ESG Lexicon - Standard Terms and Definitions Used Globally

A

• Active Ownership

  An investment process that entails engaging with portfolio companies on ESG issues (e.g., by voting) to prompt changes in corporate action and/or policies. Also known as stewardship.

• Activity Shifting Leakage

  Forest carbon activities that directly cause carbon‐emitting activities to be shifted to another location outside of the project boundaries, canceling out some or all of the project’s carbon benefits. One example would be a plantation project that displaces farmers and leads them to clear adjacent forests.

• Adaptation

  Adjustment in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderates harm or exploit beneficial opportunities.

• Additionality

  Carbon accounting procedures whereby projects must demonstrate real, measurable, and long-term results in reducing or preventing carbon emissions that would not have occurred in the absence of carbon activities. Proof of additionality is critical because developing countries do not have legally binding reduction commitments by which to judge changes in national baselines.

• Afforestation, reforestation, and revegetation (ARR)

  Agriculture, forestry, and land-use project category that quantifies the direct human‐induced conversion of land that has not been forested for a period of at least 50 years to forested land.

• Agriculture, Forestry, and Other Land Use (AFOLU)

  The consolidation of the previous sector's land-use, land-use change, and forestry, and agriculture. AFOLU was introduced by the Intergovernmental Panel on Climate Change’s (IPCC’s) “2006 Guidelines for national greenhouse gas inventories” to support a simpler and more coherent reporting of all land uses.

• American Carbon Registry

  ACR details requirements and specifications for the quantification, monitoring, and reporting of forest project-based GHG emissions reductions and removals, methodological acceptance, verification, registration, and issuance of offsets for trade in the global voluntary and U.S. pre-compliance carbon markets.

• Annex I, Annex B Countries/Parties

  The signatory nations to the Kyoto Protocol that are subject to caps on their emissions of GHGs and committed to reduction targets–countries with developed economies. Annex I refers to the countries identified for the reduction in the United Nations Framework Convention on Climate Change (UNFCCC) while Annex B is an adjusted list of the countries identified under the more recent Kyoto Protocol. Annex B countries have their reduction targets formally stated.

B

• B Corporation

  A global, non-profit organization that provides private certification to for-profit companies that meet certain social and environmental performance standards. The certification assessment examines, for example, how a company's operations and business model impacts its workers, community, environment, and customers by looking at a range of issues, such as the company’s supply chain, input materials, charitable giving, and employee benefits.

• Backwardation

  A condition in the futures markets in which the benefits of holding a carbon asset exceed the costs, leaving the futures price less than the spot price.

• Benchmarking

  The practice of measuring how much of a utility a building consumes (energy, water, etc.) or produces (waste, etc.) and comparing that against other, similar buildings.

• Best in class

  Assets or investments that are the best performers amongst their peer group in terms of environmental, social, and/or governance factors.

• Biofuel

  Fuel produced from organic materials. It is used as an alternative to fossil fuels.

• Biomimicry

  The practice of emulating models or systems that occur in nature to solve complex human problems.

• Business Responsibility Sustainability Report

  New requirements for sustainability reporting by the top-1000 listed Indian entities by market capitalization introduced by the SEBI i.e. Securities Exchange Board of India

C

• Carbon Asset

  A Carbon Asset is the potential of actual GHG emission reductions that a project is able to generate and sell.

• Carbon Biosequestration

  Also known as sequestration or uptake is the storage of carbon by plants, trees, and other flora which absorb carbon dioxide from the atmosphere while they grow, release oxygen, and store the carbon.

• Carbon Credit

  >A generic term for a tradeable permit that allows the bearer to emit a specified amount of CO2 or other greenhouse gas (GHG), issued as part of an emissions trading scheme.

• Carbon dioxide

  A byproduct of burning fossil fuels, of burning biomass, of land-use change and industrial processes.
  CarbonFix Standard: CarbonFix Standard is a non-profit organization registered under German law. Its statutory purpose is to foster voluntary climate afforestation and reforestation projects. CarbonFix Standard carbon methodologies are not eligible under the CDM.

• Carbon finance

  Finance and resources provided to projects that are generating or are expected to generate GHG emission reductions in the form of the purchase of such emission reductions, which are tradable on the carbon market.

