Glossary

De-jargonned: Glossary of ESG terms

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There are currently 211 relevant ESG terms in this directory
Accounting Manipulation
The purposeful misapplication of generally accepted accounting standards in order to inflate reported financial results. Accounting manipulation, when it occurs, is intended to hide financial failures or fraud from auditors and stakeholders. [Source: Stanford: Corporate Governance Research Initiative]

Accounting Quality
Accounting quality reflects the degree to which accounting figures precisely measure a company’s change in financial position, earnings, and cash flow during a reporting period. [Source: Stanford: Corporate Governance Research Initiative]

ACGA - Asian Corporate Governance Association
An independent, non-profit membership organization dedicated to working with investors, companies and regulators in the implementation of effective corporate governance practices throughout Asia. [Source: Schroders]

Active Investors
Investors who are active in the trading of company securities (as opposed to passive investors). Active investors tend to care greatly about individual company outcomes. As a result, they might try to influence corporate activities to improve company performance (such as by meeting with management, lobbying to have board members removed, voicing concern over compensation practices, or advancing policy measures through the annual proxy). [Source: Stanford: Corporate Governance Research Initiative]

Active Ownership
This refers to investors addressing concerns of environmental, social and governance (ESG) issues by voting on such topics or engaging corporate managers and boards of directors on them. Active ownership is utilized to address business strategy and decisions made by the corporation in an effort to reduce risk and enhance sustainable long-term shareholder value. [Source: Swiss Sustainable Finance]

Activist Investors
Investors who try to use an ownership position to actively pursue governance changes at a corporation. The objectives of the activist investor might differ from those of other shareholders. Examples of activist investors might include the following: Pension funds that manage assets on behalf of union employees, Institutional funds with a social mission, such as environmental, religious, or humanitarian causes, Hedge fund managers driven by a desire for short-term gain, Individual investors with outspoken personal beliefs. [Source: Stanford: Corporate Governance Research Initiative]

Agency Problem
A situation of misaligned incentives which arises when a third-party agent is hired to act on one’s behalf. In a corporate setting, agency problems occur when a manager who is hired to run a company in the interest of shareholders and stakeholders takes actions which benefit himself or herself, with the costs borne by corporation and by extension, shareholders, etc. For example, an executive might manipulate accounting results to increase the size of his or her bonus, or might pursue an expensive acquisition, even though these actions are value destroying. Agency problems can be mitigated through corporate governance features which restrict or discourage these actions or through incentives which align the interest of management and the corporation. [Source: Stanford: Corporate Governance Research Initiative]

Aligned Incentives
In economic terms, where senior executive corporate goals and related compensation are in sync with the interests of shareholders. [Source: Stanford: Corporate Governance Research Initiative]

Asset Overlays
This refers to exclusionary screens that do not just apply to a specific sustainable investment product, but instead to the whole asset base of an asset manager or institutional investor. Often such criteria apply to controversial weapons such as cluster bombs, land mines and nuclear weapons. [Source: Swiss Sustainable Finance]

Audit Committee
The audit committee is responsible for overseeing the company’s external audit and is the primary contact between the auditor and the company. This reporting relationship is intended to prevent management manipulation of the audit. [Source: Stanford: Corporate Governance Research Initiative]

Best In Class / Positive Screening
Approach in which a company's or issuer's environmental, social and governance (ESG) performance is compared with the ESG performance of its peers (i.e. of the same sector or category) based on a sustainability rating. All companies or issuers with a rating above a defined threshold are considered as investable. The threshold can be set at different levels (e.g. 30% best performing companies or all companies that reach a minimum ESG score). [Source: Swiss Sustainable Finance]

Blank Check Preferred Stock
A class of unissued preferred stock that is provided for in the articles of incorporation and that the company can issue when threatened by a corporate raider. The purchaser of the preferred stock obtains an economic position senior to that of common shareholders and also typically receives significant voting rights. Combined, these are used to block a corporate raider seeking to take control of the company or its board of directors. [Source: Stanford: Corporate Governance Research Initiative]

Blended Finance
Blended finance refers to the complementary use of grants (usually from public sources) and non-grant financing from private and/or public sources. Such structures are used to make infrastructure and sustainability projects that would otherwise not be financially sustainable attractive for private investors. The IFC uses the term blended finance to distinguish it from ‘concessional finance’, which requires a minimum 25% grant element. Although blended finance has a concessional component, the subsidy portion of the investment is minimised in order to avoid crowding out private financing. [Source: Swiss Sustainable Finance]

Blockholder
An investor with a significant ownership position in a company’s common stock. No regulatory statute classifies an investor as a blockholder, although researchers generally define a blockholder as any shareholder with at least a 1 to 5 percent stake. A blockholder can be an executive, a director, an individual shareholder, another corporation, or an institutional investor. Blockholders with large ownership positions can exert significant influence (positive or negative) on the governance of a firm. [Source: Stanford: Corporate Governance Research Initiative]

Board Diversity
The degree to which individual directors on a board represent a wide range of personal or professional backgrounds, experiences, or viewpoints. [Source: Stanford: Corporate Governance Research Initiative]

Board of Directors
A group of individuals elected to represent the interests of shareholders and monitor the corporation and its management. Generally speaking, a board serves two roles: an advisory role and an oversight role. In its advisory capacity, the board consults with management regarding the strategic and operational direction of the company. Attention is paid to decisions that balance risk and reward. Board members are selected based on the skill and expertise they offer for this purpose, including previous experience in a relevant industry or function. In its oversight capacity, the board is expected to monitor management and ensure that it is acting diligently in the interests of shareholders. [Source: Stanford: Corporate Governance Research Initiative]

Board Quality
Boards play a critical role in crisis management, oversight, and risk management – setting the tone at the top before incidents occur. From an investment standpoint, issues such as director independence, board composition, experience, perspectives and tenure are important because they protect shareholder value. Board composition, executive compensation, business ethics and accounting practices all reflect a board’s judgment and priorities. [Source: Nuveen]

Board Structure
A description of a board based on its prominent structural attributes, such as size, professional and demographic information about the directors serving on it, their independence from management, number of committees, director compensation, etc. [Source: Stanford: Corporate Governance Research Initiative]

Broad SI
Sustainability criteria and approaches can be applied to mainstream products or the full asset base of a fund manager or institutional asset owner by integrating them in the investment process. The application of sustainability in these cases relies on a general sustainability policy/approach instead of a product-specific policy referred to in the product prospectus. Usually, such mainstream sustainable investments apply one of the following approaches or a combination thereof: exclusions, norms-based screening, ESG integration, ESG voting, ESG integration. [Source: Swiss Sustainable Finance]

Broker Nonvote
The shares held at a brokerage firm are registered under the name of the brokerage (“street name”), even though they are beneficially owned by the individual. Brokers are required to forward these shares to the beneficial owner and vote according to owner instructions. If the broker does not receive instructions within 10 days of the vote date, a broker nonvote is said to occur. The treatment of broker non votes can be important in determining the outcome of closely contested proxy battles. [Source: Stanford: Corporate Governance Research Initiative]

Bullet Dodging
The practice of waiting to award stock options to an executive or employee until after the release of unexpected negative news that is likely to drive down the price of a stock. [Source: Stanford: Corporate Governance Research Initiative]

Busy Boards
Companies whose directors sit on multiple boards. The numeric threshold that constitutes a “busy” director is subject to discretion, although researchers generally consider a director to be busy if he or she sits on three or more boards. Similarly, a “busy” board is one in which a significant number of directors are busy. This practice is also referred to as 'Overboarding'. [Source: Stanford: Corporate Governance Research Initiative]

Carbon Finance
Generic term for financial services related to mitigation of and adaptation to climate change. It specifically refers to investments in greenhouse gas emission reduction projects and the related creation of CO2-certificates, financial instruments that are tradable on carbon markets. [Source: Swiss Sustainable Finance]

Carbon Footprint
A measure of the total greenhouse gas emissions, expressed in tons of carbon dioxide. It is one way to assess the potential impact of climate change on a portfolio. Emissions can be classified as Scope 1,2 and 3. [Source: Schroders]

