ESG glossary

Selecting issuers that perform better on ESG dimensions than their peers within a particular industry, sector or region.

A measure of a group, individual or a company’s total greenhouse gas emissions.

The cost of emitting CO2 into the atmosphere, either in the form of a fee per tonne of CO2 emitted, or an incentive that’s offered for emitting less. Putting an economic cost on emissions is widely considered the most efficient way to encourage polluters to reduce what they release into the atmosphere.

A range of products, services and processes that reduce the use of natural resources, cut or eliminate emissions and waste. It was considered a niche area of investment two decades ago but has become a focus for most major companies.

The use of shareholder power to influence corporate behaviour, including through direct corporate engagement (i.e., communicating with senior management and/or boards of companies) is guided by comprehensive ESG guidelines. Engagement is an integral part of active ownership.

This is the “E” of the term “ESG” (environmental, social and governance) and concerns issues related to resource use, pollution, climate change, energy use, waste management and other physical environmental challenges and opportunities.

The systematic and explicit inclusion of ESG factors into traditional financial analysis.

An investment strategy in which you invest in line with your ethical principles and exclude companies that you deem to be unethical.

Impact investments are investments made into companies, organisations, and funds with the intention to generate an intentional and identifiable social and environmental impact alongside a financial return. Examples of impact investments are:

• Green or Social bonds
• Community investing
• Renewable Energy infrastructure

Although no standard definition exists, modern slavery can broadly be thought of as the exploitation of people who are coerced into an activity by someone who “controls” them, often with violence. It can take many forms including forced or bonded labour, early or forced marriage or human and organ trafficking.

These are the world’s leading proponent of responsible investment. The PRI is truly independent and acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole. The PRI is supported by the United Nations.

A proxy vote is a ballot cast by one person or firm on behalf of a shareholder of a corporation who may not be able or have the desire to attend a shareholder meeting, or who otherwise desires not to vote on an issue. Shareholders vote on issues such as electing directors to the board, mergers & acquisitions, board remuneration and capital measures. Shareholder can approve but also vote against management proposals. Exercising voting rights via proxy voting is an integral part of active stewardship.

Energy collected from resources that are naturally replenished such as sunlight, wind, water and geothermal heat.

An investment approach used to filter companies based on pre-defined criteria before investment. As an investor, you can use a negative screen (in which you deliberately exclude certain companies because of their involvement in undesirable activities or sectors) or a positive screen (in which you select companies based on their sustainability practices). In the jargon, this can also be a “best-in-class investment” – where you only invest in companies that lead their peer groups in terms of sustainability practices and performance.

Issues related to how a company interacts with the communities it operates in, its suppliers, employees and customers. These include, for example, labour standards, health and safety, supply chain management and nutrition and obesity.

SRI funds seek to build a portfolio with an above average ESG quality; in practice most often use a combination of a positive and a negative screening.

Stewardship, also referred to as Active Ownership, is defined as taking an active role as a shareowner to promote the long-term success of companies in such a way that society and the ultimate providers of capital also prosper. This can be done through engagement and proxy voting. Stewardship therefore benefits companies, investors and the economy as a whole.

Investing in companies that can be classified under a particular investment theme such as renewable energy, waste and water management, education or healthcare innovation.

The financial risks that could result from significant policy, legal, technology and market changes as we transition to a lower-carbon global economy and climate resilient future.

A collection of 17 goals reflecting the biggest challenges facing global societies, environments and economies today.