• Carbon footprint

  The carbon emissions associated with the activities of a person, company, or other entity. It is also a measure of an entity’s carbon intensity, expressing the concentration of carbon emissions for a given unit which is usually per dollar of enterprise value (or per dollar
  of net debt for sovereigns).

• Carbon intensity

  The amount of emissions of carbon dioxide released per unit of another variable such as gross domestic product.

• Carbon neutral

  The state of making no net release of carbon dioxide to the atmosphere, especially through offsetting emissions by planting trees.

• Carbon offset

  An action intended to compensate for the emission of carbon dioxide into the atmosphere as a result of industrial or other human activity, especially when quantified and traded as part of a commercial program.

• Carbon pricing

  Costs associated with the emission of carbon dioxide, measured as a fee per ton of carbon dioxide emitted or an incentive for reducing emissions.

• Carbon sequestration

  The capture and long-term storage of atmospheric carbon dioxide, both naturally and as a result of anthropogenic (human) activities.

• Carbon rights

  the claims on the benefit streams from carbon pools, for example, the benefit from a specific parcel of forest. Where a market exists for GHG emissions reductions carbon rights may have a financial value.

• Carbon sinks

  Natural environments that can absorb more carbon dioxide than they release, including oceans (namely algae, vegetation, and coral under the sea), plants, forests, and soil.

• CDP

  Formerly the Carbon Disclosure Project, an NGO that supports companies and cities in the disclosure of environmental impacts.

• Certified Emission Reduction (CER)

  A unit of greenhouse gas emission reductions issued pursuant to the Clean Development Mechanism of the Kyoto Protocol, and measured in metric tons of carbon dioxide equivalent.

• Coalition for Environmentally Responsible Economies/CERES

  A non-profit organization based in the United States that comprises investors and environmental, religious and public interest groups. The coalition’s purpose is to promote investment policies that are environmentally, socially and financially sound.

• Climate disclosures

  Disclosures catering to the needs of investors and other sources of capital, regulators, governments, civil society and those providing third-party ratings based on ESG metrics, as well as the businesses providing the disclosures.

• Cleantech/Greentech

  Environmentally friendly technologies and practices. The term co-exists with terms such as "green energy" and "eco-technology".

• Climate Action 100+

  This initiative aligns investor engagement to encourage the world's largest carbon-emitting companies to take action on climate change. It is backed by over 615 signatories responsible for $65 trillion of assets under management, as of January 2022.

• Climate Risk

  Climate risks that can affect the financial performance of an investment may be broadly categorized in two ways: physical risks and transition risks. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts

• Conference of the Parties (COP)

  An annual conference of countries that joined the UN Framework Convention on Climate Change (UNFCCC) in 1992.

• Corporate social responsibility (CSR)/corporate responsibility

  A company’s commitment to ESG is over and above that which is mandated by law. CSR is generally thought to flow from a "duty of care," as a responsible corporate citizen to the full range of stakeholders.

• Circular economy

  An economy is based on principles of keeping products, resources, and other materials in use as long as possible, extracting the greatest value from them while in use, and then regenerating products, resources, and other materials at the end of serviceable life. The ultimate goal is to eliminate waste and break the traditional (linear) cycle of make, use and dispose of.

• Civil society

  Encompasses a spectrum of non-governmental actors (individuals and organizations) focused on social action. These actors can include, among others, non-governmental organizations (NGOs), online groups, social movements, women’s groups, indigenous groups, faith-based groups, labor unions, social entrepreneurs, research organizations, and community-based and other grassroots groups. Civil society organizations are also referred to as "CSOs".

• Conflict Minerals

  Minerals that are mined where armed conflict and human rights abuses are rife. Tin, tantalum, and tungsten (derivatives of cassiterite, columbite-tantalite (coltan), and wolframite) as well as gold (also known as “3TG”) sourced from the Democratic Republic of Congo and surrounding countries, which are not deemed "DRC conflict-free". To be DRC conflict-free, the extraction of the minerals cannot directly or indirectly have benefitted armed groups in the covered countries.

