Glossary

De-jargoned: Glossary of ESG terms

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There are currently 10 relevant ESG terms in this directory beginning with the letter A.
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]

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.