efforts, as well as adopting ethically-oriented practices that benefit communities and the environment.

CSR Report:

A CSR report is a periodic (typically annual) publication by companies aimed at sharing their corporate social responsibility actions and outcomes. These reports detail the company's initiatives, policies, impacts, and progress towards achieving social, environmental, and ethical goals.

Decarbonization:

Decarbonization refers to the process of reducing the carbon intensity of global energy consumption. In alignment with this trend, investment portfolios can also undergo decarbonization, which involves reducing exposure to carbon-intensive assets and increasing investments in low-carbon or carbon-neutral alternatives. This helps align portfolios with environmental goals and supports efforts to mitigate climate change.

Development Finance:

Development finance refers to financial assistance, often in the form of grants or concessional loans, provided by developed countries to developing countries. This support is typically channeled through local development banks or bilateral/multilateral development banks (such as the European Investment Bank, EIB). The funds are intended to promote development across various sectors, including health, sanitation, education, infrastructure, and the enhancement of tax systems and administrative capacities. (For more information, refer to the OECD’s website.)

Development Finance Institutions (DFI):

National and international development finance institutions (DFIs) are specialized development banks or their subsidiaries established to facilitate private sector development in developing countries. These institutions are typically majority-owned by national governments and derive their capital from national or international development funds, or they benefit from government guarantees. This setup ensures their creditworthiness, allowing them to raise substantial funds on international capital markets and provide financing at competitive terms. (Source: OECD / EDFI)

The German Credit Institute for Reconstruction (Kreditanstalt für Wiederaufbau - KfW)

The KfW is a German public financial institution with a wide scope of action including:

• Domestic promotion: promoting the investments of private individuals, municipal enterprises and public institutions;
• Export and project finance: financing projects of German and European companies so they can compete on global markets;
• Development finance: supporting economic and social progress in developing and transition countries to help ensure the people there are better off;

The French Development Agency (Agence Française de Développement - AFD)

AFD (Agence Française de Développement) finances, supports, and strives to expedite the transition towards a more equitable and sustainable world. Addressing issues such as peace, climate change, health, and education, its teams are engaged in over 4,000 projects spanning 115 countries and French overseas departments. AFD plays a crucial role in advancing France's commitment to achieving the Sustainable Development Goals (SDGs) globally.

Double Bottom Line:

The blend of quantitative and qualitative analysis adopted by socially conscious investors. The qualitative analysis overlay typically sets responsible investing apart from its traditional roots and competitors.

Dow Jones Sustainability Index (DJSI):

The Dow Jones Sustainability Index, established in 1999, monitors the stock performance of the world's top companies based on economic, environmental, and social criteria.

ESG Funds:

ESG funds are investment portfolios comprised of equities and/or bonds where environmental, social, and governance (ESG) factors are integrated into the investment criteria. This integration ensures that the companies or governments represented in the fund have undergone rigorous assessments regarding their sustainability practices across ESG dimensions.criteria.

ESG Integration:

The structural integration of information on Environmental, Social and Governance (ESG) factors into the investment decision making process.

EU Action Plan on Financing a Sustainable Growth:

The action plan on financing sustainable growth adopted by the European Commission in March 2018 set 3 main goals:

• Reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth
• Manage financial risks stemming from climate change, environmental degradation and social issues
• Foster transparency and long-termism in financial and economic activity.

The action plan key actions include:

• Establishing a clear and detailed EU classification system – or taxonomy – for sustainable activities. This will create a common language for all actors in the financial system
• Establishing EU labels for green financial products. This will help investors to easily identify products that comply with green or low-carbon criteria
• Introducing measures to clarify asset managers’ and institutional investors’ duties regarding sustainability
• Strengthening the transparency of companies on their environmental, social and governance (ESG) policies. The Commission will evaluate the current reporting requirements for issuers to make sure they provide the right information to investors
• Introducing a ‘green supporting factor’ in the EU prudential rules for banks and insurance companies. This means incorporating climate risks into banks’ risk management policies and supporting financial institutions that contribute to fund sustainable projects.