D

• D&I or DEI

  Diversity and inclusion or diversity, equity, and inclusion broadly outline the efforts - programs and policies - that companies and organizations adopt to create a more welcoming environment and encourage representation and participation from a diverse group of people.

• Data Management

  The processes of collecting, using, retaining, and protecting data across an organization. Data management encompasses measures such as cyber security and data privacy

• Decarbonization

  The reduction of greenhouse gas emissions (particularly emissions of carbon dioxide).

• Deforestation

  Direct human‐induced conversion of forested land to non‐forested land (with less than 10 percent crown cover).

• Divestment

  The act of dissociating or selling assets and securities due to behavior not aligned with ESG values, or as a way to display a strong commitment to ESG and responsible investing practices.

E

• Emissions

  Emissions of GHGs can be direct or indirect. Direct emissions are - burning of fossil fuels or emissions from industrial processes, while indirect emissions are collateral consequences of activities at an installation or facility, such as the consumption of purchased energy.

• Emission Reduction Purchase Agreement (ERPA)

  A binding purchase agreement signed between buyers and sellers of carbon offsets.

• Energy Transition

  Transitioning from fossil-fuel based energy sources to non-fossil-fuel based energy sources (especially renewable energy), which produce fewer greenhouse gas emissions.

• Equator Principles

  A risk management framework, adopted by financial institutions, for determining, assessing, and managing environmental and social risk in projects.

• ESG Fund

  An investment vehicle in which a company may invest that applies ESG considerations in its selection of the fund investments (also referred to as ethical, sustainable, green, or responsible funds).

• ESG integration

  The addition of ESG factors to traditional financial analysis on a systematic basis.

• ESG investing

  The consideration of ESG factors (typically predetermined) alongside financial factors in investment decisions, which often includes screening (typically exclusionary screening).

• ESG Rating

  Third-party measurements are designed to evaluate material ESG issues of companies.

• Ethical investing

  An investment that is motivated not by broader ESG considerations (and the expectation that active management of ESG risks and opportunities will improve the long-term return of an investment in a company), but rather by alignment with a set of ethical values. Ethical investing is often considered a type of sustainable investing.

• EU Action Plan for Financing Sustainable Growth

  The EU Action Plan sets out 10 actions in three key areas that would set in motion legislative action on taxonomy, disclosure, and duties for institutional investors and asset managers, benchmarks, and corporate disclosure.

• EU Emissions Trading System (ETS)

  The EU ETS is a "cap and trade" system, whereby a limit (a "cap") is set on the total amount of certain GHG emissions from installations covered by the system, and within the cap, companies buy or receive emission allowances (permits), which they can trade with one another. Those emitting fewer GHGs than authorized can sell their permits within the system to those emitting more than authorized. After each year, a company must surrender sufficient allowances to cover its emissions.

• EU Green Bond Standard

  The European Green Deal sets forth an action plan to boost the efficient use of resources by moving to a clean, circular economy and restoring biodiversity, and cutting pollution. The action plan recognizes the need for long-term signals to direct financial and capital flows to green investments.

• EUI

  Energy use intensity is a way of expressing a building's energy usage in relation to its size or other characteristics. One calculation for EUI is to divide a building's annual energy usage by its gross square footage.

• European Green Deal

  A strategy targeting climate neutrality across the European continent by 2050, and a direct response to the EU Action Plan. This call to arms followed appeals for accelerated action to reduce greenhouse gas emissions and create a low-carbon and climate-resilient economy.

• EU Taxonomy Regulation

  The EU Taxonomy Regulation, which was proposed as part of the EU Action Plan, amended the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR) and entered into force in July 2020, sets up a formal, unified and harmonized classification system for environmentally sustainable economic activities, which will be phased in over time.

• Exclusion

  The intentional avoidance of investment in a company or business interest. Also known as negative screening.

• Externality

  A consequence (positive or negative) of an economic activity, which is experienced by an uninvolved third party.

F

• Fair trade

  Arrangements designed to promote concerns for the social, economic, and environmental well-being of marginalized small producers, while not profiting at the expense of these producers.

• FCLTGlobal

  A non-profit organization that aims to focus capital on the long-term by developing actionable research and tools to drive long-term value creation for savers and communities. For more information, visit here.

