Glossary
A glossary of common sustainability terms, frameworks and organisations.
Adaptation Reducing the impacts of climate change by changes to processes, practices and structures.
Avoided Emissions An estimated measure of the reduction in life cycle emissions of a product, portfolio or service between a business-as-usual scenario (or reference product) and the alternate (low-carbon) product, portfolio or service.
Asia Investor Group on Climate Change (AIGCC) An initiative seeking to create awareness and encourage action among Asia’s asset owners and asset managers about the risks and opportunities associated with climate change and low-carbon investing.
Biodiversity All the different living species that make up the natural world, including plants, animals, bacteria, fungi and microorganisms. Biodiversity plays a fundamental role in sustaining life on earth, providing us with the food, water, energy, and materials we need to survive, whilst enabling an almost incalculable number of complex processes and functions that allow our social and economic systems to thrive. Loss of biodiversity poses major risks to human societies, with threats linked to health, food insecurity, the development of medicines, climate regulation and carbon sequestration.
Carbon Credit A permit which allows a country or organisation to produce a certain amount of carbon emissions, and which can be traded if the full allowance is not used.
Carbon Footprint A company or entity’s carbon footprint is the total emissions generated by its activities, directly and indirectly. It can be calculated for an individual, a product, company, country, or the entire globe. Direct emissions include those resulting from fossil fuel combustion e.g., in manufacturing, heating, and transportation, while indirect emissions include those generated by the production the electricity and from other goods and services consumed, e.g., business travel and employee commuting, purchased goods and services, use of sold products, and investments.
Carbon Neutral Making or resulting in no net release of carbon dioxide into the atmosphere, including as a result of offsetting. Similar to net zero, which refers to all greenhouse gas emissions across an entire company. Carbon neutrality can refer to a specific part of a business.
Carbon Offsetting The practice of using avoided emissions, or enhanced removals, to compensate for greenhouse gas emissions. For example, planting trees.
CDP (formerly Carbon Disclosure Project) A not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.
Circular Economy An economic system based on the reuse and regeneration of materials or products. It is considered to be a more sustainable and environmentally friendly means of continuing production.
Climate Risk – Physical Risks arising from the physical impacts of climate change. Physical risks are often categorised as “acute” and “chronic”.
Acute risks are often event-driven, for example by extreme weather events, such as cyclones, hurricanes, or floods.
Chronic physical risks are longer-term shifts in climate patterns e.g., sustained higher temperatures, that may cause sea level rise or chronic heat waves.
Climate Risk – Regulatory Risks that arise from the actions of regulators to address the impacts, both real and potential, of climate change on the financial system.
Climate Risk – Transition Risks arising from the process of transitioning to a low carbon economy. Transition risks are often split into four categories: policy, legal, technology, market changes and reputational issues. These are risks associated with the shift to a low carbon economy. By way of example:
Policy – a company may be exposed to increasing regulatory pressure e.g. carbon tax or regulations to reduce emissions and report, which might have a resource impact leading to higher operating costs from compliance to insurance premiums.
Reputational – customer preferences may change resulting in a reduction in demand for high carbon products leading to reduced revenues and impacts on workforce and employee retention.
Corporate Sustainability Reporting Directive (CSRD) EU rules require large companies and listed companies to publish regular reports on the social and environmental risks they face, and on how their activities impact people and the environment. Read more
Ecosystem A community of living organisms in a particular area.
Ecosystem Services The benefits to humans derived from that ecosystem.
Energy Transition The global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.
ESG Data Convergence Initiative (EDCI) An open partnership of private equity stakeholders committed to streamlining the private investment industry’s approach to collecting and reporting ESG data.
ESG Factors Environmental, Social & Governance investing refers to the incorporation of information relevant to E, S & G into investment decisions and investment stewardship.
Environmental factors are issues relating to the quality and functioning of the natural environment, including climate and nature.
Social factors are issues relating to the rights, well-being, and interests of people and communities.
Governance factors are issues relating to the governance of companies and other investee entities.