European Environmental Agency (EEA):

The European Environment Agency (EEA) is an agency of the European Union tasked with providing accurate and independent information on environmental issues. The EEA's mission is to facilitate sustainable development by promoting substantial and measurable enhancements in Europe's environment. It achieves this goal by delivering timely, focused, relevant, and dependable information to policymakers and the public alike.

Fair Trade:

Fair trade is a methodology with the goal of helping ensure that producers in developing countries are provided sustainable and equitable trade relationships.

FTSE4Good Index Series:

The FTSE4Good index series is designed to gauge the performance of companies that exhibit robust Environmental, Social, and Governance (ESG) practices. These indexes are structured with transparent management and clearly defined ESG criteria, making them valuable tools for a diverse range of market participants in developing and evaluating sustainable investment products.

Global Impact Investing Network (GIIN):

A nonprofit organization focused on scaling and enhancing the effectiveness of impact investing, which involves making investments aimed at generating both social and environmental impact alongside financial returns.

Global Real Estate Sustainability Benchmark (GRESB):

GRESB (Global Real Estate Sustainability Benchmark) is an investor-led initiative with a mission to furnish Environmental, Social, and Governance (ESG) data on real asset investments to investors, managers, and the broader industry. GRESB Assessments offer a standardized framework for evaluating ESG performance through self-reported data that undergoes validation, scoring, and peer benchmarking. This approach enables investors to assess their portfolios for ESG-related risks, opportunities, and impacts, and to engage with asset managers regarding their performance in these areas.

Global Reporting Initiative (GRI):

The Global Reporting Initiative. GRI is the most widely used and most extensive voluntary reporting framework for ESG and sustainability topics. The latest version of its framework, the GRI Standards was published in 2016.

Global Warming:

Scientists define global warming as the increase in average surface temperatures on Earth since the early 20th century, primarily caused by human activities such as burning fossil fuels. This process elevates greenhouse gas levels in the atmosphere, leading to enhanced heat trapping and resulting in a warming effect.

Governance Factors:

Issues related to the governance of companies and other investee entities are identified or evaluated in responsible investment processes. These issues typically include aspects such as board composition, executive compensation, audit practices, shareholder rights, transparency, and adherence to ethical standards. Evaluating governance practices helps investors assess the overall management quality and sustainability of their investments.

Green Bonds:

Green bonds are debt instruments issued specifically to finance projects that deliver positive environmental or climate benefits. These projects include initiatives like renewable energy development, energy efficiency improvements, pollution prevention, sustainable land use management, biodiversity conservation, clean transportation, water management, and climate change adaptation efforts. Proceeds from green bonds are earmarked exclusively for these environmentally beneficial projects. These bonds are typically backed by the issuer's entire balance sheet, ensuring their commitment to sustainability initiatives. (For more details, refer to ICMA or the Luxembourg Green Exchange.)

Green Hydrogen:

The production of H2 using an electrolysis method where water is split and electrical power (fuel source) has zero GHG emissions (i.e. - nuclear, solar, wind).

2 H2O → 2 H2 + O2

Greenhouse Gas Protocol:

The most widely used international accounting tool for government and business to understand, quantify, and manage greenhouse gas emissions.

Greenhouse Gases (GHG):

GHG is any gas that absorbs infrared radiation in the atmosphere, thereby trapping heat and contributing to the greenhouse effect. Greenhouse gases include, but are not limited to, water vapor, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

Greenwashing:

Promoting a product, service, or company as more environmentally-friendly than it actually is, through misleading or false claims about its environmental benefits, is known as greenwashing. This practice can deceive consumers and investors into believing that a product or company is more sustainable or eco-friendly than it truly is, potentially undermining genuine efforts to address environmental issues.

Grey Hydrogen:

The use of fossil fuel for H2 production. Current methods for making ammonia for fertilizers, refine metals, and produce methanol for plastics. The resulting CO2 emissions are simply vented, increasing greenhouse gas emissions.

GRI Standards:

A set of standards issued by the GRI, which expects companies to select their own level of disclosure on a range of ESG and sustainability topics and publish annual sustainability reports.