• Financial Risks

  Risks derived from events in the external financial markets, such as changes in equity prices, interest rates, or currency exchange rates, that impact an institution's capacity to fund its required payments to meet obligations.

• Force for Good

  An initiative that aims to mobilize the deployment of capital as a force for good in the world.

G

• GHG

  Acronym for greenhouse gas, which encompasses any gas that absorbs infrared radiation in the atmosphere, trapping heat and contributing to the so-called “greenhouse effect.”

• GIIN

  Global Impact Investing Network, an NGO that works with impact investors to accelerate the scale and effectiveness of their investments.

• Glasgow Financial Alliance for Net Zero (GFANZ)

  GFANZ is a global coalition of leading financial institutions committed to accelerating and mainstreaming the decarbonization of the world economy and reaching net-zero emissions by 2050. Financial institutions join GFANZ by joining a sector-specific alliance, such as the Net Zero Asset Managers initiative or Net-Zero Asset Owner Alliance.

• Global norms

  Sometimes referred to as global standards, are broadly agreed principles that set out minimum standards for the behavior of companies and governments.

• Global Warming Potential

  Global Warming Potential (GWP) is a way of comparing the climate impacts of different greenhouse gases, taking into account their lifetimes. It compares the amount of heat trapped by a certain mass of the gas in question to the amount of heat trapped by a similar mass of carbon dioxide.

• Green bonds

  Debt instruments are created to fund existing or new projects with environmental and/or climate benefits. Proceeds are ring-fenced to finance or refinance new or existing projects that promote the achievement of sustainable activities.

• Green Bond Principles

  A set of voluntary guidelines issued by the International Capital Markets Association (ICMA) setting forth recommended transparency, reporting, and disclosures for green bonds.

• Green investing

  Investments in businesses that contribute to sustainable solutions, such as renewable energy, energy efficiency, clean technology, water treatment, resource efficiency, or low-carbon infrastructure.

• Greenhouse Gas Protocol Initiative

  An initiative undertaken by a multi-stakeholder group convened by the World Resources Institute and the World Business Counsel for Sustainable Development to develop internationally accepted GHG accounting and reporting standards.

• Greenwashing

  Overstating the extent to which an investment, enterprise, business practice or product, or service is sustainable for competitive or other reasons.

• GRESB

  GRESB is an investor-led and mission-driven initiative to provide ESG data on real asset investments to investors, managers, and the wider industry.

• GRI

  Global Reporting Initiative, an NGO focused on sustainability reporting. GRI publishes the GRI Standards.

I

• IFRS Foundation

  A not-for-profit organization responsible for developing a single set of global accounting standards (known as IFRS). The Trustees of the IFRS Foundation issued a consultation paper on sustainability reporting based on global sustainability standards.

• IIGCC

  Institutional Investors Group on Climate Change, which launched the investor-led Paris-Aligned Investment Initiative, has over 270 members, principally pension funds and asset managers based in Europe. It seeks to mobilize capital to low carbon transition and ensure resilience to the impact of climate change through collaboration with businesses, policy makers, and investors.

• IIRC

  International Integrated Reporting Council, which established the International Integrated Reporting Framework.

• Impact Investing

  Investments made in order to deliberately create social goods. For example, investing in a for-profit company which makes affordable water purifiers for the developing world.

• Intangible assets

  Intangible assets, also known as intellectual capital, can include intellectual property, brand value, customer satisfaction, and reputation.

• International Panel on Climate Change (IPCC)

  The UN body for assessing the science related to climate change

• International Sustainability Standards Board (ISBB)

  A standard-setting board, introduced by the International Financial Reporting Standards (IFRS) Foundation, which aims to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions

• Investment Stewardship

  Investment stewardship involves engaging public companies as a way to advocate for corporate governance policies and practices that promote long-term stakeholder value creation.

• IOSCO

  International Organization of Securities Commissions. In April 2020 and again in October 2020, the Chair of the Sustainable Finance Task Force of IOSCO confirmed its desire to play a part in improving the completeness, consistency, and comparability of sustainability reporting.