ESG factors may be considered material where they have a substantial impact on the current and future financial, economic, reputational and legal prospects of an issuer, security, investment or asset class. Or where the issue may have a significant impact on people or planet.
ESG Incidents Events caused by ESG factors that have a substantial negative impact on a security, issuer or investment and its key stakeholders.
ESG Index/Benchmark An index or benchmark whose securities have been selected or weighted following the consideration of ESG factors.
ESG Opportunities An ESG opportunity arises due to changes in ESG factors that might stem from regulation, technology, consumer demand development, or from other drivers that affect the current and future financial economic, reputational and legal prospects or an investment opportunity.
ESG Risks A factor or issue that may expose a security, issuer, investment or asset class to unexpected changes in its current and future financial, economic, reputational and legal situation.
ESG/RI Certification or Label A certification or label awarded for a fixed period of time for a fund or product by an independent third-party ESG/sustainability initiative or labelling scheme.
Financed Emissions The greenhouse gas emissions linked to the investment and lending activities of financial institutions.
Global Reporting Initiative (GRI) An international independent standards organisation that helps businesses, governments, and other organisations understand and communicate their impacts on issues such as climate change, human rights, and corruption.
Green Bonds Financial instruments that finance green projects and provide investors with regular or fixed income payments.
Green Finance Any structured financial activity that has been created to ensure a better environmental outcome.
Green Stocks Shares of companies that focus on environmentally friendly products, services or technologies.
Greenhouse Gas Emissions Gases present in the atmosphere which trap heat, contributing to the planet’s overall warming and consequent climate change. Key greenhouse gases are carbon dioxide, methane, nitrous oxide and fluorinated gases.
Greenhouse Gas Protocol An initiative that serves to determine a universal standardized measurement by which companies and organisations can be evaluated on their emissions. It is the most widely used standard of emissions accounting in the world and introduced the concept of Scope 1, 2 and 3 emissions.
Greenwashing Misleading consumers into believing that a product or service is more sustainable than it really is. Companies may engage in greenwashing deliberately or inadvertently, for example by including misleading information in marketing, making false or exaggerated claims to sustainability without evidence, through vague policies and commitments based on unsubstantiated evidence, using questionable methodologies, and via partnerships with false certification providers. Whether deliberate or not, greenwashing erodes consumer trust and harms a company’s credibility and reputation.
IFRS Foundation A not-for-profit, public interest organisation established to develop high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards.
Implied Temperature Rise (ITR) The future average global temperature rise, compared to pre-industrial levels, which could be expected if the global economy’s emissions mirrored that of a given portfolio.
Institutional Investors Group on Climate Change (IIGCC) A group that seeks to bring together the investment community to work towards a net zero and climate resilient future. IIGCC has more than 400 members and supports them to address climate risk and ensure they are well-positioned to make the most of climate-related investment opportunities.
Investor Group on Climate Change (IGCC) The leading network for Australian and New Zealand investors to understand and respond to the risks and opportunities of climate change. Their members manage more than $35tn globally and they are the parent of the AIGCC.
Internal Carbon Price An internally developed estimated cost of carbon emissions, which can be used as a planning tool to help identify revenue opportunities and risks, as an incentive to drive energy efficiencies to reduce costs, and to guide capital investment decisions.
International Sustainability Standards Board (ISSB) Formed following COP 26 and developed the IFRS Sustainability Standards which incorporate TCFD and other frameworks.
Materiality (Double vs Financial) In sustainability reporting, an issue may be described as material (or financially material) if it poses a significant risk to a company’s finances. For example, physical climate risks such as storms and floods may be considered material to a company with manufacturing facilities situated in low lying, coastal or other locations considered highly exposed to climate change due to the potential for financial losses from disruption to services and damage to facilities.
Double materiality takes the concept a step further and focuses both on how an issue may impact on a company’s finances as well as the impact its products or services may have on people and the environment. For example, from a double materiality perspective, the same company may be at risk if it also generates high emissions and its processes, products and services cause damage or degradation to nature and the environment. Here climate change poses a risk to the company finances and the company poses a risk to the environment so there is double materiality.
