Glossary


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2°C Scenario

An internationally agreed threshold to limit the rise in global temperatures to below 2°C from pre-industrial levels.

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A

Active ownership

Engaging with companies on ESG concerns that affect their long-term growth, and using shareholder power to influence corporate behaviour.

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B

Blended finance

The complementary and strategic use of public or private funds, including concessional tools, to mobilise additional capital flows (public and/or private) to emerging and frontier markets.

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C

Carbon offsets

A method of allowing companies and individuals to compensate for their own carbon emissions through contributing to reduced emissions of carbon dioxide of greenhouse gases elsewhere. This usually involves payment for carbon credits each representing one ton of carbon equivalent.

Civil society

A public space between the state, the market and society which can be understood as the aggregate of citizens and non-governmental organisations linked by common interests and collective activity.

Conservation finance

A mechanism through which a financial investment into an ecosystem is made – directly or indirectly through an intermediary – that aims to conserve the values of the ecosystem for the long term. 

Crowdfunding

The practice of funding a project or business venture by raising relatively small amounts of money from a large number of people, typically via the Internet.

Carbon footprint

The amount of carbon dioxide released into the atmosphere as a result of the activities of a particular organisation, most often expressed as tonnes of CO2 emission per USD million of revenues.

Climate Bond Initiative

An investor focused, not-for-profit organisation that works to mobilise bond markets for climate change solutions. The aim is to reduce the cost of capital for climate-related investments by developing a large and liquid market, while providing trusted standards and certification.

Corporate governance

The system of rules, practices and processes by which a company is directed and controlled.

Corporate Social Responsibility (CSR)

Corporate responsibility involves the search for an effective ‘fit’ between businesses and the societies in which they operate. ‘Corporate responsibility’ refers to the actions taken by businesses to nurture and enhance this symbiotic relationship.

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D

Development Finance Institution (DFI)

A financial institution which provides credit, concessional debt, equity funding and risk guarantee instruments to private sector investments in emerging markets and developing countries. DFIs tend to be backed by states with developed economies and aim to provide additionality to catalyse investment and private sector development in the target markets.

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E

ESG integration

The inclusion of ESG factors alongside financial analysis of assets by investment managers.

Exclusionary screening

Excluding entire sectors, companies or countries from a fund or portfolio based on ESG criteria, moral or ethical views, or religious beliefs.

Engagement

A process that allows the fund manager to meet the companies in which they invest. This is crucial to the ongoing management of a fund as it allows regular discourse with a company or regulator in order to seek long-term positive outcomes.

ESG (environmental, social and governance)

A set of non-financial indicators or standards for a business that investors or lenders use to evaluate corporate behaviour, screen investments and determine the sustainability, impact and investability of a business.

Equity

A security or stock representing an ownership interest. In the case of a private company, this is called private equity. On a business’s balance sheet, equity, or shareholders equity, is the amount of funds contributed by the owners of the business plus the retained earnings or minus the losses of the business.

Extra-financial

Elements of a company’s behaviour that may not be immediately apparent solely from an analysis of its financial data. Often ESG themes are associated with extra-financial factors.

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F

Fiduciary duty

Fiduciary duties (or equivalent obligations) exist to ensure that those who manage other people’s money act in the interests of beneficiaries, rather than serving their own interests. The most important of these duties are:

  • Loyalty: Fiduciaries should act in good faith in the interests of their beneficiaries, should impartially balance the conflicting interests of the different beneficiaries, should avoid conflicts of interest and should not act for the benefit of themselves or a third party.
  • Prudence: Fiduciaries should act with due care, skill and diligence, investing as an ‘ordinary prudent person’ would do. 
Source: Fiduciary Duty in the 21st Century, United Nations Global Compact, UNEP FI, PRI and Inquiry, September 2015.

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G

Global Impact Investing Network (GIIN)

A not-for-profit organisation devoted to increasing the effectiveness of impact investing, which was launched in 2009.

Green bond

A bond that is issued to raise capital for the development of environmentally friendly projects or assets.

Green washing

When a company, government or other group make a unsubstantiated or misleading claim about the environmental benefits of a fund or financial instrument.

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H

High Conservation Value (HCV) area

An area of biological, ecological, social or cultural value of outstanding significance or critical importance.

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I

Impact investing

Investing in companies, organisations and funds which have the commercial purpose of solving social or environmental problems.

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L

Low-carbon economy

An economy based on low-carbon power sources with minimal carbon emissions into the environment. It makes reference to a world where the temperature increase is contained below 2°C or 1.5°C.

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M

Microfinance

Financial services, including loans, savings and insurance, provided to unemployed or low-income individuals or to small businesses who lack access to traditional banking services.

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N

Negative screening/disinvestment

An investment approach that excludes some companies or sectors from the investment universe based on criteria relating to their policies, actions, products or services. Divestment refers to the sale of stocks, bonds or investment that conflict or are not aligned with specific ESG objectives, values or convictions.

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P

Positive screening

Investing in companies demonstrating positive ESG performance relative to peers.

Principles for Responsible Investment (UNPRI)

The United Nations-backed Principles for Responsible Investment initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. It works to understand the implications of sustainability for investors, and support signatories to incorporate these issues into their investment decision-making and ownership practices.

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R

Return on investment

A performance measure of the amount of return on an investment relative to the investment’s cost. To calculate ROI, the benefit of an investment is divided by the cost of the investment, and the result is expressed as a percentage or a ratio.

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S

SRI (Socially Responsible Investment)

Socially responsible investing is the incorporation of ESG factors into investments. It covers a range of strategies including ESG integration, thematic investing, ethical investing, socially responsible investing, sustainable investing, green investing and impact investing, among others.

Social capital

The networks of relationships among people who live and work in a particular society, enabling that society to function effectively.

Social enterprise

An organisation that is directly involved in the sale of goods and services to a market, but that also has specific social objectives that serve as its primary purpose. It seeks to balance activities that provide financial benefit with social goals.

Special purpose vehicle/entity

The creation of a subsidiary which is a distinct legal entity to help keep liabilities, taxation and regulations related to the project separate from the core business, therefore isolating risk. This opens opportunities for leveraging finance.

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U

UN SDGs

The United Nations Sustainable Development Goals. These are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. They can provide a useful lens through which to view impact investing.

UN 2030 Agenda for Sustainable Development

An agenda made up of 17 Sustainable Development Goals adopted by world leaders in 2015. The Goals encourage countries to establish national frameworks to end all forms of poverty, fight inequalities and tackle climate change. Each goal has specific targets to be achieved over the next 15 years.

UN Global Compact

An initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies and report on their implementation. The UN Global Compact supports companies to:

  • Do business responsibly by aligning their strategies and operations with Ten Principles on human rights, labour, environment and anti-corruption; and 
  • Take strategic actions to advance broader societal goals, such as the UN Sustainable Development Goals, with an emphasis on collaboration and innovation.

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