J

• Jurisdictional Nested REDD+ Initiative (JNRI)

  An integrated, jurisdiction-wide accounting framework that enhances environmental integrity by ensuring all projects and other reducing emissions from deforestation and degradation activities in a given jurisdiction are developed using consistent baselines and crediting approaches

K

• Kimberley Process

  A commitment to reduce the flow of “conflict diamonds” in the global supply chain. Conflict diamonds are rough diamonds used to finance wars against governments.

L

• Land Use, Land-Use Change, and Forestry (LULUCF)

  A greenhouse gas inventory sector that covers emissions and removals of greenhouse gases resulting from direct human-induced land use, land-use change, and forestry activities except for emissions and removals from the agriculture sector.

• Low Carbon

  A low carbon investment strategy may focus on a number of different measures or metrics of carbon emissions or climate change risk, with a focus on either the mitigation of climate change or adaptation to a low-carbon economy.

• Low-carbon Economy

  An economy based on low-carbon power sources with a lower output of GHG emissions. See "Paris Agreement".

M

• Market Leakage

  An increase in GHG emissions when a project changes the supply and demand equilibrium, causing other market actors to shift their activities.

• Markit Environmental Registry

  Independent third party that is the most common registry for offset transactions covering the vast majority, greater than 80 percent, of all issued AFOLU offsets.

• Materiality

  A concept that defines why and how certain ESG and financial issues or information are important for a company.

• Materiality Assessment

  An assessment across a stakeholder group on material ESG and economic topics most important to them.

• Mitigation

  Mitigation is the term used to describe any action seeking to reduce the amount of GHGs released into the atmosphere by human‐related activities.

• Modern Slavery

  The exploitation of people who are coerced into service or other form of servitude, often with the threat of violence. Examples include bonded labor, forced marriage, human trafficking and organ trafficking.

• Monitoring

  Monitoring is the collection and archiving of all relevant data necessary for determining the baseline and project‐based measuring of anthropogenic emissions by sources (or sinks) of GHGs within the project boundary (and leakage of emissions).

N

• Natural Regeneration

  the recovery of a forest following a disturbance in the absence of human intervention.

• Negative screening

  Affirmatively excluding entire sectors, companies, or countries from a portfolio based on moral considerations of a defined set of investors or standards relating to human rights, labor practices, and the environment. Also known as exclusionary screening.

• Net Zero

  Net zero emissions refer to a reduction of greenhouse gas (GHG) emissions, with the goal of balancing emissions produced and removed from the atmosphere. Unlike a commitment to carbon neutrality, a net zero pledge will therefore include a commitment to reducing emissions.

• Net Zero Asset Managers initiative

  A group of international asset managers committed 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°C; and to supporting investing aligned with net zero emissions by 2050 or sooner.

• Net-Zero Asset Owner Alliance

  A group of international asset owners committed to transitioning their investment portfolios to net-zero greenhouse gas (GHG) emissions by 2050

• Non-Timber Forest Products (NTFP)

  Any product or service other than timber that is produced in forests.

O

• Operations Risk

  The risk of loss from failures in a company's systems or procedures (for example, due to computer failures or human failures) or events completely outside of the control of organizations (which would include "acts of God" and terrorist actions).

• OSHA

  Occupational Safety and Health Administration was created to ensure safe and healthful working conditions for working men and women by setting and enforcing standards and by providing training, outreach, education, and assistance.

P

• Paris Agreement

  The agreement reached at COP21 (in 2015) in which parties agreed to limit warming to well below 2°C above pre-industrial levels and ideally 1.5°C. A plan by a party to take climate action (emission reduction targets and plans, adaptation plans or other climate action goals) is known as a nationally determined contribution (or NDC)

• Partnership for Carbon Accounting Financials

  PCAF is a global partnership of financial institutions that work together to develop and implement a harmonized accounting approach to assess and disclose the greenhouse gas (GHG) emissions associated with their loans and investments

• Physical risks

  Physical risks encompass the consequences of an increase in both the frequency and the severity of extreme weather conditions that can damage assets, both physical as well as natural.

• Political Risk

  The risk of war, government collapse, political instability, expropriation, confiscation, or adverse changes in taxation. A synonym is Geopolitical Risk

• Positive screening

  Investment in companies that demonstrate positive ESG performance relative to peers.