High Level Expert Group (HLEG) on Sustainable Finance:

Following the signature of the Paris Agreement, the European Commission established the High-Level Expert Group (HLEG) on Sustainable Finance. The group was tasked with developing a comprehensive framework for reforms across the investment chain to support a sustainable finance strategy for the EU. Its final report was released in January 2018, and shortly thereafter, in March 2018, the European Commission launched the "Action Plan for Financing Sustainable Growth," which was based on the recommendations of the HLEG.

The HLEG emphasized that achieving the goals of the Paris Agreement necessitates a fundamental transformation of the entire financial system, including its culture and incentives. It called for Europe to take a leading role in driving this transformative change.

Human Rights Watch:

An international non-governmental organization based in New York City that investigates and reports on human rights abuses globally.

Impact Investing:

Impact investing refers to investments made with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments provide private capital to address social and/or environmental issues.

Institutional Shareholder Services (ISS):

Institutional Shareholder Services, Inc., which introduced an Environmental & Social QualityScore Disclosure and Transparency Signal scoring tool. This metric allows institutional investors to assess the ESG risk of their portfolio companies more comprehensively, alongside ISS’s Governance QualityScore.

Integrated Reporting:

Communicating both sustainability and financial targets and results in one report, linking them to each other.

Intergovernmental Panel on Climate Change (IPCC):

The IPCC (Intergovernmental Panel on Climate Change) was established jointly by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988. Its primary purpose is to assess information related to all significant aspects of climate change, drawing on the expertise of hundreds of scientists worldwide who serve as authors and thousands more who contribute as expert reviewers.

The IPCC releases periodic assessments that provide scientific foundations for understanding global climate change and its impacts. It is recognized as the authoritative advisory body to governments worldwide on the state of climate science.

The IPCC's Fifth Assessment Report was a crucial scientific input into the UNFCCC's Paris Agreement in 2015. Additionally, IPCC findings have influenced significant declarations such as the Business Roundtable's Statement on the Purpose of a Corporation, signed by 181 CEOs committing to lead their companies for the benefit of stakeholders including customers, employees, suppliers, communities, and shareholders.

International Integrated Reporting Council (IIRC):

An international group of leaders from the corporate, investment, accounting, securities, regulatory, academic, and standard-setting sectors, as well as civil society. This group promotes communication about value creation as the next step in the evolution of corporate reporting.

International Integrated Reporting Framework:

Established by the IIRC, the International Integrated Reporting Framework aims to accelerate the global adoption of integrated reporting. An integrated report is a concise communication detailing how an organization’s strategy, governance, performance, and prospects, within the context of its external environment, create value in the short, medium, and long term.

International Labour Organization (ILO):

The International Labour Organization (ILO) is a United Nations agency dedicated to setting international labor standards, promoting social protection, and creating work opportunities for all individuals. It brings together governments, employers, and workers from 187 member states to establish labor standards, formulate policies, and implement programs that aim to advance decent work for both women and men globally.

Investment Stewardship:

Investment stewardship entails actively engaging with public companies to advocate for corporate governance policies and practices that foster the creation of long-term stakeholder value. This involves initiatives such as voting on shareholder resolutions, engaging in dialogue with company management, and collaborating with other investors to influence corporate behavior towards sustainable and responsible practices.

ISO 26000:

The International Organization for Standardization (ISO) Standard 26000. The ISO publishes many different operational standards for companies, with ISO 26000 covering “socially responsible” processes that companies may implement and report.

Materiality:

Materiality in the context of investments refers to the significance or importance of specific topics and information during the investment decision-making process. A topic or piece of information is considered material if it has the potential to impact the financial performance or valuation of an investment. The more significant or impactful a topic is deemed to be, the more material it is considered in the investment analysis. This concept helps investors prioritize and focus on key factors that could affect investment outcomes.

Millennium Development Goals (MDGs):

The Millennium Development Goals (MDGs) were a set of eight objectives launched by the United Nations in 2000 to address various global challenges and improve human society. They primarily aimed to uplift the world's poorest populations, particularly those affected by hunger and other issues in developing countries. The MDGs were succeeded by the Sustainable Development Goals (SDGs), which were introduced in 2015 to continue and expand upon the global development agenda set forth by the MDGs.