Mitigation Preventing climate change by reducing carbon emissions.
Natural Capital The world’s natural assets that make human life possible.
Net Zero The balance between the carbon emitted into the atmosphere, and the carbon removed from it. Reducing emissions to net zero by 2050 is the goal of the Paris Climate Agreement. Achieving net zero involves reducing carbon emissions as much as possible and offsetting the remaining unavoidable emissions.
Net Zero Asset Owners Alliance (NZAOA) The UN-convened and member-led initiative of institutional investors committed to transitioning their investment portfolios to net zero GHG emissions by 2050 – consistent with a maximum temperature rise of 1.5 degrees.
Net Zero Financial Service Providers Alliance (NZFSPA) A global group of Financial Service Providers committed to supporting the goal of global net zero greenhouse gas emissions by 2050 or sooner, in line with the ambition to limit the global temperature increase to 1.5 degrees above pre-industrial levels.
Net Zero Investment Consultants Initiative (NZICI) A group of global investment consultants committed to align their operations and advisory services with the 1.5-degree emissions trajectory outlined in the Paris Agreement.
Net Zero Investment Managers Alliance (NZAMI) An international group of asset managers committed, consistent with their fiduciary duty to their clients and beneficiaries, to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees.
Organisation for Economic Co-operation and Development (OECD) An international organisation that works to build better policies for better lives. They work with policymakers, stakeholders and citizens to establish evidence-based international standards and to find solutions to social, economic and environmental challenges. Their core aim is to set international standards and support their implementation and help countries forge a path towards stronger, fairer and cleaner societies.
Partnership for Carbon Accounting Financials (PCAF) An industry-led initiative to enable financial institutions to consistently measure and disclose the GHG emissions financed by their loans and investments. PCAF developed the Global GHG Accounting and Reporting Standard for the Financial Industry aka the PCAF Standard. It aligns with the GHP Protocol and is used in the calculation of financed emissions.
Principles for Responsible Investment (PRI) The world’s leading proponent of responsible investment. It works to understand the investment implication of ESG factors and to support its international network of investor signatories in incorporating these factors in their investment and ownership decisions. Read more
Responsible Investment The PRI defines responsible investment as “considering environmental, social and governance (ESG) issues when making investment decisions and influencing companies or assets (known as active ownership or stewardship)”. Scenario analysis Identifying and assessing the potential implications of plausible future states. The scenarios are hypothetical constructs and not designed to deliver precise outcomes. They provide a way for organisations to consider how the future might look if trends continue or if certain conditions are met.
With regards to climate change, they allow a company or fund to consider how various combinations of climate-related risks may affect its business, strategies and financial performance over time.
Science-based Target (SBT) A clearly defined emissions reduction pathway that aligns with the goals of the Paris Agreement, namely, to keep global temperature increases below 2°C above pre-industrial levels, whilst pursuing efforts to limit global temperatures to 1.5°C. Read more
Science-based Target Initiative (SBTi) An organisation that defines and promotes best practice in science-based target setting. Having started out with a focus on companies, SBTi has also established a framework for financial institutions, including asset managers, to help them align their investments with the Paris Climate Agreement and objective of achieving net zero by 2050. SBTi also provides independent verification of targets. Read more
Scope 1 Emissions Direct GHG emissions that occur from sources that are controlled or owned by an organisation.
Scope 2 Emissions Indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling.
Scope 3 Emissions The result of activities from assets not owned or controlled by the reporting organisation, but that the organisation indirectly affects in its value chain (both upstream and downstream activities).
Screening The application of rules to a universe of securities, issuers, investments sectors or other financial instruments to rule investments in or out, based on pre-specified criteria which might include an investor’s preferences or investment metrics and are part of an investment process or reflect a client or fund mandate. Screening can be positive, best-in-class, norms-based or negative.
Social Bond Debt instruments used to finance or refinance social projects whose purpose is to address a social issue.
Stewardship The use of influence by investors to protect and enhance overall long-term value, particularly as it relates to environmental, social and governance factors and impacts.