• Principles of Responsible Investment

  The UN-supported PRI is the world's leading proponent of responsible investment. It works to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions

• Product life cycle management

  The all-encompassing process of managing a product as it moves through each stage of its product life from inception, through engineering design and manufacture, to service and disposal of manufactured products.

• Public Benefits Corporation (PBC)

  A corporation organized to produce a public benefit(s) and to operate in a responsible and sustainable manner, balancing maximizing profit for shareholders, operating in the best interests of stakeholders and the public benefit or public benefits identified in its charter.

R

• REDD+ Social and Environmental Standards (REDD+ SES)

  A voluntary initiative used to provide a comprehensive framework of national-level or sub-national standards for the social and environmental performance of REDD programs.

• Regulatory Risk

  The risk associated with the uncertainty of how a transaction will be regulated or with changes in regulations.

• Renewables

  A source of energy that is not depleted by use, such as water, wind, or solar power.

• Renewable Energy Credits (RECs)

  Tradable energy certificates that represent one MWh of electricity being generated from renewable resources and fed onto the power grid.

• Resilience

  The ability to withstand and recover from disruptions, specifically those caused by climate change.

• Resource efficiency

  The efficient and sustainable use of resources, particularly natural resources.

• Responsible Investing

  A philosophy that includes ESG factors during the investment selection, portfolio construction, and monitoring processes, with the goal of maximizing opportunities, ensuring high performance, and mitigating risks.

• Responsible supply chains

  A term that broadly covers supply chain management, responsible procurement, and supply chain engagement.

• Risk Governance

  Risk Governance is the process of setting overall policies and standards in risk management.

S

• SASB

  Sustainability Accounting Standards Board, whose mission is to help companies report on the sustainability topics that matter most to their investors. SASB states that it identifies financially material issues, which are the issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors.

• Science Based Targets initiative (SBTi)

  This organization helps companies set emissions targets that are in line with holding global warming to well below 2°C above pre-industrial levels.

• Scope 1, Scope 2, Scope 3 emissions

  Greenhouse gas (GHG) emissions are typically split into three categories. Scope 1 emissions are direct emissions from sources owned or controlled by an entity. Scope 2 emissions are indirect emissions, generated by purchased energy. Scope 3 emissions are indirect emissions, not included in scope 2 emissions, that occur in the value chain of the entity. These include both "upstream" and "downstream" emissions. Shareholder Rights Directive (SRD II)

• 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.

• Sequestration

  The process of increasing the carbon content of a carbon pool other than the atmosphere. There are various opportunities to remove atmospheric CO2, either through biological processes, or geological processes.

• Social bond

  A bond that specifies its proceeds will be used to finance activities that have a positive social impact.

• 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 ROI

  Social return on investment is a method for measuring non-financial value, particularly focusing around ESG factors. It measures how effectively an organization uses resources to create sustainable value.

• Social washing

  Statements or policies that make a company appear more socially responsible than it actually is.

• Socially Responsible Investing (SRI)

  An approach to investing that integrates ethical values and societal concerns with investment decisions.

• Stakeholder

  A group with an interest in a company that can affect or be affected by business performance. Historically defined as groups like investors, employees, and customers, but the definition has also expanded to include local and global communities, governments, and more.

• Stranded Asset

  An asset that once produced value or profit, but no longer does due to changes such as technological advancements, market shifts, societal habits, and more.

• Sustainability bond

  A bond that specifies its proceeds will be used to finance activities that have a positive environmental and social impact. Sustainability Disclosure Requirements (SDR) Under the UK's SDR framework, announced in October 2021, listed issuers, asset managers and asset owners will be required to report on their sustainability risks, opportunities, and impacts.

• Sustainability-linked Bond

  Any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined sustainability or ESG objectives.

• Sustainability Risks

  Risks to the value of an asset occasioned by environmental, social, and/or governance issues. For example, the price of an equity declining due to fines levied against the issuer for environmental damages.

• Sustainable Development Goals (SDGs)

  The Sustainable Development Goals were adopted by the UN in 2015 as “a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity”

• Sustainable Finance Disclosure Regulation (SFDR)

  An EU regulation imposing mandatory ESG disclosure obligations for asset managers and other participants in financial markets.