The eight Millennium Development Goals were:

• Eradicate extreme poverty and hunger;
• Achieve universal primary education;
• Promote gender equality and empower women;
• Reduce child mortality;
• Improve maternal health;
• Combat HIV/AIDS, malaria, and other diseases;
• Ensure environmental sustainability
• Develop a global partnership for development.

Morgan Stanley Capital International (MSCI):

MSCI rates companies based on Environmental, Social, and Governance (ESG) risks and evaluates how management addresses these risks. The ratings encompass 37 ESG indicators and involve ongoing data collection from publicly available sources. Additionally, each company undergoes an annual comprehensive review. MSCI employs a formal data verification process, allowing companies to verify and provide feedback on the data used in their ratings.

Multilateral Development Banks (MDB):

Multilateral Development Banks (MDBs) are supranational institutions established by sovereign states, who are their shareholders. These banks operate based on development aid and cooperation policies set by member states. Their primary mission is to promote economic and social progress in developing countries by providing financing for projects, supporting investments, and mobilizing capital. MDBs also play a significant role in international capital markets, where they raise substantial funds needed to finance their loans and initiatives, thereby contributing to global economic development and welfare. (Source: EIB) Examples of MDBs:

• The European Investment Bank (EIB):
• The World Bank Group

Negative Screening:

Socially Responsible Investing (SRI) employs negative screening as a strategy to avoid investments in companies whose products or business practices are considered harmful to individuals, communities, or the environment. This typically involves excluding companies involved in industries such as tobacco, weapons manufacturing, or those with poor environmental records.

However, SRI goes beyond just negative screening. It also includes positive screening, which seeks to identify and invest in companies that demonstrate leadership in adopting clean technologies, effectively managing environmental impacts, and maintaining strong social and governance practices. This dual approach aims to promote sustainability and responsible business practices while pursuing financial returns, thereby aligning investment decisions with broader ethical and environmental objectives.

Net Zero:

"Net zero" typically refers to achieving a balance between the amount of greenhouse gases produced and the amount removed from the atmosphere. In the context of buildings, "net zero energy" specifically refers to structures that produce as much renewable energy on-site as they consume over a specified time period, often annually. This approach minimizes reliance on non-renewable energy sources and promotes sustainability by significantly reducing carbon emissions associated with traditional energy consumption.

OECD MNEs:

The Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises (MNEs) offer recommendations for responsible business conduct on a global scale. These guidelines encourage multinational companies to undertake specific actions concerning various aspects of corporate behavior, including:

• Human Rights: Upholding human rights standards in their operations and throughout their supply chains.
• Employment: Respecting labor rights, including fair wages, non-discrimination, and safe working conditions.
• Environment: Minimizing environmental impacts, promoting sustainable practices, and adhering to environmental regulations.
• Corruption: Combatting corruption through transparent business practices and ethical conduct.
• Consumers: Ensuring product safety, fair marketing practices, and protecting consumer rights.
• Science and Technology: Supporting innovation, research, and development while respecting intellectual property rights.
• Competition: Fostering fair competition and complying with antitrust laws.
• Taxation: Paying taxes responsibly and adhering to tax laws in the countries where they operate.

These guidelines are designed to promote responsible business conduct and contribute to sustainable development globally.

Paris Agreement:

The Paris Agreement is an international treaty that aims to combat climate change by limiting global warming to well below 2 degrees Celsius above pre-industrial levels, with efforts to limit the temperature increase even further to 1.5 degrees Celsius. It was adopted in December 2015 under the United Nations Framework Convention on Climate Change (UNFCCC) during the COP21 conference in Paris, France. The agreement sets out goals for reducing greenhouse gas emissions, fostering climate resilience, and supporting countries in adapting to the impacts of climate change.

Physical Risk:

Physical risks are outcomes from disruptive events like extreme weather that have a direct impact on society and the economy.

Portfolio Tilting:

An investment strategy that overweighs a particular investment style.

Positive Screening:

The act of incorporating strong Corporate Social Responsibility (CSR) performers or positive CSR factors into the investment analysis process is known as positive screening or positive selection. Socially conscious investors typically seek to invest in profitable companies that demonstrate positive contributions to society, while avoiding those that do not align with their ethical values.

