Bloomberg ESG | A scoring system provided by Bloomberg that rates companies on a scale of 1 to 100 based solely on their disclosure of environmental, social, and governance (ESG) practices and sustainability. Bloomberg’s methodology doesn’t specify whether mechanisms exist for companies to validate data or offer input on their ESG scores.
Carbon Tracker | A non-profit based in London, conducts research on how climate change impacts financial markets. The concept of a “carbon bubble,” introduced by Carbon Tracker, illustrates the contradiction between ongoing fossil fuel projects and the fight against climate change.
CCAF | Stands for the Center for Climate Aligned Finance, established in July 2020 by the Rocky Mountain Institute in collaboration with Wells Fargo, Goldman Sachs, Bank of America, and JPMorgan Chase. CCAF strives to align the financial sector with the Paris Agreement goals and partners with stakeholders from finance, industry, and politics to facilitate a global shift toward net-zero emissions by mid-century.
CDP | Formerly known as the Carbon Disclosure Project, annually collects climate-related data from companies through Climate Change, Water, and Forest Questionnaires. CDP evaluates disclosures, assigns ratings, and regularly compares companies within their sectors.
CDSB | The Climate Disclosure Standards Board, a consortium of environmental NGOs and other organizations focused on aligning disclosures of “natural capital” with “financial capital.” CDSB’s emphasis is on establishing standards for reporting.
The Center for Climate Aligned Finance (CCAF) | An organization founded in collaboration with the Rocky Mountain Institute, Wells Fargo, Goldman Sachs, Bank of America, and JPMorgan Chase in 2020. CCAF’s mission involves promoting the financial sector’s alignment with the Paris Agreement objectives and partnering with various stakeholders to facilitate a global transition to net-zero emissions by the middle of the century.
CERES | A non-profit organization that leads a national coalition of investors, environmental groups, and other stakeholders to engage companies in addressing sustainability issues like climate change and water scarcity.
Community Impact Investing | Directing investment capital towards underserved communities that lack access to traditional financial services. These initiatives typically offer credit, equity, capital, and basic banking products to such communities.
CSR | Corporate Social Responsibility, pertains to the overlap between a company’s governance and its ethical responsibilities towards the communities it interacts with.
DJSI | Dow Jones Sustainability Index, introduced in 1999 to monitor the stock performance of leading global companies based on economic, environmental, and social criteria. Also referred to as “RobecoSAM CSA.”
Double Bottom Line | Involves both quantitative and qualitative analysis embraced by socially conscious investors. It expands the traditional financial performance metric to encompass a “second” bottom line, measuring non-financial factors like positive social impact.
Environmental Justice | The equitable treatment and meaningful engagement of all individuals, irrespective of race, color, national origin, or income. It pertains to the development, enactment, and enforcement of environmental laws, regulations, and policies. Instances such as Hurricane Katrina’s disproportionate effects on impoverished regions and urban communities’ exposure to contaminants like lead, as seen in the Flint, Michigan water crisis, are often cited as examples of environmental injustice.
Equator Principles | Aka “EPs” constitute a risk management framework used by financial institutions to evaluate and manage environmental and social risks in project finance. The primary aim of EPs is to establish a baseline standard for due diligence in supporting responsible risk decision-making.
ESG | Environmental, Social, and Governance, representing the three core factors commonly employed to assess the sustainability and ethical impact of a company or investment.
European Union Non-Financial Reporting Directive | The European Commission’s requirement for sizable companies to disclose specific non-financial matters within their annual public reports. These matters encompass anti-corruption measures, human rights, diversity, and environmental considerations.
European Union Sustainable Finance Taxonomy | The European Union Taxonomy Regulation, which establishes a standardized classification system, akin to a glossary. Its purpose is to ensure uniformity in assessing the environmental sustainability of diverse activities within financial markets.
GRESB | Global Real Estate Sustainability Benchmark, is an industry-driven organization that assesses the environmental, social, and governance (ESG) performance of real assets, primarily focusing on the real estate sector. GRESB provides a standardized framework and assessment process that allows real estate companies, funds, and assets to measure, benchmark, and improve their sustainability practices and performance.
GRI | Global Reporting Initiative, an independent international organization engaged in sustainability reporting since 1997. GRI stands as the most extensively used voluntary reporting framework for ESG and sustainability topics. The latest iteration of its framework, known as the GRI Standards, was introduced in 2016.
GRI Standards | A series of guidelines released by GRI. These standards expect companies to determine their own extent of disclosure concerning a wide array of ESG and sustainability subjects and to issue annual sustainability reports.
Human Rights Watch | A global non-governmental organization headquartered in New York City. It investigates and documents human rights violations worldwide.
