Definitions are constantly evolving around the key concepts of sustainability but jurisdictions, regulators, and international organisations around the globe agree on the common elements of each of the below. We will keep this page updated, but if you feel we are missing anything else that may be worth adding to the list of definitions below please let us know.
This refers to investors addressing concerns of environmental, social and governance (ESG) issues by voting on such topics or engaging corporate managers and boards of directors on them. Active ownership is utilized to address business strategy and decisions made by the corporation in an effort to reduce risk and enhance sustainable long-term shareholder value.
Approach in which a company’s or issuer’s environmental, social and governance (ESG) performance is compared with the ESG performance of its peers (i.e. of the same sector or category) based on a sustainability rating. All companies or issuers with a rating above a defined threshold are considered as investable. The threshold can be set at different levels (e.g. 30% best performing companies or all companies that reach a minimum ESG score).
Generic term for financial services related to mitigation of and adaptation to climate change. It specifically refers to investments in greenhouse gas emission reduction projects and the related creation of CO2-certificates, financial instruments that are tradable on carbon markets.
A carbon footprint refers to the entire greenhouse gas (GHG) emissions of a portfolio. It is calculated in tons of CO2 equivalents per million USD invested (tCO2e/mUSD). It expresses the amount of annual GHG emissions which can be allocated to the investor per million USD invested in a portfolio and is therefore probably the most intuitive carbon metric available at the portfolio level.
This occurs when an organisation’s net carbon emissions is equal to zero. The process requires measuring total CO2 emissions, taking active steps to reduce emissions where the company can, and then purchasing CO2-certificates to offset CO2 emissions that cannot be eliminated from a company’s operations. The CO2-certificates contribute to financing projects reducing CO2-emissions (i.e. by replacing fossil power generation with renewable energy projects).
This term refers to the commitment of an organisation, beyond what is required by law, to ensure that the social, economic and environmental impacts of their actions create a net benefit to communities and society. This is founded on the belief that all corporations have a ‘duty of care’ to all their stakeholders in every area of their business operations and that being a responsible citizen improves the long-term business success of a company.
Transparent way to review information about a company’s performance and its qualitative/quantitative data, which in turn may influence investor’s decision on whether to invest.
The term is used to describe environmental, social and governance considerations. Environmental considerations may include climate change mitigation and adaptation, preservation of biodiversity, and prevention of carbon emissions among others. The social aspect could include investment in human capital and communities, human rights and labour issues to name a few. Governance considerations may include but is not limited to management structures, employee relations and executive remuneration and shareholder rights.
This analysis includes collecting information on how an investment target manages environmental, social and governance factors. When an investment institution wishes to track how potential investments (i.e. companies, countries and issuers) actively manage ESG risks and opportunities they carry out an ESG Analysis.
There is growing evidence suggesting that companies with a strong performance in managing environmental, social and governance factors manage their risks and opportunities more effectively and have lower costs of capital. ESG factors, when integrated into investment analysis and decision-making, may therefore offer investors better insights into opportunities and risks.
Engagement is an activity performed by shareholders with the goal of convincing management to take account of environmental, social and governance criteria. This dialogue includes communicating with senior management and/or boards of companies and filing or co-filing shareholder proposals. Successful engagement can lead to changes in a company’s strategy and processes so as to improve ESG performance and reduce risks.
This refers to investors addressing concerns of environmental, social and governance (ESG) issues by actively exercising their voting rights based on ESG principles or an ESG policy.
An approach excluding companies, countries or other issuers based on activities considered not investable. Exclusion criteria (based on norms and values) can refer to product categories (e.g. weapons, tobacco), activities (e.g. animal testing), or business practices (e.g. severe violation of human rights, corruption).
Activities on the grounds of which a company, country or issuer is considered as not investable. Exclusion criteria can refer to product categories (i.e. weapons, tobacco) activities (i.e. animal testing) or practices (i.e. severe violation of human rights, corruption). They can also be based on personal values (i.e. gambling) or on risk considerations (i.e. nuclear power).
A taxonomy refers to a comprehensive classification system related to sustainable finance, their scope and methodology as well as application to wider economy. The EU taxonomy is only one of many available taxonomies around the world, which provides companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable, based on scientific evidence.
A company’s financial performance tells investors about its general well-being. It’s a snapshot of its economic health and the job its management is doing—providing insight into the future: whether its operations and profits are on track to grow and the outlook for its stock. Non-financial information on the other hand is related to the impact of the company’s operations both on the planet as well as the revenue. This is often defined as Environmental, Social, and Corporate Governance (ESG) information, referring to the three central components in measuring the sustainability and societal impact of a company.
