Learn the key terms tied to responsible investment

Nossa Data is building a glossary of ESG specific words to help teach out about this emerging industry. If there is a word or phrase you would like added to this glossary, email us at [email protected].

Anti-Corruption, Governance

Anti-corruption activities inhibit corruptive practices and prevent fraudulent conduct. These activities could include corporate policy or commitment statements tied to bribery, anti-corruption or whistle-blowing systems.

Biodiversity, Environmental

Biodiversity is the variety of life on Earth. It exists on various levels including genes, species, communities, and entire ecosystems. The importance of protecting Earth’s biodiversity is addressed in SDG 15: Life on Land.

Business Roundtable

In August 2019 at the Business Roundtable 181 CEO's signed a new Statement on the Purpose of a Corporation. These CEO's committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders. Read the Statement.

Carbon Capture

Carbon capture is the process of capturing carbon dioxide at its emission source, transferring it into secure storage (usually a location underground), and isolating it. This reduces the amount of carbon dioxide entering the atmosphere.

CDP, Carbon Disclosure Project

Carbon Disclosure Project: nonprofit group that supports companies, cities, and states in reporting and evaluating environmental impact and performance. Visit the CDP.

CDSB, Climate Disclosure Standards Board

The Climate Disclosure Standards Board is an international association of business and environmental NGOs. Its aim is to align mainstream corporate reporting to equate natural capital with financial capital, offering companies a framework with which to do this. Visit the CDBP website.

Circular Economy

An economic system concerned with eliminating waste and continued use of resources.

Corporate Governance, Governance

The system of rules and practices through which a company is run and controlled.

Climate Action 100+

An investor initiative set up to ensure the most significant global greenhouse gas emitters, as well as other companies, take necessary action in driving the clean energy transition and tackling climate change. Visit Climate Action 100+ website.

Consumer Protection, Social

Consumer protection ensures that consumer rights are upheld and aims to prevent unfair practices in the marketplace. These include the right to be informed, the right to choose, the right to have problems corrected, the right to be heard, the right to safety (e.g. ensuring data privacy), the right to consumer education and the right to service. This contributes to the idea of company's having equal commitment to all stakeholders.

Climate Change, Environmental

Climate change is the changes of climate patterns induced by human greenhouse gas emissions. It includes both global warming and large shifts in weather patterns.

Divestment

The act of removing specific stocks from a portfolio based upon ethical and non-financial objections to a specific business practice.

E in ESG = Environmental

The environmental impact of a firm's actions and products.

EMAS, Eco-Management and Audit Scheme

The Eco-Management and Audit Scheme is a management instrument for companies and organisations to evaluate, report, and improve environmental performance. It is set up by the European Commission. Visit EMAS here.

ESG Integration

The incorporation of environmental, social and governance (“ESG”) criteria into the fundamental investment analysis.

ESG Screening

Using ESG criteria as a filter for evaluating investments.

ESMA, European Securities and Markets Authority

The European Securities and Markets Authority ensures stability of the EU’s financial system by enhancing protection of investors and promoting stable financial markets. Visit the ESMA website.

EU Green Deal

The EU Green Deal proposes a growth strategy to transform the EU into a resource-efficient and competitive economy where biodiversity is restored and pollution is cut. The underlying objective is to ensure that the EU is carbon neutral by 2050, the key aim of The Paris Agreement. View the EU Green Deal here.

Fiduciary Duty

An obligation to act in the best interest of the party you are representing.

Financial Materiality (In ESG)

Sustainability issues that are likely to affect the financial condition or operating performance of companies.

G in ESG = Governance

The “G” in ESG refers to the governance factors of decision-making, from sovereigns’ policymaking to the distribution of rights and responsibilities among different participants in corporations, including the board of directors, managers, shareholders, and stakeholders.

The purpose of the corporation, the role and makeup of boards of directors, and the compensation and oversight of top executives have emerged as core issues in companies’ corporate governance structures.

Specific topics classified under 'governance' include: Business Ethics, Competitive Behavior, Management of the Legal & Regulatory Environment, Critical Incident Risk Management, Systemic Risk Management, Board Composition.

This could be questions such as:
Does your board have an independent director?
How many members are on your board of directors?
How many women are on the board?
Do you have commitment to gender diversity on the board?
Does the company have shares with different voting right?

Green Bond

A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects. of a firm; how ethically the firm acts in society.

"Greenwashing"

The act of falsely portraying one’s own company as combatting environmental, social, or governance challenges. This most often occurs when companies spend more on promoting sustainable projects than actually on the projects themselves.

GRI, Global Reporting Initiative

Global Reporting Initiative is an international independent standards organization that helps businesses, governments and other organizations understand and communicate their impacts on issues such as climate change, human rights and corruption. Visit the GRI website.

Health and Safety, Social

The concepts of health and safety ensure that employees can work in good health and in a safe environment. This includes preventing workers’ departures because of health caused by working conditions and placing workers in environments catered to their physiological and psychological capabilities.

