ESG and sustainability are complex areas with a multitude of terms and concepts. Navigating these topics can be challenging due to the diverse nature of environmental, social, and governance aspects. To facilitate understanding, a glossary of common ESG and sustainability terms is essential. It provides concise definitions and explanations, enabling individuals and organizations to navigate and engage effectively in these important areas and drive ESG action through knowledge.
This page covers terminologies under A-C
Active Ownership: An asset manager actively collaborating with investees, utilizing their influence to drive positive change. This can occur both independently and in collaboration with other investors and entities. Through engagement and voting, active ownership can produce favorable outcomes that not only benefit clients but also contribute to the well-being of society, the environment, and the overall economy.
Adverse Impact: Harmful environmental and social consequences resulting from investment decisions. These impacts encompass a broad spectrum of factors, including pollution, carbon emissions, and potential societal harm arising from human rights violations within investee companies. To identify these adverse impacts, a variety of techniques can be employed, such as quantitative metrics and qualitative assessments.
Anti-corruption: Activities that aim to deter corrupt practices and mitigate fraudulent behavior. They encompass measures such as corporate policies, commitment statements, and systems related to bribery, anti-corruption, and whistle-blowing.
Article 6, 8 & 9 funds (EU SFDR): The EU Sustainable Finance Disclosure Regulation (SFDR) aims to enhance transparency in sustainable investments, specifically to combat the prevalent problem of greenwashing. The SFDR establishes guidelines for disclosing the sustainability characteristics of investment funds and categorizes them into three types: Article 6, Article 8, and Article 9 funds.
Best in class: Use of positive screening to identify identification of companies or sovereign issuers that exhibit relatively strong environmental, social, and governance (ESG) characteristics compared to their peers.
Biodiversity: Biodiversity refers to the diverse array of life forms on Earth and is often used interchangeably with the term ‘nature.’ It plays a vital role in ensuring the effective functioning of ecosystems. Additionally, the concept of ‘natural capital’ encompasses a broader scope, including water, soil, and air, in addition to biodiversity. The importance of protecting Earth’s biodiversity is addressed in SDG 15: Life on Land.
Bloomberg ESG: Bloomberg assigns a score ranging from 1 to 100 to companies solely based on their level of ESG and sustainability disclosure. It is unclear whether Bloomberg has established a mechanism for companies to validate information or offer feedback regarding their ESG disclosure score. For further information, you can visit Bloomberg ESG’s webpage.
Blue Bonds: Blue Bonds are a type of bond instrument designed to generate funds for projects that deliver advantages to marine or ocean-related initiatives. The inaugural issuance of a blue bond took place in 2018.
Carbon Capture and Storage: Carbon capture and storage (CCS) is an emerging technology that aims to mitigate carbon dioxide emissions by either capturing it prior to combustion or removing it from the atmosphere afterwards and storing it. While the effectiveness of CCS is still largely unproven, many climate models anticipate a significant positive impact. However, it is important to note that CCS is unlikely to make a substantial contribution in the near term.
Carbon Footprint: Organizations or entities generate a volume of greenhouse gas emissions, typically dominated by CO2. These emissions also encompass other greenhouse gases like methane and nitrous oxide, which are measured in terms of their CO2 equivalent mass. In the context of a portfolio, the emissions “owned” can be calculated by multiplying the value of shares held by the company’s market capitalization and the total carbon emissions associated with that company.
Carbon Intensity: In the realm of finance, carbon intensity refers to the ratio of carbon emissions to revenues. It is important to note that the term “carbon intensity” can have a distinct interpretation in other contexts, such as electricity generation. As a metric, carbon intensity serves as a tool to compare emissions performance within a specific sector and across a portfolio.
Carbon Neutral: Achieving a balance between emitted greenhouse gas and offset measures is the objective. Carbon neutrality does not necessarily require a commitment to decrease total emissions. It is possible for a business to attain carbon neutrality even if its emissions are growing. In contrast, reaching net zero involves actively reducing a company’s emissions level, and any remaining emissions are compensated by removal methods.
Carbon Offsetting: Companies employ offsetting as a means to compensate for their emissions by financially supporting efforts that reduce emissions or capture CO2. Offsetting can take the form of “emission reduction,” such as funding the implementation of clean energy technologies, or “carbon removal,” like reforestation to absorb carbon from the atmosphere.