Carbon Neutral
This occurs when an organisation’s net carbon emissions is equal to zero. The process requires measuring total CO2 emissions, taking active steps to reduce emissions where the company can, and then purchasing CO2-certificates to offset CO2 emissions that cannot be eliminated from a company's operations. The CO2- certificates contribute to financing projects reducing CO2-emissions (i.e. by replacing fossil power generation with renewable energy projects). [Source: Swiss Sustainable Finance]

Carbon Pricing
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. [Source: Allianz]

Carbon Tracker
An initiative working to align capital markets with climate change objectives. [Source: Schroders]

CDP - Carbon Disclosure Project
CDP is a voluntary survey and score for companies and governments to disclose their environmental impact. Investors are the primary audience. Disclosures are made via the CDP survey/database. [Source: Global Affairs Associates]

CDSB - Climate Disclosure Standards Board
A voluntary reporting framework for disclosing material environmental information in mainstream financial reports and natural capital and climate change-related information. CDSB was set up to promote greater alignment between natural and financial capital through disclosure standards, research and advocacy. [Source: Global Affairs Associates]

Ceres
Nonprofit organization that leads a national coalition of investors, environmental organizations, and other public interest groups working with companies to address sustainability challenges such as climate change and water scarcity. [Source: First Affirmative Financial Network]

Chairman of the Board
The director who presides over meetings of the full board of directors. The chairman is responsible for setting the agenda, scheduling meetings, and coordinating actions of board committees. Traditionally, the CEO has served as the chairman of the board in most U.S. corporations. In recent years, however, it has become more common for a nonexecutive director to serve as chair. [Source: Stanford: Corporate Governance Research Initiative]

Circular Economy
An economic system designed to produce no waste or pollution. [Source: Schroders]

Clawbacks and Deferred Payouts
Provisions in the executive compensation contract that enable a company to reclaim compensation in future years if it becomes clear that bonus compensation should not have been awarded previously. Clawbacks are intended to discourage executives from artificially inflating financial results to increase the value of their bonuses. The Dodd-Frank Wall Street Reform Act requires that companies develop, implement, and disclose clawback policies. [Source: Stanford: Corporate Governance Research Initiative]

Clean Technology
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. [Source: Allianz]

Climate change
Significant long-term change in the climate of a given region. Global scientific consensus is that the planet is currently experiencing a change in climate with over 97% of actively publishing climate scientists agreeing that this is the case. [Source: Invesco]

Climate Risk
The investment risk resulting from a failure to keep global temperature rises to below 2°C above pre-industrial levels. [Source: Schroders]

Cluster Munitions And Anti-Personnel Mines
Cluster munitions are weapons designed to disperse multiple explosive sub-munitions. Anti-personnel mines are explosive devices designed to harm or kill civilians. Schroders fully supports the international conventions on cluster munitions and APMs. Consistent with this support, and in line with our commitment to responsible investment, we will not knowingly hold any security that derives revenue from or provides funding for either. [Source: Schroders]

Community Investing
Directing investment capital to communities that are underserved by traditional financial services institutions. Generally provides access to credit, equity, capital, housing, and basic banking products that these communities would otherwise lack. [Source: Swiss Sustainable Finance]

Compensation Committee
The committee of the board that is responsible for setting the compensation of the CEO and for advising the CEO on the compensation of other senior executives. [Source: Stanford: Corporate Governance Research Initiative]

Core SI
Sustainable investment products (investment funds and discretionary mandates) with a written sustainability investment policy as part of the prospectus or contract are considered Core SI. Usually, such sustainable investment products apply multiple approaches (i.e. exclusion criteria in combination with a best-in-class approach or an ESG integration approach in combination with ESG voting and engagement). [Source: Swiss Sustainable Finance]

Corporate Citizenship
The concept that corporations have both rights and obligations to the societies and jurisdictions in which they operate, and are themselves stakeholders within society. [Source: Global Affairs Associates]

Corporate Governance
Corporate Governance (or Governance factors) within ESG criteria in the context of investing refer to the system of policies and practices by which a company is directed and controlled. They include but are not limited to transparency on Board compensation, independence of Boards and shareholder rights. In broader terms, the need for corporate governance rests on the idea that when separation exists between the ownership of a company and its management, self-interested executives have the opportunity to take actions that benefit themselves, with shareholders and stakeholders bearing the cost of these actions. This scenario is typically referred to as the “agency problem,” with the costs resulting from this problem described as “agency costs.” Executives make investment, financing, and operating decisions that better themselves at the expense of other parties related to the firm. To lessen agency costs, some type of control or monitoring system is put in place in the organization. That system of checks and balances is called “corporate governance.” At a minimum, a governance system consists of a board of directors to oversee management and an external auditor to express an opinion on the reliability of financial statements. In most cases, however, governance systems are influenced by a much broader group of constituents, including owners of the firm, creditors, labor unions, customers, suppliers, investment analysts, the media, and regulators who all influence managerial behavior. [Source: Stanford: Corporate Governance Research Initiative]

Corporate Governance Codes
A set of standards detailing good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders. These purposeful dialogues are established by local regulators on a country-by-country basis. [Source: Schroders]

Corporate Responsibility
The responsibility of corporations to generate profit in an ethical way. [Source: Global Affairs Associates]

Council of Institutional Investors
An organization of asset managers and asset owners promoting effective US corporate governance practice. [Source: Schroders]

CSR - Corporate Social Responsibility
The responsibility of corporations to contribute positively to society. This term refers to the commitment of an organisation, beyond what is required by law, to ensure that the social, economic and environmental impacts of their actions create a net benefit to communities and society. This is founded on the belief that all corporations have a ‘duty of care’ to all their stakeholders in every area of their business operations and that being a responsible citizen improves the long-term business success of a company. [Source: Global Affairs Associates]

Development Finance
Official Development Finance (ODF) describes funds from official development finance institutions to developing nations with the objective of reducing poverty and developing the economy of recipient countries. This includes (A) bilateral official development assistance (ODA), (B) grants and concessional and non-concessional development lending by multilateral financial institutions, and (C) other official flows for development purposes (including refinancing Loans) which have too low a Grant Element to qualify as ODA. [Source: Swiss Sustainable Finance]

Development Finance Institution
DFIs occupy the space between public aid and private investment. They are financial institutions, which provide finance to the private sector for investments that promote development. They focus on developing countries and regions where access to private sector funding is limited. They are usually owned or backed by the governments of one or more developed countries. [Source: Swiss Sustainable Finance]

Development Investments
Term established by SFF to describe investments with a clear intention to improve the social/environmental/economic situation in developing and emerging markets while targeting market or above-market returns. [Source: Swiss Sustainable Finance]

Divestment
The sale of an asset for social or political goals. Examples of divestment include the selling of South African assets during the apartheid era or, more recently, investments in fossil fuel-related assets. In many regions, local legislation drives divestment guidelines, which can influence the extent to which public funds can or cannot invest in certain regions. Divestment is also sometimes known as divestiture. [Source: Schroders]

Double Bottom Line
A term used to describe the combination of quantitative + qualitative analysis embraced by socially conscious investors. The qualitative analysis overlay generally differentiates responsible investing from its conventional roots and competitors. [Source: First Affirmative Financial Network]

Dual-class Shares
A company with dual-class shares has more than one class of common stock. In general, each class has equal economic interest in the company but unequal voting rights. Dual-class stock thus tends to weaken the influence of public shareholders and are considered an effective antitakeover defense. [Source: Stanford: Corporate Governance Research Initiative]

Duty of Candor
A fiduciary duty, it requires that management and the board inform shareholders of all information that is important to their evaluation of the company and its management. [Source: Stanford: Corporate Governance Research Initiative]

Duty of Care
A fiduciary duty, it requires that a director make decisions with due deliberation. [Source: Stanford: Corporate Governance Research Initiative]