• Sustainable Forest Management (SFM)

  An evolving concept that has several definitions. It is the practice of meeting the forest resource needs and values of the present without compromising the similar capability of future generations.

• Sustainable investment

  A broad term used to refer to investment approaches that reflect one or more sustainability themes, typically focusing on the long-term impact on the environment and/or society.

T

• Taxonomy

  A framework aiming to set the bar for investments to be classified as environmentally sustainable. Prominent examples are the EU taxonomy and the UK green taxonomy.

• TCFD

  Task Force on Climate-related Financial Disclosures, created by the Financial Stability Board (FSB) to establish uniformity to climate-related risk disclosures by companies. In 2017, the TCFD published a set of recommendations for global companies on how to disclose climate-related financial risks aimed at promoting more informed investment, credit, and insurance underwriting decisions by companies and their investors.

• TNFD

  Taskforce on Nature-related Financial Disclosures (TNFD) aims to develop and deliver a risk management and disclosure framework for organizations to report and act on evolving nature-related risks, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.

• Trafficking

  Recruitment, transportation, transfer, harboring, or receipt of individuals by means of force, the threat of force, coercion, or abuse of power or position of vulnerability, for the purpose of exploitation. Exploitation can include prostitution or other forms of sexual exploitation, forced labor or services, slavery or practices similar to slavery, servitude, or the removal of human organs.

• Transition

  A shift in policy, legal requirements, technology, business models, societal preferences, or market forces targeted at a lower-carbon and more resilient economy. Often used in connection when assessing the risks and costs (transition risks and costs) associated with any such shift.

• Transition Pathway Initiative (TPI)

  A global initiative led by asset owners and supported by asset managers. Aimed at investors and free to use, it assesses companies'; preparedness for the transition to a low-carbon economy, supporting efforts to address climate change

• Triple bottom line

  Triple bottom line is an accounting framework with three main components: social, environmental, and financial. Companies incorporating this framework believe that, instead of a single bottom line, there are three: people, planet, and profit.

• True cost

  The concept of capturing the full cost of a good or service by factoring in the difference between the market price of such good or service and its comprehensive societal cost (e.g., factoring the cost of negative (and theoretically positive) externalities into the pricing of such good or service).

U

• UNEP Finance Initiative

  A global partnership established between the United Nations Environment Program and the financial sector to draw up a global sustainability framework.

• UNGC (UN Global Compact)

  This organization supports companies that align their strategies and operations with 10 principles, covering human rights, labor, environment, and anti-corruption. It also supports those that take strategic actions to advance broader societal goals, such as the UN Sustainable Development Goals, with an emphasis on collaboration and innovation.

• Use of Proceeds Bond

  A bond where the issuer specifies that the capital (proceeds) it receives from investors will be used to finance activities that have a positive environmental and/or social impact. These are also known as ‘impact’ bonds. Common types include green bonds, social bonds, and sustainability bonds

V

• Values Based Investing

  Applying an organization's core values as the main driver during the investment selection process.

• Verified Carbon Standard (VCS)

  This standard provides a robust, global standard and program for approval of credible voluntary offsets. The VCS was formerly known as the Voluntary Carbon Standard. VCS carbon methodologies are not eligible under the CDM.

• Verified Carbon Unit (VCU)

  Carbon emission reduction units issued by the VCS. These offsets must be real, the abatement must have occurred previous to issuance, they must be additional by going beyond business-as-usual activities, be measurable, permanent, not temporarily displace emissions, and the findings need to be independently verified and unique so they cannot be used more than once to offset emissions.

• Voluntary Emission Reduction Purchase Agreement (VERPA)

  A binding purchase agreement signed between buyers and sellers of carbon offsets.

W

• WACI (Weighted average carbon intensity)

  The measure of an entity’s carbon intensity, expressing the concentration of carbon emissions for a given unit which is usually per dollar of revenue (or per dollar of GDP for sovereigns).

• Worst in class

  This typically refers to the worst-rated issuers within a specific asset class, market, or sector, with reference to their exposure to and/or management of ESG risks or a specific risk, such as climate change. The measure may be a proprietary Insight Prime ESG or climate risk rating, or another relevant measure.