Investment "buy" lists compiled through positive screening may include enterprises known for:

• Good Employer-Employee Relations: Companies that prioritize fair wages, employee benefits, and workplace safety.
• Strong Environmental Practices: Businesses committed to sustainability, energy efficiency, waste reduction, and environmental stewardship.
• Safe and Useful Products: Companies producing goods or services that enhance quality of life without posing health or safety risks.
• Respect for Human Rights: Operations that uphold human rights standards across their global operations, supply chains, and community engagements.

Positive screening allows investors to support companies that are not only financially sound but also aligned with their values regarding social and environmental responsibility.

R-Factor:

The R-Factor, or Responsibility-Factor, is an ESG scoring system developed by State Street Global Advisors. It provides a transparent assessment of a company's performance in terms of its business operations and governance, specifically focusing on financially material Environmental, Social, and Governance (ESG) issues relevant to the company's industry. This scoring system aims to help investors evaluate how well companies manage ESG risks and opportunities, thereby integrating ESG considerations into investment decision-making processes.

Renewable Energy:

Energy attained from perpetual, unending sources, such as collection of energy with solar panels or wind turbines.

Renewable Energy Certificates (RECs):

Renewable Energy Certificates (RECs), also known by various other names like green tags, renewable energy credits, or renewable electricity certificates, are indeed non-tangible energy commodities in the United States. They serve as proof that 1 megawatt-hour (MWh) of electricity has been generated from a renewable energy source, such as wind or solar power, and fed into the shared power grid system.

RECs allow consumers, businesses, and organizations to support renewable energy generation and claim the environmental benefits associated with renewable energy, even if they are not directly consuming electricity generated from renewable sources. These certificates are bought and sold separately from the actual electricity and provide a means for tracking and verifying renewable energy usage and compliance with renewable energy goals or standards.

Resilience:

Resilience refers to the ability of a building, infrastructure, or system to withstand and recover from disruptive events or changing conditions without compromising its essential functions. This concept encompasses various measures and features designed to mitigate risks and ensure operational continuity in the face of challenges such as natural disasters, climate change impacts, or other potential disruptions.

Examples of resilience measures include earthquake-resistant construction techniques, flood-proofing infrastructure, incorporating climate adaptation strategies, ensuring redundancy in critical systems, and implementing robust emergency response plans. By enhancing resilience, buildings and communities can better adapt to uncertainties and protect inhabitants and assets against adverse impacts, thereby promoting sustainability and safety.

Resource Sustainability:

Resource sustainability refers to the long-term availability and responsible management of raw materials, whether they are renewable (capable of naturally replenishing themselves) or non-renewable (finite and will eventually be depleted). For sustainable investors, resource sustainability is a critical metric for understanding:

• Rate of Resource Consumption: How quickly humans are using the Earth's limited resources.
• Replenishment and Recycling: The extent to which resources can be replaced or recycled to extend their availability.
• Longevity of Materials: The remaining time before non-renewable materials are exhausted.

By assessing resource sustainability, investors can make more informed decisions, support practices that promote conservation and efficient use of resources, and contribute to long-term environmental and economic stability.

Responsible Investing:

Responsible investing is a philosophy that integrates Environmental, Social, and Governance (ESG) factors into investment decision-making, portfolio construction, and ongoing monitoring. The primary goals of responsible investing include:

• Maximizing Opportunities: Identifying investment opportunities that align with sustainable practices and have the potential for long-term growth and profitability.
• Ensuring High Performance: Seeking to achieve competitive financial returns while considering ESG risks and opportunities that could impact investment performance.
• Mitigating Risks: Managing risks associated with environmental, social, and governance issues that could affect companies' operational efficiency, reputation, and market value.

Responsible investing goes beyond financial metrics to assess how companies manage their impact on the environment, treat their employees and stakeholders, and uphold ethical standards. By incorporating ESG factors, investors aim to promote sustainable practices, support businesses with strong governance frameworks, and contribute to positive societal outcomes while pursuing their financial objectives.