Duty of Loyalty
A fiduciary duty, it addresses conflicts of interest. For example, if management is considering a transaction with a company in which a director has a significant financial interest, the duty of loyalty requires that the terms of the transaction promote the interests of the shareholders over those of the director. [ Source: Stanford: Corporate Governance Research Initiative]

Echo Voting
A system through which the proxies of a passive investment strategy are voted at the direction of an actively managed investment strategy. [Source: Invesco]

Economically Targeted Investing
Investments that seek to promote economic development in local communities and organizations, in addition to competitive financial returns. The investments may be targeted at job creation, generating small business loans, improvement in the affordable housing stock or enhancing infrastructure. [Source: Schroders]

Empire Building
A situation in which management seeks to acquire another company primarily for the sake of managing a larger enterprise. Empire building is a type of agency problem that effective corporate governance systems are expected to prevent. [Source: Stanford: Corporate Governance Research Initiative]

Engagement
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. [Source: Allianz]

Engagement Clearinghouse
Platform offered by the Principles for Responsible Investments (PRI) for institutional investors and asset managers to collaborate on engagement activities with investee companies. An investor posts planned engagement activities and seeks other investors to co-sign letters or actively contribute to engagement activities. Accessible for PRI signatories only. [Source: Swiss Sustainable Finance]

Engagement Overlay Service
A third-party service that engages investee companies on ESG issues on behalf of shareholder clients. [Source: Swiss Sustainable Finance]

Environmental Funds
Funds that are primarily exposed to sustainable environmental themes such as clean energy, water and waste, or invest in companies with positive environmental management. [Source: Schroders]

Environmental Lending
Refers to lending activities for environmental projects or companies often provided by multinational development banks. The term also covers lending activities with clear procedures to assess environmental risks of projects or companies. In some cases, banks provide preferential interest rates for environmental projects (i.e. environmental mortgages for low energy buildings). [Source: Swiss Sustainable Finance]

Equator Principles
The Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in project finance and is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. [Source: Swiss Sustainable Finance]

ESG - Environmental, Social, Governance
A wide spectrum of environmental, social, and corporate governance considerations that may impact a company’s ability to execute its business strategy and create value over the long term. ESG analysis includes collecting information on how an investment target manages environmental, social and governance factors. When an investment institution wishes to track how potential investments (i.e. companies, countries and issuers) actively manage ESG risks and opportunities they carry out an ESG Analysis. There is growing evidence suggesting that companies with a strong performance in managing environmental, social and governance factors manage their risks and opportunities more effectively and have lower costs of capital. ESG factors, when integrated into investment analysis and decision-making, may therefore offer investors better insights into opportunities and risks. [Source: Global Affairs Associates]

ESG Engagement
Engagement is an activity performed by shareholders with the goal of convincing management to take account of environmental, social and governance criteria. This dialogue includes communicating with senior management and/or boards of companies and filing or co-filing shareholder proposals. Successful engagement can lead to changes in a company' s strategy and processes so as to improve ESG performance and reduce risks. [Source: Swiss Sustainable Finance]

ESG Integration
The explicit inclusion by investors of ESG risks and opportunities into traditional financial analysis and investment decisions based on a systematic process and appropriate research sources. In the context of Sustainable Investment, this refers to ensuring that environmental, social and governance factors are given full consideration and research support, as an integral part of the investment decision-making process. This analysis therefore becomes fully integrated into the overall financial analysis of standard investment products. [Source: Swiss Sustainable Finance]

ESG Voting
This refers to investors addressing concerns of environmental, social and governance (ESG) issues by actively exercising their voting rights based on ESG principles or an ESG policy. [Source: Swiss Sustainable Finance]

ETF - Exchange Traded Fund
A security that tracks an index, a commodity, or a basket of assets like a mutual fund, but trades like a stock on an exchange. Like a stock, ETFs experience intradaily price changes. [Source: First Affirmative Financial Network]

Ethical Investment
Investments where the main motivation is aligning the ethical values of an organisation or a person with investments. In comparison to sustainable investments which are based on the conviction that an active management of environmental, social and governance risks and opportunities improves the long-term performance of a company, an ethical investment is mainly guided by ethical codes, religious beliefs or personal values and is often carried out using exclusionary screening. [Source: Swiss Sustainable Finance]

Eurosif
Eurosif is the European association whose mission is to promote sustainability through European financial markets. It works as a partnership of several Europe-based national Sustainable Investment Forums (SIFs).  Eurosif engages in a range of promotional activities such as public events or discussion fora, both with the industry and policy- makers. [Source: Swiss Sustainable Finance]

Exclusionary Screening
An investment strategy excluding companies, countries or issuers on the grounds of activities considered as not investable. Exclusion criteria can refer to product categories (e.g. weapons, tobacco) activities (e.g. animal testing) or practices (e.g. severe violation of human rights, corruption). They can also be based on personal values (e.g. gambling) or on risk considerations (e.g. nuclear power). Exclusionary screening is also known as negative screening. It is a common mistake to assume that SRI “screening” is simply exclusionary, or only involves negative screens. In reality, SRI screens are being used more and more frequently to identify and invest in companies that are leaders in adopting clean technologies, managing environmental impacts, and integrating exceptional social and governance practices. [Source: Swiss Sustainable Finance]

Extra-financial factors
Factors that are not the usual, fi nancial variables considered in investment analysis and whose monetary impacts are typically hard to quantify. The term can be applied to any measure whose unit of measurement is not monetary. [Source: Schroders]

Fiduciary Duty
In broad terms, fiduciary duty refers to the duty of the board of directors to act in the interest of the corporation. In the institutional investment context, trustees of pension funds owe fiduciary duties to beneficiaries to exercise reasonable care, skill and caution in pursuing an overall investment strategy suitable to the purpose of the trust and to act prudently and for a proper purpose. The explicit legal nature of fiduciary duty varies depending on the country of origin. While most institutional investment funds strive to create financial benefits for their beneficiaries, it is also possible for trust deeds explicitly to require trustees to consider ESG factors in investments. Against the backdrop that there is increasing evidence supporting the materiality of ESG issues, some legal experts conclude that it is part of the fiduciary duty of a trustee to consider such opportunities and risks in investment processes. [Source: Swiss Sustainable Finance]

Financial Centres For Sustainability
The Financial Centres for Sustainability (FC4S) Network is a partnership between financial centres and the United Nations Environment Programme, with the objective to exchange experience and take common action on shared priorities to accelerate the expansion of green and sustainable finance. The long-term vision of the FC4S Network is rapid global growth of green and sustainable finance across the world’s financial centres, supported by strengthened international connectivity, and a framework for common approaches. [Source: Swiss Sustainable Finance]

FPIC - Free, prior and informed consent
Named by The Forest Peoples Programme, this names the value that a community has the right to voice an opinion on projects taking place on the lands they own and should be included in the conversation of use. [Source: First Affirmative Financial Network]

Freshfields Report
Freshfields is an international law firm based in London. The original report, A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment (2005), provided assurance to institutional investors that the consideration of ESG issues is firmly grounded within the bounds of fiduciary duty. This landmark report was followed by Fiduciary Responsibility—Legal and Practical Aspects of Integrating Environmental, Social and Governance Issues into Institutional Investment (2009). The report provides a legal roadmap for fiduciaries looking for concrete steps to operationalize their commitment to responsible investment. [Source: First Affirmative Financial Network]

Friendly Acquisition
A situation in which a target company is open to receiving a takeover offer from an acquiring firm. The opposite of a friendly acquisition is a “hostile takeover.” [Source: Stanford: Corporate Governance Research Initiative]

GEAK
Gebäudeausweis der Kantone (GEAK) is a Swiss tool to measure and indicate the energy consumption of a building. It forms an easy tool to compare the energy efficiency of different buildings both for buyers and investors. [Source: Swiss Sustainable Finance]

Gender Lens Investing
The allocation of capital to investment strategies that directly benefit women and girls by enhancing their access to opportunities, contributing to their physical wellbeing, enhancing their safety and security, and/or promoting a better life. [Source: Invesco]