Carbon Pricing: Determining and putting a price on greenhouse gas emissions. This will hold polluters accountable for the adverse externality of pollution. The two primary methods employed for this purpose are emissions trading schemes and carbon taxes. Emissions trading schemes generally have a more significant impact compared to carbon taxes.
Carbon Dioxide Removal: Carbon dioxide removal (CDR) refers to the process of extracting carbon dioxide from the atmosphere and securely storing it. Various methods are employed, including nature-based solutions like reforestation or the capture and storage of carbon emissions resulting from industrial processes.
Carbon Tracker: Carbon Tracker is a non-profit organization based in London that conducts research on the influence of climate change on financial markets. They are known for poplarizing the concept of a “carbon bubble,” which highlights the contradiction between the ongoing expansion of fossil fuel projects and the imperative to address climate change. You can visit there website here.
CDP: CDP, formerly known as the Carbon Disclosure Project, is an organization that annually collects climate-related data from companies through Climate Change, Water, and Forest Questionnaires. Companies that provide information to CDP receive grades and are consistently evaluated against their industry counterparts. You can visit there website here.
CDSB, Climate Disclosure Standards Board: CDSB, which stands for the Climate Disclosure Standards Board, is a consortium of environmental non-governmental organizations and other stakeholders dedicated to establishing standards for disclosures. Their primary focus is on aligning “natural capital” with “financial capital” in reporting practices. You can visit their website here.
Circular Economy: A sustainable economic model that seeks to replace the linear economic model is focused on decoupling emissions from economic growth. Key elements of this approach include recycling, reusing, and optimizing resource utilization to minimize waste and keep materials in use rather than discarding them. By eliminating the significant waste generated by the linear economic model, this model aims to promote sustainability and reduce environmental impacts.”
Clean Tech: Clean technologies encompass any technology that diminishes or eradicates pollutants, regardless of whether they are climate-related or not. Clean technologies related to climate change specifically focus on utilizing sustainable energy sources like wind, hydroelectric, or solar power, as well as enhancing efficiency in existing systems, such as waste treatment or electric grid optimization.
Climate Bonds: Fixed income bonds for climate change solutions/mitigation.
Climate Change: Climate change refers to alterations in average global conditions, including temperature and rainfall patterns, resulting from the buildup of greenhouse gases in the Earth’s atmosphere. While natural factors like solar activity, orbital changes, and volcanic activity can impact the climate, human emissions and activities have been identified as the primary drivers of nearly 100% of the observed warming since 1950.
Climate Transition: The shift towards a warmer, low-carbon economy involves proactive planning to anticipate and adapt to the social changes arising from policy shifts, technological advancements, market dynamics, and reputational considerations. This planning encompasses preparing for the potential impacts these changes will have on society and ensuring a smooth transition.
CO2 equivalent (CO2e): A metric used for reporting greenhouse gas emissions. Various greenhouse gases, such as water vapor (H2O), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrochlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocarbons (HFCs), and perfluorocarbons (PFCs), contribute to global warming to different degrees. To simplify reporting, these gases are converted into CO2e, which represents the equivalent amount of carbon dioxide that would have the same warming effect. This allows for a standardized and comprehensive assessment of greenhouse gas emissions across different gases.
Community Impact Investing: Practice of channeling investment capital towards communities that typically face limited access to conventional financial services institutions. These initiatives aim to bridge the gap by providing these underserved communities with access to essential financial resources such as credit, equity, capital, and basic banking products that they would otherwise be deprived of.
Corporate Governance: Corporate governance pertains to the mechanisms and frameworks through which companies are regulated and operated. Effective corporate governance establishes and sustains processes and controls that promote equitable treatment of all essential stakeholders, encompassing employees, shareholders, customers, supply chain participants, and local communities.
Corporate Social Responsibility (CSR): refers to the concept that embodies a company’s ethical responsibilities towards the communities it engages with, intersecting with its governance practices. CSR encompasses the commitment of a company to address and fulfill its obligations beyond mere profitability, considering the impact of its actions on various stakeholders and the wider society.
Rest of the glossary to follow soon.
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