RobecoSAM CSA:

The RobecoSAM Corporate Sustainability Assessment is an annual questionnaire focused on Environmental, Social, and Governance (ESG) factors and sustainability practices. Companies participate in this assessment to provide detailed information about their ESG performance across various criteria. RobecoSAM uses the data collected from the questionnaire to:

• Benchmark Companies: Compare companies within industries and sectors based on their ESG performance.
• Provide a Sustainability Score: Assign a sustainability score to each company, indicating their performance relative to peers.
• Create the DJSI: Contribute to the Dow Jones Sustainability Indices (DJSI), which are globally recognized benchmarks for sustainable investing.

Companies that subscribe to RobecoSAM's services can receive individual feedback on their assessment results and have the opportunity to discuss their scores with a RobecoSAM representative. This process allows companies to understand their strengths and weaknesses in ESG performance, identify areas for improvement, and demonstrate their commitment to sustainability to investors and stakeholders.

Science Based Targets (SBTs):

Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius compared to pre-industrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC AR5). The Science Based Targets initiative (SBTi) is a collaboration between CDP, the United Nations Global Compact (UNGC), World Resources Institute (WRI), and the World Wide Fund for Nature (WWF) and one of the We Mean Business Coalition commitments, to champion science-based target setting as a powerful way of boosting companies' competitive advantage in the transition to a low carbon economy.

• Scope I Emissions: Scope I emissions are greenhouse gas emissions that your company is directly responsible for, such as emissions from on-site burning of fossil fuels or emissions from fleet vehicles.
• Scope II Emissions: Scope II emissions are greenhouse gas emissions from sources that your company owns or controls, such as the generation of electricity, heat, or steam purchased from a utility provider.
• Scope III Emissions: Scope III emissions are greenhouse gas emissions from sources your company doesn't own or control but are related to your operations, such as employee commuting or contracted solid waste and wastewater disposal.

SDG Alignment:

Aligning business strategies and operations with the 17 Sustainable Development Goals created by the United Nations Global Compact.

SEC Climate & ESG Task Force:

The U.S. Securities and Exchange Commission (SEC) recently announced the formation of a Climate and ESG Task Force within their Division of Enforcement. This new task force will work to develop initiatives that will proactively identify ESG-related misconduct.

Social Bonds:

Social bonds are financial obligations where the funds raised are solely allocated to fund or refinance initiatives aimed at assisting vulnerable populations. These projects may encompass affordable essential infrastructure, access to critical services, affordable housing, job creation, food security, socioeconomic progress, and empowerment.

Social Factors:

The "S" in ESG, social factors relate to how a company treats employees and the community, and includes things like employee engagement programs, human rights policies, health and wellbeing initiatives, and employee and consumer protection.

Social Risks:

Social risks are related to actions a business takes that affect the surrounding community, such as labor and human rights issues or violations and corruption.

Socially Responsible Investing (SRI):

Socially responsible investing entails making investments that are deemed socially responsible based on the nature of the business activities involved. This approach includes considerations such as socially conscious investing, adherence to human rights policies, and a focus on generating positive social impacts.

Stakeholder:

A stakeholder group encompasses entities with an interest in a company that can influence or be influenced by its business performance. Traditionally, this includes parties such as investors, employees, and customers. However, the definition has evolved to encompass broader entities such as local and global communities, governments, and other relevant stakeholders.

Stewardship Code:

The stewardship code is a code requiring institutional investors to be transparent about their investment processes, engage with investee companies and vote at shareholders’ meetings..

Stranded Asset:

Stranded assets are tangible assets listed on a company's balance sheet that cannot be recovered and must be written off. This loss in value can result from regulatory decisions preventing their use, shifting market conditions making them obsolete, or advancements in technology that render them outdated.

Sustainalytics:

Sustainalytics assigns companies an ESG risk rating score ranging from 0 to 100, categorized into five risk levels (negligible, low, medium, high, and severe) based on industry-specific ESG indicators. They assess the company's exposure to significant ESG issues, evaluate management's responses to these risks, factor in any controversies, and derive an overall ESG Risk Rating.

However, Sustainalytics does not specify whether they have a mechanism for companies to verify information or provide feedback on their ESG disclosure score.