GHG - Greenhouse Gases
GHG is any gas that absorbs infrared radiation in the atmosphere, thereby trapping heat and contributing to the greenhouse effect. Greenhouse gases include, but are not limited to, water vapor, carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). [Source: Global Affairs Associates]

GIIN - Global Impact Investing Network
The GIIN is a not-for-profit organization dedicated to increasing the scale and effectiveness of impact investing which are investments made to generate a social & environmental impact alongside a financial return. [Source: Swiss Sustainable Finance]

GIIRS - Global Impact Investing Ratings System
A system for assessing the social and environmental impact of companies and funds. [Source: Swiss Sustainable Finance]

Global Reporting Initiative (GRI)
The Global Reporting Initiative is the most widely used global framework for the standardized reporting of economic, social and environmental performance. The GRI guidelines are created through a multi-stakeholder, consensus-seeking process that involves an international network of business, civil society, labour and professional institutions. [Source: Swiss Sustainable Finance]

Golden Handcuff
A collection of financial incentives that are intended to encourage employees to remain with a company. Golden handcuffs are offered by employers to existing employees as a means of holding onto key employees and increasing employee retention rates. Golden handcuffs are common in industries where highly-compensated employees have valuable, proprietary strategic information. Examples of golden handcuffs include employee stock options that do not vest until the employee has been with the company for several years. This practice is also known as 'Golden handshake'. [Source: Stanford: Corporate Governance Research Initiative]

Golden Parachute
A provision in an employment contract which entitles an executive to additional compensation upon resignation or dismissal. The terms of the agreement are typically included in the broader employment agreement and must be disclosed to shareholders through SEC filings. A typical severance agreement offers a lump-sum cash payment equal to three times the current annual salary, plus immediate vesting of all unvested equity grants. [Source: Stanford: Corporate Governance Research Initiative]

Green Bonds
Green bonds are broadly defined as fixed-income securities that raise capital for a project with specific environmental benefits. The majority of green bonds issued to date have raised money for renewable energy projects, energy efficiency measures, mass transit and water technology. Most green bonds have been either plain vanilla treasury-style retail bonds (with a fixed rate of interest and redeemable in full on maturity), or asset-backed securities tied to specific green infrastructure projects. [Source: Swiss Sustainable Finance]

Green Investing
Investment in businesses contributing to sustainable solutions in environmental topics including investments in renewable energy, energy efficiency, clean technology, low-carbon transportation infrastructure, water treatment and resource efficiency. [Source: Swiss Sustainable Finance]

Greenhouse Gas Protocol
The most widely used international accounting tool for government and business to understand, quantify, and manage greenhouse gas emissions. [Source: Global Affairs Associates]

Greenwashing
Falsely communicating the environmental benefits of a product, service or organisation in order to make a company seem more environmentally-friendly than it really is. [Source: Allianz]

GRESB - Global Real Estate Sustainability Benchmark
GRESB is the global environmental, social and governance benchmark for real estate and infrastructure investments, providing standardized and validated ESG data to the capital markets. [Source: Global Affairs Associates]

GRI - Global Reporting Initiative
A voluntary global reporting framework used by thousands of companies and governments worldwide. It is a modular reporting framework that covers economic, environmental, and social impacts addressing all stakeholders groups. Disclosures are typically made in sustainability reports. [Source: Global Affairs Associates]

GSIA - Global Sustainable Investment Alliance
A Global network of membership-based sustainable investment organisations. GSIA’s purpose is to extend the impact and visibility of sustainable investment organisations on a global level. GSIA was founded by Eurosif together with other regional and national SIFs. [Source: Swiss Sustainable Finance]

Horse Race
A model for CEO succession planning in which two or more internal candidates are promoted to high-level positions where they compete to become CEO. [Source: Stanford: Corporate Governance Research Initiative]

Hostile Takeover
A situation in which a target company resists attempts to be acquired by an unsolicited bidder or corporate raider. To protect against a hostile takeover, management might adopt defense mechanisms which discourage or prevent a change in control. Examples include a poison pill, staggered board structure, dual-class shares, or blank check preferred stock. [Source: Stanford: Corporate Governance Research Initiative]

Human Rights
Basic rights that belong to all human beings. They include the right to life, liberty, freedom from slavery and torture, and freedom of opinion and expression. [Source: Allianz]

IEHN - Investor Environmental Health Network
This network of investment managers, advised by nongovernmental organizations, encourages companies to adopt policies to reduce and eliminate toxic chemicals in their products. [Source: First Affirmative Financial Network]

IIGCC - Institutional Investors Group on Climate Change
A forum for collaboration on climate change for investors. IIGCC provides investors with a collaborative platform to encourage public policies, investment practices, and corporate behaviour that address long-term risks and opportunities associated with climate change. [Source: Swiss Sustainable Finance]

IIRC - International Integrated Reporting Council
An international cross section of leaders from the corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors and civil society. Promotes communication about value creation as the next step in the evolution of corporate reporting. [Source: Global Affairs Associates]

ILO - International Labour Organization
A United Nations agency that sets international labour standards and promotes social protection and work opportunities for all. ILO brings together governments, employers and workers of 187 member States to set labour standards, develop policies, and devise programs promoting decent work for all women and men. [Source: Global Affairs Associates]

ILO Conventions
ILO conventions encompass international labour standards which are integrated into legally binding international treaties, setting out basic principles and rights at work. Those legal instruments are ratified in all participating countries. The eight fundamental conventions cover the topics freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child labour; and the elimination of discrimination in respect of employment and occupation. They are frequently used as the basis for exclusion and engagement approaches. [Source: Swiss Sustainable Finance]

Impact Investing
Impact investing refers to investments made with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments provide private capital to address social and/or environmental issues. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances. Typically, these are investments in small companies or projects with clear social goals, providing them with capital they may not otherwise have accessed. [Source: Global Affairs Associates]

Independent Chairman
A chairman of the board who is not an executive (such as a current or former CEO). [Source: Stanford: Corporate Governance Research Initiative]

Independent Directors
Neither past nor present employees of the company or affiliated with it in any other way. In some jurisdictions those who serve on boards for a set period of time are no longer considered independent, even if they began their tenure in that category. [Source: Schroders]

Integrated Reporting
An integrated report (IR) combines a company's financial report and sustainability report in order to give a concise view about how an organisation’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term. [Source: Swiss Sustainable Finance]

Integration / Mainstreaming
In the context of Sustainable Investment, this refers to ensuring that environmental, social and governance factors are given full consideration and research support, as an integral part of the investment decision-making process. This analysis therefore becomes fully integrated into the overall financial analysis of standard investment products. [Source: Swiss Sustainable Finance]

Interlocked (Connected or Networked) Boards
Companies whose senior executives sit reciprocally on each other’s boards: an executive of one firm sits on the board of another and an executive of the second firm sits on the board of the first. [Source: Stanford: Corporate Governance Research Initiative]

International Corporate Governance Network (ICGN)
An investor-led organization of governance professionals, ICGN’s mission is to inspire and promote effective standards of corporate governance to advance efficient markets and economies worldwide. [Source: Schroders]

International Integrated Reporting Framework
Created IIRC, the International Integrated Reporting Framework is used to accelerate the adoption of integrated reporting across the world. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term. [Source: Global Affairs Associates]

Investor Network on Climate Risk
Launched by Ceres, this network includes institutional investors, religious and labor funds, asset managers and socially responsible investment funds. Members actively engage with companies in their portfolios on climate and sustainability issues and advocate for strong climate and energy policies. [Source: First Affirmative Financial Network]

IPCC - Intergovernmental Panel on Climate Change
The IPCC was established jointly by the United Nations Environment Programme and the World Meteorological Organization in 1988. The purpose of the IPCC is to assess information related to all significant components of the issue of climate change by drawing upon hundreds of the world’s expert scientists as authors and thousands more as expert reviewers. IPCC releases periodic assessments of the scientific underpinnings for understanding global climate change and its consequences. The IPCC is looked to as the official advisory body to the world’s governments on the state of the science on climate change. [Source: Global Affairs Associates]

IRIS
IRIS is a catalogue of generally accepted performance metrics that impact investors use to measure social, environmental, and financial success, evaluate deals, and improve the credibility of the impact investing industry. The catalogue is prepared by the Global Impact Investing Network (GIIN), a non-profit organisation dedicated to increasing the scale and effectiveness of impact investing. [Source: Swiss Sustainable Finance]

Keiretsu
A system of interrelation between companies that is prevalent in Japan. Under the keiretsu, companies maintain small but not insignificant ownership positions among suppliers, customers, and other business affiliates. These ownership positions cement business relations along the supply chain and encourage firms to work together toward an objective of shared financial success. [Source: Stanford: Corporate Governance Research Initiative]

Lead Independent Director
Acts as an independent leader among directors and provides an independent point of view to the chairperson. The lead director can also act as chairperson if the chairperson is conflicted or unavailable, and can be an effective conduit for shareholder concerns. [Source: Schroders]

Long-term Incentives
Cash or noncash compensation (such as stock options, restricted stock, or performance units) that vests over multiple years and therefore rewards an executive for long-term performance. Long-term incentives extend the time horizon of the executive and are intended to counteract the natural tendency of a risk-averse executive to focus on short-term rewards at the expense of long-term investment. [Source: Stanford: Corporate Governance Research Initiative]

Low Carbon Funds
Funds that invest in companies with a low carbon strategy or low carbon emissions. [Source: Schroders]

Majority Voting
A system for proxy voting under which a director is required to receive a majority of votes to be elected. The specific procedures of majority voting systems vary. In some companies, candidates who receive more withhold votes than votes in favor are strictly refused a seat on the board. Majority voting gives shareholders more power to control the composition of the board, even in the absence of an alternative slate. [Source: Stanford: Corporate Governance Research Initiative]

Management Entrenchment
The degree to which management is shielded from the market forces and performance standards to which management teams are typically held accountable. An entrenched management is able to retain employment, despite poor performance or opposition from the board, shareholders, and/or stakeholders. [Source: Stanford: Corporate Governance Research Initiative]

Materiality
In the sustainability context, information is material if there is a clear link to the financial performance of a company. [Source: Swiss Sustainable Finance]

Micro-credit
Refers to small loans from a microfinance institution granted to lower income entrepreneurs in developing and emerging market countries. These loans contribute to the development of local economies and therewith contribute to creating jobs and reduce poverty. [Source: Swiss Sustainable Finance]

Micro-enterprise
Microenterprises are those with ten or fewer workers. They are often unregistered businesses and run by financially impoverished people. Definition of microenterprises may differ across countries. [Source: First Affirmative Financial Network]

Micro-finance
A range of financial tools (loans, savings, money transfers, etc.) provided by microfinance institutions and designed for people who do not have access to the traditional banking system. Microfinance products are typically offered to companies and individuals in developing and emerging market countries. [Source: Swiss Sustainable Finance]

Micro-insurance
Microinsurance products are designed for individuals in developing and emerging market countries who do not have access to traditional insurance services. [Source: Swiss Sustainable Finance]

Minder Initiative
Swiss referendum launched by a politician named Minder with the aim to reduce wage levels at Swiss companies. The adoption of the 'Minder Initiative' in March 2013 resulted in an Implementing Ordinance (VegüV), temporarily defining the implementation of this new article of the Swiss Constitution. The main principles are: annual mandatory votes for pension funds on board remuneration of Swiss companies and transparent reporting on votes, no severance payments for governing officers, regulation in articles of association of credits and pensions payable to governing officers, and custodial sentence for persons violating these principles. [Source: Swiss Sustainable Finance]

Mission Based Investing
The incorporation of an organisation’s mission into its investment decision-making process. Most often used in reference to foundations and other non-governmental organisations working for social or environmental change. Mission-based investing ensures that organisations’ investments are aligned with the overall goals of the organisation itself and are helping, not hindering, the achievement of those goals. [Source: Swiss Sustainable Finance]

Modern Slavery
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. [ Source: Allianz]

Montreal Carbon Pledge
Launched in September 2014, signatories of the Montreal Carbon Pledge commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. [Source: Swiss Sustainable Finance]

Moskowitz Prize
The only global academic award that recognizes outstanding quantitative research in areas of interest to responsible investors. Since 1996, prize winners have explored topics like shareowner engagement and the question of whether SRI investment strategies inhibit or enhance financial performance. The Moskowitz Prize is awarded annually at The SRI Conference. The Haas School of Business at UC Berkeley conducts the review of applications. [Source: First Affirmative Financial Network]

Natural Capital Finance Alliance
The Alliance and its Secretariat was originally formed to support the signatories of the Natural Capital Declaration (NCD), which was launched at the Rio+20 conference in 2012. The declaration has been signed by the CEOs of more than 40 financial institutions from around the world. It formalises their commitment to the integration of natural capital considerations into financial sector reporting. [Source: Swiss Sustainable Finance]

Nominating And Governance Committee
The governance committee is responsible for evaluating the company’s governance structure and processes and recommending improvements, when appropriate. The nominating committee is responsible for identifying, evaluating, and nominating new directors when board seats need to be filled. The nominating committee is also typically in charge of leading the CEO succession-planning process. [Source: Stanford: Corporate Governance Research Initiative]

Non-Executive Board Members
Sit on the board but do not form part of the management team. [Source: Schroders]

Non-Executive Directors
Directors who are not executives of the firm. Outside directors are expected to be more independent than executive directors because they have no reporting lines to the CEO and do not rely on the company for their livelihood. [Source: Stanford: Corporate Governance Research Initiative]

Non-Shareholder Interests
Statutes that allow the board to consider nonshareholder interests. These statutes are referred to as “nonshareholder constituency” or “expanded constituency” provisions. They allow the board to consider the impact of their actions on stakeholders such as workers, customers, suppliers, and the surrounding community. The primary application of these statutes is in the evaluation of a takeover bid. These statutes purportedly allow management and the board to reject a takeover offer that is in the interest of shareholders if the takeover would harm other constituents. [Source: Stanford: Corporate Governance Research Initiative]

Norms-based Screening
Screening of investments against minimum standards of business practice based on national or international standards and norms such as the ILO conventions, the OECD Guidelines for Multinational Enterprises, the UN Global Compact or the UN Guiding Principles on Business and Human Rights. [Source: Swiss Sustainable Finance]

OECD Guidelines for Multinational Enterprises
This is a comprehensive set of government-backed recommendations on responsible business. The governments who aim to adhere to the Guidelines intend to encourage and maximise the positive impact multinational enterprises can make to sustainable development and enduring social progress. [Source: Swiss Sustainable Finance]

Official Development Finance / Development Finance
Official Development Finance (ODF) describes funds from official development finance institutions to developing nations with the objective of reducing poverty and developing the economy of recipient countries. This includes (a) bilateral official development assistance (ODA), (b) grants and concessional and non-concessional development lending by multilateral financial institutions, and (c) other official flows for development purposes (including refinancing Loans) which have too low a Grant Element to qualify as ODA. [Source: Swiss Sustainable Finance]

Passive Investors
Investors that attempt to generate returns that mirror the returns of a predetermined market index. Passive investors tend to be less attentive to firm-specific performance and governance issues. [Source: Stanford: Corporate Governance Research Initiative]

Pay for Performance
A term used to describe the relationship between executive compensation and corporate performance over a specified measurement period. “High” pay for performance indicates that compensation is both correlated with and appropriate in size given company performance. [Source: Stanford: Corporate Governance Research Initiative]

Plurality Voting
A system for proxy voting under which the director who receives the most votes wins. In an uncontested election, a director is elected as long as he or she receives at least one vote. [Source: Stanford: Corporate Governance Research Initiative]

