Glossary

As the sustainable finance industry continues to develop, more and more terms and expressions are being introduced to finance’s repertoire.  Our glossary provides a non-exhaustive collection of green and sustainability terms and expressions recently introduced to the market so that you can build a solid foundation of sustainability knowledge.

Basics

EU Action Plan
This is the EU Action Plan on Sustainable Finance adopted by the European Commission in March 2018 and it has 3 main objectives:
  • Reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth
  • Manage financial risks stemming from climate change, environmental degradation and social issues
  • Foster transparency and long-termism in financial and economic activity
Best in Class
The Best in Class approach is a behaviour adopted by companies or issuers where its ESG performance is compared to the ESG performance of a similar entity in the market.
Carbon Footprint
Carbon Footprint refers to how much total greenhouse gas (GHG) is produced by an individual, entity, organisation, product, service etc.
Carbon footprint
Carbon Neutral
Carbon Neutral is another way of referring to the goal of zero CO2 emissions. Carbon neutrality can refer to the status of a company, entity, nation etc.
Carbon Offset
Carbon Offsetting allows companies and individuals to reduce their carbon footprint without actually causing less pollution. In a financial system, the company or the individual can buy an offset which means that it can provide funding to a project that reduces carbon in the atmosphere. However, the company's activities will still have the same carbon footprint.
Circular Economy
A Circular Economy is an economy in which almost no waste is generated and all available materials are used. 
Circular Economy
Climate Finance
Climate Finance refers to financing that supports the pathway towards a climate resilient economy through mitigation actions, especially the reduction of greenhouse gas emissions, and adaptation initiatives promoting the climate resilience of infrastructure.
Climate Risk
Climate Risk refers to a risk caused by the effects of global warming.
Climate risk
Corporate Governance
Corporate Governance is a term used to describe the sum of best practices and behaviours which govern a company’s direction. This can include actions that promote transparency, shareholders right to vote etc.
Corporate governance
Corporate Social Responsibility
Corporate Social Responsibility (CSR) is an international business regulation implemented by corporates or other entities with the ultimate goal of contributing to the society in which the business exists. Examples include voluntary work, charitable actions and philanthropy.
Equator Principles
Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in project finance.
ESG
ESG stands for Environmental, Social and Governance factors that are used to measure how sustainable a business or entity is in its dealings with the environment, society and the way the entity is run.
ESG Integration
An entity's level of ESG Integration is based on how ESG factors are used to weigh said entity's decision-making process and ultimate result.
ESG Risk
An ESG Risk is a negative outcome/action that is a result of an entity's inability to comply with ESG factors.
Carbon Finance
Carbon Finance refers to the financial amount invested in climate change projects; more specifically investments in greenhouse gas emission reduction projects.
EU Taxonomy
EU Taxonomy is a list of economic activities that can genuinely be considered environmentally sustainable, defining and providing a common understanding of what is ‘green’.
Exclusion
The process of exclusion is used within ESG investment strategies when choosing not to invest in a product or entity that fails to comply with ESG factors.
Exclusion
Green Finance
Green Finance relates to effects of climate change and other environment factors on the financial industry, and the positive financial actions taken to counteract them.
Green Transition
Becoming a green and sustainable society will take time and effort. There will be a transition period during which different players in the market - and especially issuers - have to adapt and move gradually towards a green and sustainable business model.
Greenwashing
Greenwashing is a term used within the Sustainable Finance industry in which false or misleading information is provided to make a financial instrument appear more 'green'.
Impact Investment
An Impact Investment is that which is made with the specific purpose of funding a positive environmental or social impact while also providing the usual expected financial return of a 'traditional' investment. 
Impact investment
Responsible Investment
Responsible Investment (RI) is an approach to managing assets that sees investors include Environmental, Social and Governance (ESG) factors in:
  • Their decisions about what to invest in
  • The role they play as owners and creditors
It aims to combine better risk management with improved portfolio returns, and to reflect investor and beneficiary values in an investment strategy. It complements traditional financial analysis and portfolio construction techniques.
Social Finance
Social Finance refers to financing addressing a specific social issue and/or seeking to achieve positive social outcomes especially but not exclusively for a target population(s).
Social Responsible Investment
A Social Responsible Investment (SRI) is an investment with a Social or Environmental responsibility such as investing in specific sectors and avoiding others. 
Stranded Assets
Within the context of climate risk and the transition to a low-carbon economy, some assets become less advantageous than what was anticipated at the beginning of the investment period. This means there is a huge risk for banks and other types of investors who are investing in these assets for years into the future, so they become stranded. The clearest example of such stranded assets are large investments in the oil and gas industry.
Sustainable Development Goals
These 17 Sustainable Development Goals (SDGs) address the global challenges including those related to poverty, inequality, climate, environmental degradation, prosperity, etc. The 17 integrated and indivisible goals with 169 associated targets form the core of the 2030 Agenda for Sustainable Development adopted by the United Nations on 25 September 2015 and to be achieved by 2030. 
Sustainable Finance
Sustainable Finance takes into account Environmental, Social and Governance considerations.
Sustainable Investment
Sustainable Investment is an investment approach that considers - together with financial aspects - the Environmental, Social and Governance aspects of an investment. These considerations guide the selection and management of an investment.