Sustainability:

Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social —also known informally as profit, planet, and people.

Sustainability Accounting Standards Board (SASB):

SASB, the Sustainability Accounting Standards Board, is a voluntary sustainability reporting framework tailored for U.S. publicly listed companies, utilizing a sector-specific materiality approach. It operates as an investor-driven and business-focused organization, promoting integrated disclosure within companies' financial filings.

Michael Bloomberg serves as Chair Emeritus of SASB and also chairs the TCFD (Task Force on Climate-related Financial Disclosures). Robert Steele currently holds the primary chair position, and notable figures like Mary Schapiro, former SEC chair, and Robert Herz, former FASB chair, also sit on the SASB board.

Sustainability Reporting:

Sustainability reporting involves disclosing an organization's environmental, social, and governance (ESG) policies and their impact on both internal performance and broader society.

Sustainability Risks:

Potential material financial impact on an investment or company arising from environmental, social, and governance (ESG) considerations refers to the financial risks or opportunities that can stem from factors related to sustainability. These factors may include environmental risks like climate change impacts, social factors such as labor practices or community relations, and governance issues such as board composition and executive pay. For a specific insurance-related definition, one could refer to EIOPA's "Technical advice on the integration of sustainability risks and factors under the delegated acts of Solvency II."

Sustainable Finance:

The European Commission defines «Sustainable Finance» as the process of considering the environmental and social impact in investment decision-making, leading to a growth of long-term investments and sustainable activities. All three ESG components – environmental, social and governance – are integral parts of sustainable economic development and finance.

Sustainable Finance Disclosure Regulations (SFDR):

The Sustainable Finance Disclosure Regulations introduced various disclosure-related requirements for financial market participants and financial advisors at entity, service, and product level.

Sustainable Insurance:

Sustainable insurance involves a strategic approach across the insurance value chain, ensuring all activities and stakeholder interactions are conducted responsibly and with foresight. It focuses on identifying, assessing, managing, and monitoring risks and opportunities related to environmental, social, and governance (ESG) issues. The goal of sustainable insurance is to mitigate risks, foster innovation, enhance business performance, and contribute to environmental, social, and economic sustainability.

Sustainable Investing:

Sustainable investing is broadly defined as the practice of using environmental, social and governance (ESG) factors when making investment decisions about which stocks or bonds to buy.

Sustainable Stock Exchanges Initiative (SSE):

The Sustainable Stock Exchanges Initiative. The SSE is a UN Partnership Programme intended to provide a global platform for exploring how exchanges, in collaboration with investors, companies, regulators, policymakers and relevant international organizations, can enhance performance on ESG issues and encourage sustainable investment, including the financing of the UN Sustainable Development Goals.

Task Force on Climate-related Financial Disclosures (TCFD):

The Task Force on Climate-related Financial Disclosures (TCFD) is a global initiative mandated by the Financial Stability Board to standardize climate-related risk disclosures by corporations. It has introduced a voluntary reporting framework applicable to companies in G20 nations across financial and four non-financial industry sectors: energy, transportation, materials and buildings, and agriculture (including food and forest products). The primary audience includes investors, lenders, and underwriters. TCFD emphasizes the use of climate risk scenario analysis to evaluate the resilience of business strategies. While TCFD encourages integrated disclosure within financial filings, it allows companies flexibility in choosing where to disclose. Other frameworks such as GRI, SASB, CDP, and CDSB have aligned their reporting standards with TCFD recommendations.

Technical Expert Group (TEG):

Group on sustainable finance to assist it in developing, in line with the Commission’s legislative proposals of May 2018:

• an EU classification system – the so-called EU taxonomy– to determine whether an economic activity is environmentally sustainable;
• an EU Green Bond Standard;
• methodologies for EU climate benchmarks and disclosures for benchmarks;
• guidance to improve corporate disclosure of climate-related information.

The TEG commenced its work in July 2018. Its 35 members from civil society, academia, business and the finance sector, as well as additional members and observers from EU, and international public bodies, work both through formal plenaries and sub-group meetings for each work stream. The work of the TEG has been officially extended until year-end 2019.

