Best-in-class:
Assets or investments that are the best performers amongst their peer group in terms of environmental, social, and/or governance factors.
Divestment:
In this context, ceasing to hold an investment on the basis of environmental, social, and/or governance considerations.
Engagement:
The practice of seeking to influence the behaviour of a company in which a fund is invested in order to improve their environmental, social, and governance practices. For example, engaging with a company’s board of directors in order to improve that company’s labour practices.
Environmental, social, governance (ESG) factors:
Environmental, social and governance (ESG) refers to the three central factors commonly used when assessing the sustainability of a business’s activities or an investment.
Ethical investment:
Using ethical principles as the main filter for securities selection. Ethical investing depends on an investor’s views: some may choose to eliminate certain industries entirely (negative screening) and/or to over-allocate to industries that meet the individuals ethical principles (positive screening).
European Commission Action Plan on Financing Sustainable Growth:
Published in March 2018, the Action Plan sets out objectives and key actions to promote a re-orientation of private capital flows towards sustainable investments.
Green bond:
A fixed income instrument in which the proceeds raised from sale are used to fund green projects.
Green investment:
Investment activities that focus on companies or projects that are committed to the conservation of natural resources, the production and discovery of alternative energy sources, the implementation of clean air and water projects, or other environmentally conscious business practices.
Greenwashing:
The practice of seeking to gain an unfair competitive advantage by overstating or overemphasising the extent to which an investment or business’s practices are “green” or “sustainable”.
Impact investing:
Investments made in order to deliberately create social goods. For example, investing in a for-profit company which makes affordable water purifiers for the developing world.
Paris Agreement:
An international agreement signed in December 2015 with the objective of combatting climate change and accelerating the investments needed for a sustainable low carbon future.
Responsible investment (RI):
An umbrella term describing the formal integration of ethical, social, and/or sustainability considerations into investment decisions.
Socially responsible investment (SRI):
A screening process which excludes certain securities from a portfolio based on perceptions of their moral worth, their environmental impact, or other non-financial considerations. For example, the exclusion of cluster munition manufacturers from an investment portfolio.
Sustainable investment:
An investment approach that considers environmental, social and/or governance (ESG) factors in portfolio selection and management.
Sustainability risks:
Risks to the value of an asset occasioned by environmental, social, and/or governance issues. For example, the price of an equity declining due to fines levelled against the issuer for environmental damages.
United Nations Principles for Responsible Investment (UN PRI):
An organisation that promotes responsible investment through a set of six investment principles that offer actions for integrating responsible investment into investment decisions.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Key contacts
If you have any questions, contact a member of the Glossary of Key Sustainable Finance and ESG Concepts team for assistance:
