Investment Terms
Active Ownership: An investment process where one engages with portfolio companies on ESG issues to promote positive change.
Catastrophe and Weather Derivatives: Derivatives (including swaps, insurance linked products, and exchange traded derivatives) that allow parties to transfer the risk of natural disasters or extreme weather events.
CSR: Corporate Social Responsibility – a management concept where companies integrate environmental and social concerns throughout their business operations and interactions with stakeholders.
Emissions Trading: Also referred to cap & trade – a system that caps the amount of emissions a holder can generate and allows holders to trade emissions allowances (primarily through futures and options).
ESG: Environmental, Social, and Governance
ESG Benchmark: A benchmark or index based on specific ESG criteria.
ESG-Related Credit Derivatives: Credit Default Swaps (CDS) that can hedge against losses resulting from either climate change, or changes in the market value of sustainability-linked bonds and loans due to market factors.
ESG-Related Exchange-Traded Derivatives: Equities index futures and options contacts linked to ESG benchmarks (which can include indices that use positive or negative screening).
ESG Risk: An ESG factor (such as climate change) that may impact an investment’s performance.
Ethical Investing: Using ethical principles as the primary filter for selecting securities investments.
Exclusions: Barring securities from a fund’s investments because they fail to meet specific criteria.
Green Bonds: Bonds that finance/refinance environmental and climate-related projects.
Greenwashing: Providing a false or misleading impression about the sustainable/environmental impacts of a company, fund, or business practice.
Impact Investing: Investing that aims to generate beneficial environmental or social impacts in addition to financial gains.
Integration: Systematically incorporating ESG factors in addition to traditional financial analysis.
PCAF: The Partnership for Carbon Accounting Financials, focused on developing and implementing a consistent approach for the accounting and disclosure of financial institutions’ GHG emissions.
PPA: Power Purchase Agreement – a derivative contract for the purchase of power and its associated RECs.
Public Benefit Corporation: Corporations who are created to operate sustainably and promote a public benefit.
REC: Renewable Energy Certificate – a derivative instrument representing the rights to the environmental, social, and non-power based attributes of renewable energy.
RIN: Renewable Identification Number – a credit used from for compliance with the US renewable fuel standard program.
Screening: Using specific filters to decide whether securities are eligible (positive screening) or not eligible (negative screening) for investment.
Social Bonds: Bonds that finance/refinance projects that achieve positive social outcomes or address a social issue (such as affordable housing, basic infrastructure, and food security).
SRI: Socially Responsible Investing, which incorporates ESG criteria to achieve both competitive financial returns and a positive social impact.
Stakeholder Capitalism: A system whereby corporations are committed to serving the interests of all stakeholders – including their shareholders, customers, employees, suppliers, and communities.
Sustainability Bonds: Bonds whose proceeds finance a combination of both green and social projects.
Sustainability-Linked Bonds: Bonds that are structurally linked to the issuer’s achievement of ESG goals (which will result an adjustments to the bond’s coupon).
Sustainability-Linked Derivatives: Derivative that add an ESG pricing component to swaps and forwards.
Thematic Investing: A top-down investment approach focused on opportunities created by broad trends that unfold over time. (E.g., alternative/clean energy).
Vice Stocks: Company securities associated by activities associated by some to be unethical (such as gambling, tobacco, and conflict diamonds). Also known as “sin stocks.”