IFRS, International Financial Reporting Standards

The International Financial Reporting Standards are a developed set of global accounting standards for companies to use when preparing and publishing financial statements. These standards are set by the IASB, International Accounting Standards Board. Visit the IFRS website.

IIRC, International Integrated Reporting Council

A global coalition of parties with the view to adopt Integrated Reporting at an international level in order to improve communication about value creation, evolve corporate reporting, and make increased improvements to financial stability and sustainable development. Visit the IIRC website.

Impact Investment

Providing capital to specific businesses that are aimed at providing positive social impact to stakeholders.

IPCC, Intergovernmental Panel on Climate Change

The Intergovernmental Panel on Climate Change is the UN body responsible for assessing the science related to climate change in order to provide policymakers with accurate information and data on climate issues. Visit the IPCC website.

ISO, International Organization for Standardization

International Organization for Standardization: an independent non-governmental organization with 164 national members who shares knowledge on and develops market-based standards to support global challenges. Visit ISO's website.

Labour Standards, Social

Labour standards are the fundamental principles and rights for the workplace. These include the freedom from forced labour, the freedom from child labour, the freedom from discrimination at work and the freedom to form and join a union, and to bargain collectively.

Materiality Assessment

A materiality assessment is the process of identifying, analysing, and assessing potential environmental, social, and governance issues that could affect your business. These issues are then used to inform a company’s strategy and targets.

Modern Slavery Principles

Modern Slavery Principles are a set of principles developed to tackle modern slavery by the UK, US, Canada, Australia and New Zealand. The aim of the principles is to eliminate slavery from all our supply chains.

Natural Capital

Natural capital is the planet’s natural assets and resources. These include geology, soil, air, water and all living things. Natural capital makes human life possible e.g. food we eat, building material, fuel.

Negative Screening

The exclusion of specific securities from investment consideration based on social or environmental criteria. For example: The exclusion of tobacco or fossil fuels.

NFRD, Non-Financial Reporting Directive

The Non-Financial Reporting Directive is an EU directive required to be integrated into the national law of all member states. It discloses that all public-interest entities with over 500 employees must include a non-financial statement in their annual reports according to NFRD criteria. Visit the NFRD here.

NGFS, Network for Greening the Financial System

The Network for Greening the Financial System is a group of Central Banks and Supervisors sharing the best practices to help strengthen the global response needed in order to meet the goals of the Paris agreement. It aims to increase the financial system's role in managing risks and mobilising capital for green and low-carbon investments. Visit the NGFS here.

OEF, Organisation Environmental Footprint

The Organisation Environmental Footprint is a multi-criteria measure of organisations’ environmental impacts based on life cycle. These measures ensure all important issues throughout the value chain and other relevant environmental areas are scrutinised and is run by the European Commission. Visit the OEF here.

The Paris Agreement

The Paris Agreement was made between parties to the United Nations Framework Convention on Climate Change (UNFCCC) in 2015 at the COP21. The consensus was to combat climate change and for a collective effort towards reducing the projected warming of the planet to below 2 degrees Celsius, aiming for 1.5 degrees Celsius. Visit The Paris Agreement here.

Passive investing

An investment strategy that maximises returns by minimising buying and selling. This strategy often tracks externally created indices and maps portfolios to these as much as possible.

Physical Risks

Physical risks arise from extreme weather events and long-term changes in climate and environmental conditions. Some consequences might include crop failure or disruption to supply chains, which might in turn lead to further disruption such as climate-induced migration.

Positive Screening

The act of making specific investments in activities and companies believed to have a positive social impact.

Pollution and Resources, Environmental

The Earth has a finite amount of natural resources, which we use in order to develop and advance our societies. The ways in which we use these resources can often cause pollution. For example, burning fossil fuels such as coal, oil, or natural gas.

PRI Signatory

A directory of organizations and individuals who have committed to the 6 Principles for Responsible Investing (See UN PRI). See list of UN PRI's signatories.

Responsible Investment

Responsible investment is an investment strategy which integrates environmental, social, and governance (ESG) factors into investment analysis and decisions. It recognises that ESG factors can have an impact on the financial value of an investment and also that investments have an impact on the world around us. A responsible approach to investment recognises that long-term prosperity requires a move away from short-term profit as the only definition of value.

S in ESG = Social

The 'S' in ESG evaluates the 'Social' issues of a company. A number of social factors can affect a company’s financial performance, ranging from short- to long-term challenges. Social factors to consider in sustainable investing include a company’s strengths and weaknesses in dealing with social trends, labor, and politics.

Specific topics classified under 'social' include: Human Rights & Community Relations, Customer Privacy, Data Security, Access & Affordability, Product Quality & Safety, Customer Welfare, Selling Practices & Product Labeling, Labor Practices, Employee Health & Safety, Employee Engagement, Diversity & Inclusion.

This could be questions such as:
How can a company manage its relationships with its workforce, the societies in which it operates, and the political environment?
What is the diversity of a companies workforce?
Does your organization have a policy or commitment statement tied to customer responsibility?
Does your company claim to comply with the fundamental human rights convention of the ILO or support the UN declaration of human rights?
Are there any employee development training programs in place to enhance individual skills?