Tools and activities for stewardship differ by asset class but can include amongst others:
Engagement with investees
Voting at shareholder meetings
Filing, co-filing or submitting shareholder resolutions or proposals.
And more broadly:
Policy engagement
Engagement with standard setters
Engagement with industry groups.
Sustainability Outcomes The positive and negative effects of investment activities on people and/or planet.
Sustainability-Linked Bonds Bonds that are usually KPI-linked or SDG-linked to the issuer’s achievement of climate or broader SDG goals.
Sustainable Bonds Bonds where proceeds are used to finance or re-finance a combination of green and social projects or activities.
Sustainable Development Goals (SDGs) A collection of global environmental, social, economic objectives adopted by the UN to help combat poverty, climate change, disease, and inequality. The SDGs also provide a framework for nations and businesses to understand, measure and communicate how they are contributing to economic development, managing risks, fulfilling regulatory obligations, and demonstrating leadership in sustainability. Read more
Sustainable Finance Disclosure Regulation (SFDR) EU rules that require asset managers and other financial markets participants to make mandatory ESG disclosure obligations. A significant portion of SFDR applies to all asset managers, whether or not they have an express ESG or sustainability focus.
Sustainability Accounting Standards Board (SASB) This organisations helps companies disclose relevant sustainability information to their investors. The standards identify sustainability-related risks and opportunities most likely to affect an entity’s cash flows, access to finance and cost of capital over the short, medium, or long term and the disclosure topics and metrics that are most likely to be useful to investors. SASB is now part of the IFRS Foundation.
Sustainability Disclosure Requirements (SDR) UK rules require all FCA regulated firms to comply with SDR. The rules include anti-greenwashing, sustainability labelling, disclosures and naming and marketing rules.
Systemic Sustainability Issues Issues that pose systematic risks to the common economic, environmental and social assets on which returns and beneficiary interests, depend.
Task Force for Climate-related Financial Disclosures (TCFD) A framework aimed at helping private companies and financial institutions to understand and more consistently disclose the risks and impacts of climate change on their financial performance. This information is intended to help investors and other stakeholders more accurately price climate-related risks and opportunities and thus more efficiently allocate capital. The TCFD framework is based on eleven recommendations under four pillars: Governance, Strategy, Risk Management, and Metric and Targets. It provides a common set of requirements and is integrated into other existing and forthcoming frameworks (PRI, ISSB, FCA and SEC climate rules). Read more
Task Force for Inequality & Social-related financial disclosures (TISFD) A global initiative to develop recommendations that enable businesses and investors to effectively identify, assess, and report on their inequality and social-related risks, opportunities, and impacts. Read more
Task Force for Nature-related Financial Disclosures (TNFD) A standardised disclosure framework to help organisations and financial institutions assess, report on, and respond to nature-based risks, and ultimately support a shift in global financial flows nature-positive outcomes. Consistent with the TCFD framework and the International Sustainability Standards Board (ISSB), the TNFD provides a risk management and disclosure regime to help companies and firms understand and act on their dependencies and impacts on nature.
Total Carbon Emissions Or Carbon Footprint A calculated value or index that makes it possible to compare the total amount of greenhouse gases that an activity, product, company or country adds to the atmosphere. Usually reported in tonnes of emissions (CO2 equivalent.)
Transition Bonds Bonds where the proceeds are used to fund a firm’s transition towards a reduced environmental impact or to reduce their carbon emissions.
UK Stewardship Code A voluntary code of conduct for asset managers who want to commit to responsible stewardship. Read more
UK Sustainable Investment & Finance Association (UKSIF) An organisation that exists to bring together the UK’s sustainable finance and investment community. They support their members to expand, enhance and promote responsible investment. They have over 300 members, managing £19trn in AUM as well as service providers.
UN Global Compact (UNGC) A voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals. Read more
Weighted Average Carbon Intensity (WACI) A portfolio’s exposure to carbon-intensive companies expressed in tonnes of CO2e/$M/revenue.
Further Reading