The Double Counting Issue:

Double counting in sustainable finance refers to the phenomenon where emissions reductions or other environmental benefits from the same project are counted more than once. This can occur when both the host country and the buyer of carbon credits claim the reductions in their inventories, leading to inflated claims of emission reductions. It is a broader concern in sustainable finance where the impact of a project or investment may be overstated due to multiple parties reporting the same outcomes.

Transition Risks:

Transition risks relate to major societal and economic shifts, such as moving towards a less polluting, green economy. These paradigm shifts can have major impacts on various industries and sectors of the economy.

Triple Bottom Line:

The concept of the triple bottom line advocates for considering 'people, planet, and profit' in business and investment decisions, going beyond solely focusing on profit. It originated to broaden the traditional understanding of the 'bottom line', which typically refers to the net profit after all costs are deducted. This approach, also referred to as the 'three Ps', laid foundational principles for sustainable investing by emphasizing social, environmental, and economic factors in decision-making.

United Nations Environmental Programme Finance Initiative (UNEP FI):

Partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development. UNEP FI works with more than 290 members banks, insurers, and investors, to help create a financial sector that serves people and planet while delivering positive impacts. Aiming to inspire, inform and enable financial institutions to improve people’s quality of life without compromising that of future generations. By leveraging the UN’s role, UNEP FI accelerates sustainable finance.

United Nations Framework Convention on Climate Change (UNFCCC) & the Conferences Of Parties (COPs):

The United Nations Framework Convention on Climate Change (“UNFCCC”) holds the corresponding Conferences of Parties annually. The conferences started in 1995 in Berlin, laying the groundwork for future conferences and protocols that would notably lead to establishing the Kyoto Protocol and the Paris Agreements.

United Nations Global Compact (UNGC):

UNGC is a non-binding United Nations agreement to encourage businesses worldwide to adopt sustainable and socially responsible policies grounded in 10 principles on human rights, labor, environment, and anti-corruption.

United Nations Principles of Responsible Banking (UNPRB):

These are six principles that shape a framework for a sustainable banking system and will help the industry to demonstrate how it makes a positive contribution to society. The areas of strategy covered by these principles are alignment, impact & target setting, clients & customers, stakeholders, governance and culture, and transparency & accountability. The Principles for Responsible Banking were launched by 130 banks from 49 countries, representing more than USD $47 trillion in assets.

United Nations Principles of Responsible Investment (UNPRI):

A set of six principles that provide a global standard for responsible investing as it relates to environmental, social and corporate governance (ESG) factors. Organizations follow these principles to meet commitments to beneficiary’s while aligning investment activities with the broader interests of society. There are 2372 signatories with a combined USD $86 trillion in asset under management in 2019.

• Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
• Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
• Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
• Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
• Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
• Principle 6: We will each report on our activities and progress towards implementing the Principles.

United Nations Sustainable Development Goals (UN SDG):

The Sustainable Development Goals (SDGs), published by the United Nations in 2015, encompass 17 objectives aimed at enhancing human society, ecological sustainability, and quality of life. They address a wide range of sustainability issues, from eradicating hunger and mitigating climate change to promoting responsible consumption and sustainable cities. The SDGs follow the Millennium Development Goals (MDGs), eight objectives launched in 2000. These goals acknowledge that efforts to end poverty and other deprivations must be coupled with initiatives to improve health and education, reduce inequality, and stimulate economic growth.

Vice Stocks (or Sin Stocks):

Stocks of companies directly or indirectly associated with activities considered unethical or immoral, such as tobacco, alcohol, or gambling, are often referred to as "sin stocks." These companies typically operate in industries that are controversial due to their perceived negative social impacts or health risks.

WEF ESG Guidance and Metrics:

The World Federation Exchanges ESG Guidance and Metrics, which are published for member exchanges to consider to “introduce, improve or require ESG reporting in their markets.

Zero Waste:

Zero Waste refers to a set of principles aimed at minimizing waste generation by redesigning products, reevaluating consumption patterns, and promoting reuse and recycling to divert waste from landfills. The goal of Zero Waste initiatives is to achieve efficient resource use and minimize environmental impact through comprehensive waste reduction strategies.

You can also view the glossary in interactive pdf format.