Poison Pill
A common antitakeover defense (implemented through shareholder's rights plan) in which a company threatens to flood the market with new shares to prevent a hostile takeover. The “poison pill” is triggered if a shareholder or shareholder group accumulates an ownership position above a threshold level (typically 15 to 20 percent of shares outstanding). Once this threshold is exceeded, existing shareholders are offered the right to buy new shares at a steep discount to the current price. The flood of new shares associated with the rights plan dilute the would-be acquirer’s holdings and make it prohibitively expensive for the acquirer to take control of the firm through open market purchases or a tender offer. [Source: Stanford: Corporate Governance Research Initiative]

Portfolio Carbon Footprint
An aggregation of the carbon footprint of individual positions within an investment portfolio, relative to the share of the companies held by this portfolio. As a measure to assess the climate risk of an investment portfolio, this key performance indicator is used by institutional investors aiming to offer transparency and reduce the carbon intensity of their portfolios. [Source: Swiss Sustainable Finance]

Positive Screening
Investment approach based on a sustainability rating in which a company's or issuer's environmental, social and governance (ESG) performance is compared with the ESG performance of its sector peers. All companies with a rating above a defined threshold are considered as investable. The threshold can be set at different levels (i.e. 30% best companies eligible). “Buy” lists may include enterprises with, for example, good employer-employee relations, strong environmental practices, products that are safe and useful, and operations that respect human rights around the world. Positive screening is also known as 'Best in class'. [Source: First Affirmative Financial Network]

PPP - Public Private Partnership
Typically medium to long-term arrangements between the public and private sectors, whereby some of the service obligations of the public sector are provided by the private sector, with clear agreement on shared objectives for delivery of public infrastructure and/or public services. In the finance context, PPPs often form the basis for long-term investments by the private sector in infrastructure or other services of the public domain. [Source: Swiss Sustainable Finance]

Preferred Stock
Preferred stock is a class of stock that is senior to common stock in terms of credit and capital. [Source: Stanford: Corporate Governance Research Initiative]

Proxy Access
The practice of allowing shareholders or groups of shareholders to directly nominate board candidates through the company proxy. [Source: Stanford: Corporate Governance Research Initiative]

Proxy Advisory Firms
Third-party firms that evaluate management- and shareholder-sponsored proposals on the annual proxy and provide recommendations on how investors should vote. [Source: Stanford: Corporate Governance Research Initiative]

Proxy Contest
A situation in which a corporate raider or other activist nominates a slate of directors (known as the “dissident slate”) to run in opposition to the directors that the company has nominated. Proxy contests tend to occur in hostile takeovers or when an activist shareholder with a significant minority position wishes to impose greater change on a company or force a sale. [Source: Stanford: Corporate Governance Research Initiative]

Proxy Voting
A ballot cast by one person on behalf of another. One of the benefits of being a shareholder is the right to vote on certain corporate matters. Since most shareholders cannot, or do not want to, attend the annual and special meetings at which the voting occurs, corporations provide shareholders with the option to cast a proxy vote. Shareholders receive a proxy ballot in the mail along with an informational booklet called a proxy statement describing the issues to be voted on. Shareholders return a form by mail agreeing to have their vote cast by proxy. [Source: Swiss Sustainable Finance]

PSI - Principles for Sustainable Insurance
Launched by UNEP FI in 2012, The Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities. The purpose of the PSI Initiative is to better understand, prevent and reduce environmental, social and governance risks, and better manage opportunities to provide quality and reliable risk protection. [Source: Swiss Sustainable Finance]

Public Pension Funds
Pension funds that manage retirement assets on behalf of state, county, and municipal governments. Beneficiaries primarily include public employees who are covered by a collective bargaining agreement [Source: Stanford: Corporate Governance Research Initiative]

Pyramidal Business Groups
Two or more listed firms under a common controlling shareholder that holds a significant minority position in each (at least 10 percent). [Source: Stanford: Corporate Governance Research Initiative]

Reputational Risk
The degree to which a company protects the value of its intangible assets, including corporate reputation. Reputational risk is mitigated by investing in product brand development, investing in corporate brand development, monitoring the use of brands, monitoring supplier and customer business practices, performing community outreach, and handling stakeholder relations. [Source: Stanford: Corporate Governance Research Initiative]

SASB - Sustainability Accounting Standards Board
Sustainability Accounting Standards Board (SASB) is a voluntary sustainability reporting framework for U.S. publicly listed companies with a unique sector-based materiality approach. It is an investor-driven and business focused framework. SASB encourages integrated disclosure in a company's financial filings. [Source: Global Affairs Associates]

Say-on-Pay
The practice of giving shareholders a vote to approve executive and/or director compensation programs. In most countries (such as the U.S. and U.K.), say-on-pay votes are advisory (nonbinding), which means that companies are not required to adhere to the outcome. In other countries, such as the Switzerland, the results are binding. [Source: Stanford: Corporate Governance Research Initiative]

SBTs - Science Based Targets
Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius compared to pre- industrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC AR5). The Science Based Targets initiative (SBTi) is a collaboration between CDP, the United Nations Global Compact (UNGC), World Resources Institute (WRI), and the World Wide Fund for Nature (WWF) and one of the We Mean Business Coalition commitments, to champion science-based target setting as a powerful way of boosting companies' competitive advantage in the transition to a low carbon economy. [Source: Global Affairs Associates]

Scope 1 Emissions
Direct carbon emissions from owned or controlled sources. [Source: Schroders]

Scope 2 Emissions
Indirect carbon emissions from the generation of purchased energy. [Source: Schroders]

Scope 3 Emissions
All indirect carbon emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. [Source: Schroders]

Screening
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. [Source: Allianz]

Shareblocking
A practice whereby restrictions are placed on the trading of shares which are to be voted upon prior to an annual general meeting. [Source: Schroders]

Shareholder Activism
A public form of engagement whereby investors use their shareholdings to engender change at a company. This can be done through submitting shareholder resolutions or a public media campaign against a company. Shareholder activism tends to be a more confrontational approach to promoting change. Shareholder activism is also known as shareholder advocacy. [Source: Schroders]

Shareholder Democracy
A movement that advocates greater shareholder influence over corporate governance systems. Advocates of shareholder democracy believe that expanded voting rights on corporate matters make board members more accountable to shareholders (and possibly stakeholders). Elements of shareholder democracy include majority voting in uncontested director elections, restricted discretion over broker nonvotes, say on pay, proxy access, and a reduction of antitakeover protections. [Source: Stanford: Corporate Governance Research Initiative]

Shareholder Proposal / Resolution
A legal right of shareholders to create a proposal for change in corporate policies and actions. Shareholder proposals are tools of corporate engagement and shareholders reserve the right to circulate proposals, and vote on them at the company’s Annual General Meeting (AGM). [Source: Swiss Sustainable Finance]

Shareowner / Shareholder Advocacy
Responsible investors often take an active role as the owners of corporations, including talking with companies on social, environmental, governance, (ESG) and transparency issues. Shareowner advocacy also frequently involves filing, and co-filing shareholder resolutions on such topics as corporate governance, climate change, political contributions, gender/racial discrimination, pollution, problem labor practices, and a host of other issues. [Source: First Affirmative Financial Network]

SI - Sustainable Investment
Sustainable investment (analogous to responsible investment) refers to any investment approach integrating environmental, social and governance factors (ESG) into the selection and management of investments. There are many different approaches of sustainable investing, including best-in-class, ESG integration, exclusions and impact investing. [Source: Swiss Sustainable Finance]

SIF - Sustainable Investment Forum
A sustainable investment forum is an association promoting sustainable investments and finance in a national or multinational financial market. There are many SIFs in Europe, most of which are partners and founders of Eurosif. Eurosif together with other regional and national SIFs has founded the Global Sustainable Investment Alliance (GSIA) to align activities and gain a market overview on sustainable investments globally. [Source: Swiss Sustainable Finance]

Sin Stocks
Stocks of companies either directly or indirectly associated with activities considered to be unethical or immoral, such as tobacco, alcohol, gambling and adult entertainment. Also known as 'vice stocks'. [Source: Schroders]

SOCAP
An organization that is dedicated to accelerating a new global market at the intersection of money and meaning. SOCAP seeks to create a platform where social impact leaders can connect and present their ideas to a global audience [Source: First Affirmative Financial Network]

