CAM Sustainable Portfolios: Jargon Buster
Your clients have a choice of sustainable solutions, but understanding what each one offers can be complicated. Our jargon buster covers most of the key terms you should expect to come across when researching sustainable investment ideas.
A - B
1.5 Degrees Target: The Paris Agreement, which came into force in 2016, has a goal of limiting global warming to well below 2 degrees Celsius (preferably to 1.5 degrees Celsius), compared to pre-industrial levels. To achieve this long-term temperature goal, countries must aim to become climate neutral by 2050.
Article 6, 8 & 9: Articles under the SFDR framework dictating how investment funds must disclose suitability characteristics.
C - D
Carbon Capture and Storage (CSS): Technology that captures, transports and stores carbon dioxide before it is released into the atmosphere by industrial processes.
Carbon Neutral: Where a company's carbon emissions are offset by carbon removals. Carbon Neutral is an easier target than 'net zero', as it allows companies to offset emissions, rather than not produce any emissions at all.
Carbon Removal: Solutions that capture and store carbon before it is emitted into the atmosphere.
Conference of the Parties (COP): An international convention composed of representatives form member states and accredited observed, who meet every year to take decisions necessary to prevent climate change.
Corporate Responsibility: How a company operates in a responsible and sustainable way. Companies have a responsibility to consider a variety of environmental, social and governance factors, and how their operations impact the community, environment and society.
E - F
Environmental Factors: Environmental factors include the contribution a company makes to climate change (such as their emissions, waste management policy and energy efficiency). These are part of the factors that are considered as part of ESG Investment strategy.
ESG: ESG stands for Environmental, Social and Governance . For companies, ESG means using environmental, social and governance factors to evaluation how they contribute to sustainable development.
ESG Integration: The practice of incorporating ESG information into investment decisions to help enhance risk-adjusted returns.
ESG Investing: The practice of incorporating ESG information into investment decisions to help enhance risk-adjusted returns. Also known as 'ESG Integration'.
Ethical Investing: An investment strategy where the investor's ethical values (moral, religious and/or social) are the primary objective. The focus is mostly on Negative Screening and aiming to avoid investing in Sin Stocks.
G - H
Governance Factors: Governance factors include the rules defining rights, responsibilities and expectations between stakeholders in the governance of companies (such as their tax strategy, privacy policy and executive compensation). These are part of the factors that are considered as part of an ESG investment strategy.
Green Bonds: These are debt instruments created to fund projects that have a positive impact. For example, a company may raise green bonds to fund development of renewable eneries, or energy-efficient buildings.
Greenwashing: A term used to describe the act of making misleading statements about the environmental credentials of a product or service. Specifically, giving a false impression of how a company's products or services are more environmentally friendly than they are in reality.
I - N
Impact Investment: Investments which have the intention of creating a positive impact as well as a financial return.
Intergovernmental Panel on Climate Change (IPCC): A United Nations body comprised of the world's top climate scientists and experts.
Negative Impact: A negative environmental, social or governance impact. Also known as 'Adverse Impact'
Net Zero: A state in which the greenhouse gases going into the atmosphere are balanced by those removed from the atmosphere. This is important because – for CO2 at least – this is the state at which global warming stops. The Paris Agreement underlines the need to reach Net Zero emissions.
O - R
Paris Agreement: A landmark legally-binding international treaty on climate change, with the goal of limiting global warning to below 2 degrees Celcius. It was adopted by 196 parties in December 2015 and came into force in November 2016.
Positive Impact: A positive benefit for the environment, society or a community. For example, this could include the provision of social housing or enforcing gender equality policies.
Positive Screening: The process of identifying companies or funds that score well on ESG criteria and including these in an investment strategy.
S - T
Social Factors: The process of identifying companies that score well on ESG criteria and including these in an investment stratgey.
Socially Responsible Investing (SRI): The practice of investing in companies and funds according to specific ethical guidelines. This includes eliminating investments that have a negative impact. Making a profit is important, but must be balanced against ethical considerations.
Sustainability: A way of meeting the needs of the present without compromising the ability of future generations to meet their needs.
Sustainable Finance Action Plan (SFAP): A policy objective from the European Union to promote sustainable investment across its members.
Sustainable Finance Disclosure Regulation (SFDR): From March 2021, asset managers and other market participants are subject to mandatory ESG disclosure obligations under this regulation from the European Commission. The full suite of disclosures are applicable from January 2022.
Sustainable Investing: An investment strategy where ESG factors are used to compare companies or funds by identifying potential risks and opportunities beyond more traditional valuations. While ESG investing is a form of responsible investing, the main objective of this strategy is financial performance.
Sustainalytics Carbon Scores: Ratings provided by Sustainalytics that assess a company’s carbon risk. They are calculated based on an evaluation of the company’s material exposure to and management of carbon issues.
U - Z
UN Global Compact: A United Nations sustainability initiative, calling companies to align their corporate strategies with universal principles on human rights, labout, environment and anti-corruption, and to take actions that advance societal goals.
UN Principles for Responsible Investing (PRI): An independent, non-profit community of over 4,000 organisations who are commited to responsible investment. The PRI works to understand the investment implications of ESG factors and support its community in incorporating these into their investment and ownership decisions. You can find out more at www.unpri.org.
UN Sustainable Development Goals (SDGs): 17 goals adopted by the United Nations in 2015 to help end poverty, protect the plant and ensure that by 2030 all people enjoy peace and prosperity.