SASB Materiality Map

SASB’s Materiality Map® identifies sustainability issues that are likely to affect the financial condition or operating performance of companies within an industry. In the left-hand column, SASB identifies 26 sustainability-related business issues, or General Issue Categories, which encompass a range of Disclosure Topics and their associated Accounting Metrics that vary by industry. For example, the General Issue Category of Customer Welfare encompasses both the Health and Nutrition topic in the Processed Foods industry and the Counterfeit Drugs topic in the Health Care Distributors industry. Visit the materiality map.

SASB, Sustainability Accounting Standards Board

Sustainability Accounting Standards Board (SASB) is a non-profit organization, founded in 2011 by Jean Rogers to develop sustainability accounting standards. Three key aspects of SASB are:

Financially Material: SASB’s mission is to help businesses around the world identify, manage and report on the sustainability topics that matter most to their investors.
Market Informed: SASB standards are developed based on extensive feedback from companies, investors, and other market participants as part of a transparent, publicly-documented process.
Industry Specific: SASB standards differ by industry, enabling investors and companies to compare performance from company to company within an industry.

Visit SASB's website.

Science Based Targets

The Science Based Targets is an initiative that advocates setting science-based targets in order to boost companies' competitive advantages in the transition to a low-carbon economy. It is a collaboration between the CDP, the UNGC, the WRI, and the WWF. Visit the Science Based Targets here.

SDGs, Sustainable Development Goals

Sustainable Development Goals, developed by the United Nations. The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. The 17 Goals are all interconnected, and in order to leave no one behind, it is important that we achieve them all by 2030.

Visit the SDG's website.

Sin Stocks

Sin stocks refers to publicly traded companies that are considered immoral or unethical. Traditionally this has referred to industries such as alcohol, weapons, tobacco, or gambling.

Social Impact Bonds

A contract with a government that  pays for better social outcomes and in which financial return is dependent on achieving the desired social outcome.

Spectrum of Capital or 'Bridges' Spectrum of Capital'

The range of risk/return strategies that are available in investing ranging from financial-only focused investments to impact-only focused investments. An example is Bridges' Spectrum of Capital.

SRI, Socially Responsible Investing

Socially responsible investing refers to any investment strategy that seeks to achieve both financial return and also have a positive social or environmental impact.

Stakeholder Capitalism

Stakeholder capitalism is a system in which corporations are oriented to serve the interests of all their stakeholders. Among the key stakeholders are customers, suppliers, employees, shareholders and local communities.

Stewardship in ESG

Stewardship in ESG is the active integration of environmental, social, and governance factors into investments.

Tax Transparency, Governance

The process of eliminating bank secrecy and tax evasion through international tax co-operation and disclosure.

TCFD, Task force for Climate Related Disclosure

The Task Force on Climate-related Financial Disclosures (TCFD) has developed voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. Visit TCFD's website.

TEG, Technical Expert Group on Sustainable Finance

The Technical Expert Group on Sustainable Finance assists in the development of the EU taxonomy for climate change mitigation and climate change adaption, an EU Green Bond Standard, methodologies for EU climate benchmarks and disclosures for benchmarks, and guidance to improve corporate disclosure of climate-related information. Visit TEG here.

TNFD, Task force for Nature Related Disclosure

A Task Force on Nature-related Financial Disclosures will create resilience in the global economy by redirecting flows of finance at scale towards nature-positive activities to allow nature and people to flourish. Visit TNFD's website.

Transition Risks

The risks arising from transitioning to a low-carbon economy. Such risks might include policy change, reputational impact, and shifts in market preferences, norms and technology.

Triple Bottom Line

The triple bottom line (or otherwise noted as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial. Some organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value.

UN Global Compact

The United Nations Global Compact is a non-binding United Nations pact to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. The UNGC is set around 10 principles:
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.Labour
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of employment and occupation.Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly technologies.Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Visit UNGC's website.

UN Guiding Principles Reporting Framework

The UN Guiding Principles Reporting Framework is a framework of questions that helps companies both know internally and show externally how well they are addressing risks to people based on the expectations of the UN Guiding Principles on Business and Human Rights. Visit the framework here.

UN Principles for Reponsible Investment

Principles for Responsible Investment is a United Nations-supported international network of investors working together to implement its six aspirational principles, often referenced as "the Principles".
Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
Principle 6: We will each report on our activities and progress towards implementing the Principles.

Visit UN PRI's website.

Water Use, Environmental

Water use refers the use of renewable water resources across the planet. Direct purposes for water use include cooking, bathing, and drinking. Indirect purposes include using water to process wood into paper, or to process steel products. Water scarcity can be affected by human activities such as high population density, tourist inflow, intensive agriculture and water demanding industries.

WDI, World Development Indicators

The World Development Indicators is the World Bank’s main collection of development indicators, collected from official international sources. It presents current and accurate global development data.

Have a term you would like to add? Email us at [email protected]