Social Equity
A broad term used to encompass issues related to the provision of equal opportunity and access to traditionally disadvantaged populations including women, minorities, LGBTQ+, veterans, and individuals with disabilities, as well as regionally disadvantaged populations. [Source: Invesco]

Social Factors
Social factors within ESG criteria in the context of investing include, but are not limited to, worker rights, safety, diversity, education, labour relations, supply chain standards, community relations, and human rights. [Source: Swiss Sustainable Finance]

Social impact bonds
Investments designed to improve the social outcomes of publicly funded services. Providers are typically charities that are often pioneering a new approach to a specific social problem. The investment is used to fund the working capital needs of the project. [Source: Schroders]

Socially Screened or SRI Mutual Funds
SRI mutual funds integrate ESG analysis into the investment process—generally seeking to avoid owning companies with a harmful impact on society, and seeking to own the most responsible companies with the highest profit potential. Such funds may represent any asset class and many different investment strategies, including domestic and international investments. A growing range of products is available, including hedge funds and ETFs (exchange traded funds). [Source: First Affirmative Financial Network]

Spring-Loading
The practice of awarding stock options immediately before the release of positive news that is likely to drive up the price of a stock. [Source: Stanford: Corporate Governance Research Initiative]

SRI - Responsible Investment / Sustainable Investment
Responsible investment (analogous to sustainable investment) refers to any investment approach, integrating environmental, social and governance factors (ESG) into the selection and management of investments. There are many different forms of responsible investing, such as best-in-class investments, ESG integration, exclusionary screening, thematic investing and impact investing. They are all components of responsible investments and have played a part in its history and evolution. 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. [Source: Swiss Sustainable Finance]

SRI - Socially Responsible Investing
Socially Responsible Investing (SRI) is the term previously used for sustainable or responsible investing. SRI had its origin in the Anglo-Saxon investment world, where it originally referred to investments based on exclusionary screening and later to investments with a best-in-class approach and other forms of sustainable investments. Some players still use it as a generic term for sustainable investing. Socially responsible investing is the practice of investing money in companies and funds that have positive social impacts. It is investment strategy which seeks to consider both financial return and social/environmental good. [Source: Swiss Sustainable Finance]

Staggered Board Structure
A board structure in which directors are elected to multiple-year terms, with a only subset of directors standing for reelection each year. Under a typical staggered board, directors are elected to three-year terms, with one-third of the board standing for reelection every three years. As a result, it is not possible for the board to be ousted in a single year. Two election cycles are needed for a majority of the board to turn over. Staggered boards are an effective antitakeover defense. Staggered boards can be effective antitakeover defenses (if they are part of the corporation charter), and especially when combined with a “poison pill.” [Source: Stanford: Corporate Governance Research Initiative]

Stakeholders
Stakeholders believe that corporations or organizations have a societal obligation beyond increasing shareholder value and that obligations to constituents such as employees, suppliers, customers, and local communities should be held in equal importance to shareholder returns (e.g., environmental sustainability, corporate social responsibility). [Source: Stanford: Corporate Governance Research Initiative]

Stewardship / Active Investing
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. [Source: Allianz]

Stock Options
A contract that grants the recipient the right to buy shares in the future at a fixed exercise price, generally equal to the stock price on the grant date. Stock options typically have vesting requirements (i.e., they are “earned” in even batches over time or in blocks). [Source: Stanford: Corporate Governance Research Initiative]

Stock-Option Backdating
Stock options whose grant dates have been retroactively changed to coincide with a relative low in the company’s share price. This practice reduces the strike price of the option and increases the potential payoff to its recipient. Existing shareholders bear the cost of backdating, because the company receives lower proceeds when the stock option is exercised. [Source: Stanford: Corporate Governance Research Initiative]

Stranded Assets
Stranded assets refers to a scenario in which the value of fossil fuel reserves falls due to rising operational costs associated with carbon prices. Fossil fuel assets could become ‘stranded’ as production becomes unprofitable. The possibility of increased regulation and public pressure, both domestic and international, poses additional risks. Stranded assets suffer from unanticipated or premature write-downs and are unable to operate to the end of their economic lives due to changes in the market and regulatory environment. The share price of fossil fuel companies could diminish considerably if political pressure to reduce carbon emissions strengthens. The risk of stranded assets is a growing concern for investors. [Source: Swiss Sustainable Finance]

Sustainability
Sustainability focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social—also known informally as profit, planet, and people. [Source: Global Affairs Associates]

Sustainability Index / Benchmark
A sustainability index / benchmark is a tool to measure the value of a section of the stock market. It is computed from the prices of stocks selected by applying a sustainable investment approach. Investors use this tool to describe the market and to compare the return on specific investments. [Source: Swiss Sustainable Finance]

Sustainability Ratings
Ratings reflecting a company's/country's/fund's performance with regards to environmental, social and governance (ESG) factors. Sustainability ratings enable investors to gain a quick overview of the sustainability performance of a company/country/fund and are the basis for a best-in-class investment approach. [Source: Swiss Sustainable Finance]

Sustainability Research Provider / Sustainability Rating Provider
Organisation providing research and/or ratings on the sustainability performance of companies, issuers, countries or sectors. Most investors and asset managers use such third-party information when preparing sustainable investment products. [Source: Swiss Sustainable Finance]

Sustainable
Balancing economic ecological and social goals in such a way that the people living on our planet today can meet their needs without compromising the ability of future generations to meet their own needs. [Source: Swiss Sustainable Finance]

Sustainable Assets Under Management
Widely applied key performance indicator referring to the total volume of sustainable investments of an investor, asset manager or country. Often expressed as a percentage of total assets under management. [Source: Swiss Sustainable Finance]

Sustainable Finance
Sustainable finance refers to any form of financial service integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the lasting benefit of both clients and society at large. Activities that fall under the heading of sustainable finance include but are not limited to the integration of ESG criteria in asset management, sustainable thematic investments, active ownership, impact investing, green bonds, lending with ESG risk assessment and development of the whole financial system in a more sustainable way. [Source: Swiss Sustainable Finance]

Sustainable Financial Centre
A sustainable financial centre is a financial marketplace that, as a whole, contributes to sustainable development and value creation in economic, environmental and social terms. In other words, one that ensures and improves economic efficiency, prosperity, and economic competitiveness both today and in the long-term, while contributing to protecting and restoring ecological systems, and enhancing cultural diversity and social well-being. [Source: Swiss Sustainable Finance]

Sustainable Investment Mandate
Investment mandate based on an investment process integrating ESG criteria in different forms (i.e. best-in-class, ESG integration, exclusionary screening). [Source: Swiss Sustainable Finance]

Sustainable Thematic Investments / Thematic Investing
Investment in businesses contributing to sustainable solutions, both in environmental or social topics. In the environmental segment this includes investments in renewable energy, energy efficiency, clean technology, low-carbon transportation infrastructure, water treatment and resource efficiency. In the social segment this includes investments in education, health systems, poverty reduction, and solutions for an ageing society. [Source: Swiss Sustainable Finance]

SVVK - ASIR
The Swiss Association for Responsible Investments (SVVK - ASIR) is an association of large pension funds aiming to provide services to its members that enable them to invest responsibly. This entails the inclusion of ESG criteria in their investment decisions, where the association supports its members through norms-based and product- based portfolio screening and engagement. The normative standards applied are the Swiss constitution and Swiss law, ILO conventions and the Global Compact. The association was founded in December 2015. [Source: Swiss Sustainable Finance]

Tag-along Rights
Rights that grant minority shareholders the ability to dispose of shares on the same terms as majority shareholders. [Source: Stanford: Corporate Governance Research Initiative]

