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 posts covers terminologies under G-N. See this post and this for terminologies under A-C and D-F respectively .
Global Warming Potential: From the standpoint of climate science, the concept of global warming potential (GWP) helps to facilitate the comparison of the warming effects caused by various greenhouse gases. For instance, CO2 has a GWP of 1, while methane has a GWP that is 24 times higher (depending on the timeframes considered). At the level of asset management, GWP has been modified to align a company’s past and projected emissions trajectory (in accordance with disclosed targets) with an inferred temperature outcome. This alignment can be aggregated to the portfolio level to determine the portfolio’s GWP.
Green bonds: Bonds that are specifically used to finance or refinance projects that have positive environmental impacts, as defined by the Green Bond Principles (GBP). Green bonds can be structured as “use of proceeds” bonds, where bondholders have recourse to the issuer’s overall business and cashflows, or as revenue/project bonds, where bondholders only have recourse to specific cash flows generated by the projects.
Green finance: Any financial instrument or investment, such as stocks, bonds, or derivatives, that is used to fund projects and activities aimed at benefiting the environment.
Green investment: Investment activities that focus on companies or projects committed to conserving natural resources, developing alternative energy sources, implementing clean air and water projects, or adopting other environmentally conscious practices.
Greenhouse gases (GHG): Gases, including carbon dioxide, water vapor, and methane, that trap heat emitted by the Earth, leading to the “greenhouse effect” and resulting in a warmer planet.
Greenwashing: Making false or exaggerated claims about the sustainability or environmental benefits of a fund, business practice, or company. Regulations like the SFDR in Europe aim to combat greenwashing by promoting standardized practices in ESG investing. “Rainbow-washing” refers to similar misrepresentations related to the Sustainable Development Goals.
Human rights: A framework established by global United Nations agreements, starting with the Universal Declaration of Human Rights in 1948, to address issues concerning people’s rights and well-being. It includes two international covenants: one focusing on civil and political rights and another on economic, social, and cultural rights.
Human rights due diligence: Proactive measures taken by organizations to identify and manage potential adverse impacts on human rights. The main purpose of human rights due diligence is to prevent harm to people, rather than focusing solely on business risks.
Impact investing: Investments made with the intention of creating positive social or environmental outcomes. Impact investments often meet three criteria: intentionality (aiming for positive impact), additionality (contributing something new), and measurement of impact (quantitatively or qualitatively). Impact investing has traditionally been associated with philanthropy or early-stage investment but is now expanding into public markets.
Intergovernmental Panel on Climate Change (IPCC): A United Nations body composed of leading climate scientists and experts. The IPCC’s work is approved by governments representing most of the world’s population.
Just transition: A concept included in the Paris Agreement, referring to the need for a fair and equitable shift to a low-carbon economy. While transitioning to a sustainable economy can create new jobs and prosperity, it can also present challenges. Responsible investors consider environmental, social, and governance (ESG) factors to facilitate a swift and equitable transition.
Living wage: A wage that covers basic needs and provides discretionary income, according to the Ethical Trading Initiative. Many retailers and brands have made efforts to ensure their suppliers pay workers at least the prevailing minimum wage, but in some countries, government-set minimum wages fall short of a living wage.
Macro stewardship: Engaging with governments, regulators, and international organizations like the UN to address market failures and mitigate systemic risks, with the aim of creating more sustainable markets.
Natural capital: The world’s stock of natural assets, including living organisms, soil, air, water, and geological resources.
Negative screening: Negative screening is the process of identifying companies engaged in undesirable practices, such as arms dealing or cigarette production.
Negative emissions technologies: Technologies that facilitate the extraction of carbon dioxide from the atmosphere, such as machines designed to capture carbon dioxide from the air and store it securely.
Net Zero target: A goal to reach a state of net zero carbon emissions by a specific date, typically 2050. Net zero is accomplished by reducing emissions to the greatest extent possible and offsetting any remaining emissions by removing an equal amount of carbon dioxide from the atmosphere.