IIRC | “International Integrated Reporting Council” This council established the Integrated Reporting Framework, designed to guide companies in assessing and reporting their impacts on six types of “capitals”: financial, manufactured, intellectual, human, social and relationship, and natural capital.
ISS | “Institutional Shareholder Services, Inc.,” which launched a tool called the Environmental & Social QualityScore Disclosure and Transparency Signal. This tool provides institutional investors with a metric, in conjunction with ISS’ Governance QualityScore, to comprehensively evaluate ESG risk within their portfolio companies.
Integrated Reporting or “IR” | A process that entails communicating a company’s performance and strategy across a wide spectrum of ESG factors. It treats financial and non-financial data with equal importance, considering the interests of both investors and other stakeholders. Integrated reporting aligns with the aspirations of those advocating for enhanced ESG disclosure and seeks to redefine the concept of “materiality” in public reporting.
ISO 26000 | International Organization for Standardization Standard 26000. ISO publishes various operational standards for companies, and ISO 26000 pertains to processes that companies may adopt and report on to demonstrate social responsibility.
MSCI | Morgan Stanley Capital International | Aims to assess companies by evaluating their exposure to ESG (Environmental, Social, and Governance) risks and the effectiveness of their management strategies in addressing these risks. MSCI’s evaluation encompasses 37 ESG indicators. Information is sourced from publicly accessible channels and continually monitored, supplemented by an in-depth yearly examination for each company. MSCI has established a structured procedure for data validation, allowing companies to corroborate and provide feedback on the data.
Negative Screening | A tactic that involves refraining from investing in companies whose products and business practices have adverse effects on individuals, communities, or the environment. A common misconception is to view SRI “screening” solely as an exclusionary measure. In reality, SRI screens are increasingly utilized to identify and invest in firms leading in the adoption of clean technologies, effective environmental management, and exemplary social and governance practices.
NFRD | Signifies the European Union Non-Financial Reporting Directive.
OECD MNEs | Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises. These guidelines offer recommendations for ethical business conduct on a global scale. They call on multinational corporations to take specific measures pertaining to human rights, employment, the environment, anti-corruption, consumers, science and technology, competition, and taxation.
PACTA | Denotes the Paris Agreement Capital Transition Assessment, a tool developed by 2DII. It empowers investors and financial institutions to gauge how their portfolios’ greenhouse gas (GHG) emissions align with certain climate scenarios, allowing stress testing of these portfolios.
PCAF | Represents the Partnership for Carbon Accounting Financials, a collaborative effort in the financial sector to establish a standardized approach for accounting and disclosing GHG emissions linked to financial institutions’ loans and investments.
Portfolio Tilting | An investment strategy that emphasizes a specific investment style over others.
Poseidon Principles | A worldwide framework to assess and disclose the climate alignment of ship finance portfolios. This framework is designed to align with the International Maritime Organization’s policies and goals, including the aspiration to reduce annual GHG emissions from the shipping sector by at least 50% by 2050.
Positive Screening | The practice of incorporating strong Corporate Social Responsibility (CSR) performers or integrating positive CSR factors into the investment analysis process. Ethical investors typically seek to include profitable companies that make positive contributions to society while avoiding those that do not. “Buy” lists may feature enterprises with attributes like robust employer-employee relations, effective environmental practices, safe and beneficial products, and operations that uphold global human rights. Refer also to the glossary entry for “Negative Screening.”
Principles for Responsible Banking | A set of guidelines established in collaboration with the United Nations for banks to integrate ESG and sustainability considerations into their decision-making processes. The six principles encompass:
Principle 1: Aligning business strategy with societal goals, as expressed in Sustainable Development Goals and the Paris Climate Agreement.
Principle 2: Enhancing positive impacts while reducing negative impacts and managing risks.
Principle 3: Promoting sustainable practices and shared prosperity through responsible client engagement.
Principle 4: Engaging and partnering with stakeholders to achieve societal objectives.
Principle 5: Fostering responsible banking through effective governance and culture.
Principle 6: Periodically reviewing and transparently reporting on implementation, impacts, and contributions.
Formal adherence to these principles involves disclosing specific assessment and reporting information.
Principles for Responsible Investment | Guidelines developed in partnership with the United Nations for investors to integrate ESG and sustainability considerations into their decision-making and demand disclosure from their invested companies. The six principles encompass:
Principle 1: Incorporating ESG issues into investment analysis and decisions.
Principle 2: Engaging as active owners with ESG concerns in ownership policies.
Principle 3: Seeking appropriate ESG disclosure from investee entities.
Principle 4: Encouraging acceptance and implementation of the Principles across the investment industry.
Principle 5: Collaborating to enhance the effectiveness of Principle implementation.