TCFD - Task Force on Climate-related Financial Disclosures
TCFD is a powerful organization tasked by the global Financial Stability Board with bringing uniformity to climate-related corporate risk disclosure. It released a voluntary reporting framework for companies in G20 countries in financial and four non-financial industry groups. The four other industry groups are energy, transportation, materials and buildings, and agriculture (both food and forest products.) Investors, lenders and underwriters are the primary audience. TCFD emphasizes the use of climate risk scenario analysis to assess the resiliency of business strategies. TCFD prefers integrated disclosure in financial filings but leaves the option to companies as to where to disclose. The other frameworks, including GRI, SASB, CDP, and CDSB aligned their reporting frameworks to the TCFD recommendations. [Source: Global Affairs Associates]

Thematic Investing
Investment in businesses contributing to sustainable solutions both in environmental or social topics (or themes). In the environmental segment this includes investments in renewable energy, energy efficiency, clean technology, low-carbon transportation infrastructure, water treatment and resource efficiency. In the social segment this includes investments in education, health systems, poverty reduction and solutions for an ageing society. [Source: Swiss Sustainable Finance]

Thun Group of Banks
The "Thun Group of Banks" is an informal group of bank representatives that have been discussing the meaning of the "Guiding Principles for the implementation of the United Nations 'Protect, Respect and Remedy' Framework on Business and Human Rights" ("Guiding Principles") in regards to universal banks and how they could be applied in relation to banking activities. [Source: Swiss Sustainable Finance]

Tin Parachute
A severance agreement that allows every employee in a company who is terminated without cause following a change in control to receive both a cash payment and immediate vesting of all unvested stock options and restricted shares. [Source: Stanford: Corporate Governance Research Initiative]

Transition Risk
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. [Source: Allianz]

Triple Bottom Line
An accounting framework originally developed in an effort to measure sustainability. Triple bottom line is also referred to as TBL or 3BL. TBL goes beyond traditional measures to incorporate three additional dimensions of performance: social, environmental (or ecological) and economic. Michael Porter has more recently popularized a Shared Value framework that has similar elements and emphasizes the importance of expanding the value created for shareholders to all stakeholders. [Source: Schroders]

UN Guiding Principles on Business and Human Rights
The Guiding Principles for Business and Human Rights are meant to support the implementation of the United Nations “Protect, Respect and Remedy” Framework. This set of guidelines seeks to provide a global standard for preventing and addressing the risk of adverse human rights impacts linked to business activity. They were proposed by the UN Special Representative for Business and Human Rights, John Ruggie, and endorsed by the UN Human Rights Council in June 2011. As they cover all areas of business, they are also applicable to the financial sector. [Source: Swiss Sustainable Finance]

UN PRB - United Nations Principles of Responsible Banking
These are six principles that shape a framework for a sustainable banking system and will help the industry to demonstrate how it makes a positive contribution to society. The areas of strategy covered by these principles are alignment, impact & target setting, clients & customers, stakeholders, governance and culture, and transparency & accountability. The Principles for Responsible Banking were launched by 130 banks from 49 countries, representing more than USD $47 trillion in assets. [Source: Global Affairs Associates]

UN PRI - Principles for Responsible Investment
The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors and asset managers working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. Asset owners, investment managers and service providers can become signatories which obliges them to annually report on their progress regarding the six principles covering ESG integration, active ownership and promotion of sustainable investments. Organizations follow these principles to meet commitments to beneficiaries while aligning investment activities with the broader interests of society. As of 2019, there were 2,372 signatories with a combined USD $86 trillion in asset under management. [Source: Swiss Sustainable Finance]

UN SDGs - Sustainable Development Goals
The Sustainable Development Goals are a collection of 17 global goals designed to be a ""blueprint to achieve a better and more sustainable future for all."" The SDGs, set in 2015 by the United Nations General Assembly to be achieved by the year 2030. The goals recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth. They include goals such as no poverty, gender equality, decent work, sustainable consumption, climate action and reduced inequalities. The goals were developed to replace the Millennium Development Goals (MDGs) which ended in 2015. Unlike the MDGs, the SDG framework does not distinguish between ""developed"" and ""developing"" nations. [Source: Global Affairs Associates]

UNEP FI - United Nations Environment Program; Finance Initiative
UNEP FI is a global partnership between UNEP and the financial sector founded in 1992. UNEP FI’s mission is to bring about systemic change in finance to support a sustainable world, and is highlighted in its motto, “Changing finance, financing change”. Member organisations, representing banking, insurance and investment, recognize sustainability as part of a collective responsibility and support approaches to anticipate and prevent potential negative impacts of the financial industry on the environment and society. UNEP FI develops selective collaborations with other partner organisations, in order to increase awareness and raise support for critical activities. [Source: Swiss Sustainable Finance]

UNGC - United Nations Global Compact
UNGC is a non-binding United Nations agreement to encourage businesses worldwide to adopt sustainable and socially responsible policies grounded in 10 Principles on human rights, labor, environment, and anti-corruption. This UN initiative aims to encourage businesses worldwide to align their operations and strategies with the ten universally principles. Companies signing the UNGC commit to regularly reporting on progress on the ten principles. [Source: Global Affairs Associates]

Universal Owner
A large investor that holds a broad selection of investments in different public companies as well as other assets, and whose performance is, therefore, tied to the performance of markets or economies as a whole—not just to the performance of individual holdings. These investors have a vested interest in the long-term health of the economy, making public policy issues and cross-market ESG concerns particularly relevant. [Source: First Affirmative Financial Network]

Values-based Exclusions
This refers to exclusions that are based on personal values (as opposed to exclusions based on risk considerations or the violation of international norms). Prominent examples are exclusions of companies involved in gambling, production of weapons or alcohol. [Source: Swiss Sustainable Finance]

Voting Rights
Equity investors typically have the right to vote at annual and extraordinary general meetings (AGMs and EGMs) on issues such as an individual director’s appointment, remuneration or mergers and acquisitions (depending on a country’s legal framework). The resolutions on which shareholders vote will vary according to individual countries’ legal frameworks. [Source: Allianz]

Water Funds
Funds that invest in companies providing technology, products and services relating to the water value chain, such as water distribution, management, treatment and analysis or irrigation. [Source: Schroders]

WMA - Swiss Federal Act on War Material
The WMA is a piece of Swiss legislation in force since 1998. This Act focuses on the fulfilment of Switzerland's international obligations and the respect of its foreign policy principles by means of controlling the manufacture and transfer of war material and related technology. At the same time, it aims at maintaining Swiss industrial capacity adapted to the requirements of its national defense. The WMA was amended in 2013 to include the prohibition of the production as well as the direct financing of controversial weapons, encompassing cluster munition, anti-personal mines, as well as biological, chemical and nuclear weapons. Switzerland is one of the 13 countries regulating the financing of controversial weapons. [Source: Swiss Sustainable Finance]

Wolf-pack Strategy
A strategy where multiple hedge funds, each with minority positions in a company, work together to force change on a target company. [Source: Stanford: Corporate Governance Research Initiative]

Sources:

  1. Allianz Global Investors, ESG Glossary, Retrieved: September 12,2020
  2. First Affirmative Financial Network, Glossary of Responsible Investing Terms, Retrieved: September 12,2020
  3. Global Affairs Associates, ESG Glossary, Retrieved: September 12,2020
  4. Invesco Ltd., Glossary: Understanding ESG jargon, Retrieved: September 12,2020
  5. Nuveen, LLC., Glossary: Responsible investing, Retrieved: September 12,2020
  6. Schroders Investment Management North America Inc., Understanding sustainable investment and ESG investment terms, Retrieved: September 12,2020
  7. Stanford Graduate School of Business, Corporate Governance Research Initiative, Retrieved: September 12,2020
  8. Swiss Sustainable Finance, Glossary, Retrieved: September 12,2020

Disclaimer: This glossary is NOT intended to be an authoritative reference document. All information in this glossary is for educational use only. This glossary has been compiled based on public domain information available on the websites of the mentioned sources. While due care has been taken in compiling this glossary, ESGSense does not assume any liability for any inaccuracy or factual error. Any term or definition mentioned here does NOT constitute financial or investment advice. ESGSense assumes no liability for any financial decisions and/or investments made on the basis of information gained from this glossary.