Green bonds are broadly defined as fixed-income securities that raise capital for a project with specific environmental benefits. The majority of green bonds issued to date have raised money for renewable energy projects, energy efficiency measures, mass transit and water technology. Most green bonds have been either plain vanilla treasury-style retail bonds (with a fixed rate of interest and redeemable in full on maturity), or asset-backed securities tied to specific green infrastructure projects.
Investment in businesses contributing to sustainable solutions in environmental topics including investments in renewable energy, energy efficiency, clean technology, low-carbon transportation infrastructure, water treatment and resource efficiency.
This term is understood as falsification of company’s impact on the environment (intentionally or not) through marketing campaigns to make a product, service or impact appear more beneficial that it really is.
Investments intended to generate a measurable, beneficial social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below- market to above-market rates, depending upon the circumstances. SSF considers impact investments as those having three main characteristics: intentionality, management and measurability.
An integrated report (IR) combines a company’s financial report and sustainability report in order to give a concise view about how an organisation’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term.
In the sustainability context, information is material if there is a clear link to the financial performance of a company.
Investment approach based on a sustainability rating in which a company’s or issuer’s environmental, social and governance (ESG) performance is compared with the ESG performance of its sector peers. All companies with a rating above a defined threshold are considered as investable. The threshold can be set at different levels (i.e. 30% best companies eligible).
One of the benefits of being a shareholder is the right to vote on certain corporate matters. Since most shareholders cannot, or do not want to, attend the annual and special meetings at which the voting occurs, corporations provide shareholders with the option to cast a proxy vote. Shareholders receive a proxy ballot in the mail along with an informational booklet called a proxy statement describing the issues to be voted on. Shareholders return a form by mail agreeing to have their vote cast by proxy.
Responsible investment (analogous to sustainable investment) refers to any investment approach, integrating environmental, social and governance factors (ESG) into the selection and management of investments. There are many different forms of responsible investing, such as best-in-class investments, ESG integration, exclusionary screening, thematic investing and impact investing. They are all components of responsible investments and have played a part in its history and evolution.
The term “Science-based targets” is currently mostly applied in the context of climate targets. Such targets provide a clearly defined pathway for companies to reduce greenhouse gas (GHG) emissions. Such targets are considered “science- based” if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement —limiting global warming to below 2°C above pre- industrial levels and pursuing efforts to limit warming to 1.5°C.
• Scope 1: All direct Green House Gas emissions.
• Scope 2: Indirect Green House Gas emissions from consumption of purchased electricity, heat or steam.
• Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport- related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc.
A legal right of shareholders to create a proposal for change in corporate policies and actions. Shareholder proposals are tools of corporate engagement and shareholders reserve the right to circulate proposals, and vote on them at the company’s Annual General Meeting (AGM).
A sustainability index / benchmark is a tool to measure the value of a section of the stock market. It is computed from the prices of stocks selected by applying a sustainable investment approach. Investors use this tool to describe the market and to compare the return on specific investments.
Ratings reflecting a company’s/country’s/fund’s performance with regards to environmental, social and governance (ESG) factors. Sustainability ratings enable investors to gain a quick overview of the sustainability performance of a company/country/fund and are the basis for a best-in-class investment approach.
Widely applied key performance indicator referring to the total volume of sustainable investments of an investor, asset manager or country. Often expressed as a percentage of total assets under management.
The SDGs are 17 goals aiming to catalyse sustainable development set by the UN in 2015. They include goals such as no poverty, gender equality, decent work, sustainable consumption, climate action and reduced inequalities. The goals were developed to replace the Millennium Development Goals (MDGs) which ended in 2015. Unlike the MDGs, the SDG framework does not distinguish between “developed” and “developing” nations.
Sustainable finance refers to any form of financial service with the objective of supporting the transition to a sustainable economy and society by integrating environmental, social and governance (ESG) factors into business and investment decisions. Such finance aims for the lasting benefit to clients, society at large and the planet.
Sustainable investment products (investment funds and discretionary mandates) with a written sustainability investment policy as part of the prospectus or contract are considered Core SI. Usually, such sustainable investment products apply multiple approaches (i.e. exclusion criteria in combination with a best-in-class approach or an ESG integration approach in combination with ESG voting and engagement).
A time-bound action plan that clearly outlines how an organization will achieve its strategy to pivot its existing assets, operations, and entire business model towards a trajectory that aligns with the latest and most ambitious climate science recommendations. Transition finance aims to transform high-emitting companies and shift their operations to a climate-neutral status.