Glossary

Everyday language explanations of common industry terms and concepts.

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Active ownership

The active use of shareholder power to influence corporate behaviour, including through direct corporate engagement (i.e. communicating with senior management and/or boards of companies), filing or co-filing shareholder proposals, and proxy voting.

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Best in class

Investment in sectors, companies or projects whose ESG behaviours outperform others in that group.

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Corporate governance

Deals with a company’s leadership, executive pay, internal controls and shareholder rights.

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Carbon footprint

Is the amount of carbon dioxide released into the atmosphere as a result of a particular individual, investor, business or community.

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Decarbonisation

Is the active reduction of a carbon footprint.

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Engagement

Communicating with senior management and/or boards of investee companies on topics that might have financial or sustainability concerns for shareholders.

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ESG (Environmental, social and governance)

Behaviours are company features investors use to assess how good an investment they are. Environmental considerations are of how a company cares for natural resources and the planet. Social looks at relationships with employees, suppliers, customers and communities. Governance deals with a company’s leadership, executive pay, internal controls and shareholder rights.

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Exclusion

Is excluding certain sectors, companies or practices from a fund or portfolio based on specific ESG behaviours.

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GSIA (Global Sustainable Investment Alliance)

Is a collaboration of membership-based sustainable investment organisations around the world. The GSIA’s mission is to deepen the impact and visibility of sustainable investment at the global level.

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Impact investing

Is investing with the intention to generate positive, measurable social and environmental impact alongside a financial return.

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Integration

Is including ESG information in investment decision-making as standard for a deeper assessment of risk and return.

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Materiality

Relates to events or information that have positive or negative financial implications for a company or investor. Not all information is material and what is material may not be material for all companies or investors.

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Negative screening

Is the same as exclusion.

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OECD (The Organization for Economic Cooperation and Development)

Is a unique forum where the governments of 34 democratic economies work together with more than 70 non-member economies to promote economic growth, prosperity, and sustainable development.

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Paris Climate Agreement

Is an agreement within the United Nations Framework Convention on Climate Change to keep the increase in global average temperature to well below 2 °C above pre-industrial levels; and to limit the increase to 1.5 °C, since this would substantially reduce the risks and effects of climate change. The main project being to reduce carbon emissions.

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Positive screening

Means that rather than exclude companies investors include companies that set positive examples of ESG behaviour.

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UNPRI ( UN Principles for Responsible Investment)

Is a global body supported by the United Nations to understand the investment impacts of ESG issues and behaviours and to support its investor signatories incorporate this information into their investment and ownership decisions.

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Responsible investing

Is an investment strategy that incorporates ESG factors into investment decisions to better manage risk and generate long-term returns.

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Sin stocks

Refer to public companies that are either involved in, or associated with, an activity considered to be unethical or immoral.

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SRI

Is socially responsible investing or, sometimes, sustainable and responsible investment. It is any investment strategy which seeks financial return and social and environmental impact.

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Stewardship Code

Is a code of practice to improve engagement between investors and companies to help shareholders achieve long-term risk-adjusted returns. In the UK, the Financial Reporting Council encourages all institutional investors and their service providers to report if and how they have complied with the Code. Codes also exist in other places including Japan, Hong Kong and South Africa.

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Stranded assets

Are assets which are suddenly no longer able to earn a return as a result of regulatory, physical (flood, drought, etc) or economic changes.

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The Sustainable Development Goals (SDGs)

Are 17 Global Goals for all countries – developed and developing – to achieve as a global partnership. They are linked to The 2030 Agenda for Sustainable Development adopted by all United Nations Member States in 2015. The Goals provide a shared blueprint for peace and prosperity for people and the planet, now and into the future.

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Thematic investing

Is investing to target particular areas of ESG such as water, diversity or technology.

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UN Global Compact

Aims to organise a global movement of sustainable companies and stakeholders to create the world we want. It supports companies to (a) do business responsibly by ensuring their strategies and operations include The Ten Principles on human rights, labour, environment and anti-corruption; and (b) take action to achieve wider social goals, such as the UN Sustainable Development Goals, especially by using collaboration and innovation.

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