Principle 6: Reporting on activities and progress towards Principle implementation.
Formal commitment to these principles involves disclosing specific assessment and reporting information.
R-Factor | An abbreviation for “Responsibility-Factor,” an open ESG scoring framework developed by State Street Global Advisors. It assesses a company’s performance in business operations and governance concerning financially significant ESG challenges within its industry.
Resiliency | A company’s capacity to endure various shifts in the market and environment.
RobecoSAM CSA | The RobecoSAM Corporate Sustainability Assessment, an annual ESG and sustainability survey sent to companies. RobecoSAM employs the questionnaire results to gauge companies, assign a sustainability score, and construct the DJSI (defined elsewhere in this glossary). Companies availing RobecoSAM’s services can also obtain personalized feedback and engage in score discussions with a RobecoSAM representative.
SASB | The Sustainability Accounting Standards Board, which established industry-specific, voluntary reporting frameworks for “material” ESG and sustainability topics in late 2018. SASB encourages companies to divulge “material” ESG and sustainability data on specified subjects within annual financial reports.
SBTI aka Science Based Targets Initiative | A partnership involving CDP, the UNGC, World Resources Institute, and the World Wide Fund for Nature. It urges companies to formulate and publish targets for reducing greenhouse gas emissions in line with the necessary decarbonization level to keep global temperature escalation below 2 degrees Celsius compared to pre-industrial levels.
SRI | Socially Responsible Investing, a investment approach that incorporates ESG criteria to generate enduring competitive financial returns while fostering beneficial societal influence through targeted investment decisions.
SSEI | Sustainable Stock Exchanges Initiative, a UN Partnership Programme that provides a worldwide platform to explore how exchanges, in collaboration with investors, companies, regulators, policymakers, and pertinent international organizations, can enhance ESG performance and encourage sustainable investment, including the funding of the UN Sustainable Development Goals.
Stranded Assets | Resources experiencing untimely or unexpected devaluations, write-downs, conversion to liabilities, or rendering them uneconomical to exploit. In the context of fossil fuels, this term could depict resources that remain untapped in the ground.
Sustainability | A broadly used concept signifying the ability to fulfill existing needs without compromising the capacity of future generations to fulfill their own needs.
Sustainability Report | A document generated by an organization to apprise stakeholders about its policies, initiatives, and performance regarding ESG and other pertinent matters. These reports, also known as corporate citizenship reports or CSR reports, are typically voluntary and may be subject to independent audits. There’s a growing trend toward their integration and verification.
Sustainalytics | Provides companies with an ESG risk rating score ranging from 0 to 100, categorized into five risk levels (negligible, low, medium, high, and severe), founded on industry-specific ESG indicators. Sustainalytics pinpoints areas of vulnerability to substantial ESG matters, evaluates management’s actions regarding manageable vulnerabilities, accounts for controversies, and assigns an overall ESG Risk Rating. Verification mechanisms for companies’ ESG disclosure scores by Sustainalytics aren’t explicitly indicated.
TCFD | Designates the Taskforce on Climate-related Financial Disclosures. Established in 2017, TCFD introduced worldwide recommendations for companies to divulge climate-related financial and physical risks and opportunities. These recommendations advocate for climate scenario analysis and reporting of findings. TCFD’s guidance has been integrated into numerous other ESG and sustainability reporting frameworks. Additionally, companies have independently published TCFD reports.
Triple Bottom Line | Also denoted as “TBL” or “3BL,” is an accounting framework initially devised to assess sustainability. It surpasses conventional metrics by encompassing three supplementary dimensions of performance: social, environmental (or ecological), and economic.
UNGC | United Nations Global Compact, a non-binding pact urging global businesses to embrace sustainable and socially responsible policies while reporting on their implementation.
UNPRB | United Nations Principles for Responsible Banking.
UNPRI | United Nations Principles for Responsible Investment.
UNSDGs | United Nations Sustainable Development Goals, a set of objectives targeted to be achieved by nations and companies by 2030. These goals establish a foundational context for the UNGC. The UNPRI represents a set of guidelines guiding investors in incorporating ESG and sustainability considerations into their decision-making processes, while seeking disclosure from invested companies.
Vice Stocks | Alternatively known as “Sin Stocks,” pertain to shares of companies directly or indirectly involved in activities that some consider unethical or immoral. These activities may encompass tobacco, conflict diamonds, certain weaponry, or gambling.
WFE ESG Guidance and Metrics | World Federation Exchanges ESG Guidance and Metrics. These resources are issued to assist member exchanges in evaluating options to incorporate, enhance, or mandate ESG reporting within their respective markets.
Have a term we should add? Post it in the comments below and we’ll add it to the list. Thanks!
