2°C Scenario

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



Active ownership

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

Asset lock

An asset lock is a clause in the constitutional document of a corporate structure that prevents, or otherwise restricts,the assets of a company from being used for private gain,rather than for the stated purposes of the organisation(see “mission lock”). An asset lock is mandatory and ina prescribed form in a Community Interest Company, but asset locks can also be included in, and tailored for, the constitutions of other corporate structures (such as a company limited by shares or guarantee). Source: Bates Wells



Blended finance

The term blended finance is used to describe deploying funds in sustainable development initiatives in order to help leverage further investment, typically from public and private sector actors. For example, philanthropic capital might be invested (or donated) in order to de-risk further investment from private investors, or development funding might be used to demonstrate the impact of a particular initiative so as to encourage government funding to scale it subsequently. Source: Bates Wells



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 is a method of raising finance by asking a large number of people to contribute a small amount. Using online crowdfunding platforms, typically run by specialist crowdfunding intermediaries, millions of potential funders can be reached online and via social media. Source: Bates Wells

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.

Catalytic capital

Catalytic capital can be conceptualised as a subset on the spectrum of investment. Catalytic capital is typically patient, risk-tolerant, concessionary, and/or flexible in ways that conventional investment usually is not; it is intended to be a tool to bridge capital gaps, in order to support the achievement of desired social impacts, and to complement conventional forms of investment capital. It can take the form of debt, equity or guarantees. Source: Bates Wells

Community Shares

In the UK there is no legal definition of ‘community shares’ but the term is typically used to mean ‘withdrawable shares’; these are a form of share capital that can be issued by co-operatives or community benefit societies registered with the Financial Conduct Authority (FCA). Source: Bates Wells

Corporate venturing

Corporate venturing is where a large firm supports the development of small/start-up ventures, often providing non-financial support and investing if a start-up shows promise. The objectives of corporate venturing can include gaining a specific competitive advantage, supporting innovation and creating positive social impact. Source: Bates Wells

Carbon transition risk

Carbon transition risk refers to the risks to a company presented by transitioning to a low-carbon economy. Market participants are developing ways to measure the risk profile of a company in relation to its exposure to carbon assets and sensitivity to carbon-related policy initiatives (e.g. through its production of, or reliance upon, gas, coal or oil). Source: Bates Wells

Circular economy

An economic activity (e.g. producing goods) is described as ‘circular’ when the resources used in that activity are recaptured (in the same form, or in a transformed state) and reused or recycled rather than discarded as waste. This is compared to the predominant ‘linear’ model of production, where the outputs (i.e. by-products of production and the product itself at the end of its lifespan) are discarded. In order to stay within planetary boundaries (including finite resources and environmental limits), the circular economy movement encourages all economic participants to design processes and products to be regenerative, and move away from linear resource use. Source: Bates Wells


Community development finance institution (CDFI)

Community development finance (or ‘financial’) institutions are private institutions dedicated to providing affordable debt finance (loans) to  individuals, third-sector organisations and businesses from low-income or otherwise disadvantaged communities. A CDFI will typically be a not-for-shareholder-profit company and take a responsible, ethical approach to lending. Source: Bates Wells



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.



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.


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.


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.


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.


ESG means ‘environmental, social and governance’. ESG factors are frequently used when evaluating the non-financial performance of a company; this would typically include consideration of sustainability, ethical and corporate governance issues, such as a company’s carbon footprint and what systems are in place to help maintain accountability. Source: Bates Wells


Externality is a term frequently used in the field of economics, meaning a cost or benefit that affects someone who did not choose to incur that cost or benefit. Where an externality is not accounted for in a particular activity, this can distort an evaluation of whether that activity is sustainable. Pollution is a common example of an externality: a producer may produce more products if it does not have to account for the full environmental cost of production. Source: Bates Wells



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.



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.

Gender lens investing

The term gender lens investing is used to describe a range of contexts in which funds are deployed to pursue gender parity, including: investing in products and services for the benefit of women, investing in businesses founded/led by women, or investing in initiatives and policies within workforces that pursue gender equality. Source: Bates Wells



High Conservation Value (HCV) area

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



Impact investing

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

Impact economy

The term ‘impact economy’ is used to refer to businesses that take a “triple bottom line” approach to their operations, aiming to benefit society and the environment alongside achieving financial success. Such businesses can include, but are not required to be, registered B Corps, benefit corporations, social enterprises or cooperatives. ‘Impact investing’ is a core sector within the impact economy (see below). Public sector organisations working in partnership with the private sector to deliver initiatives for sustainable development could also be an example of activity within the impact economy. Source: Bates Wells

Impact measurement and reporting

Impact measurement and impact reporting are terms used to describe the processes by which an organisation, such as a charity or a business, evaluates and publicly reports on the effect it has had on society and/or the environment, or on its progress towards achieving its purpose and intended outcomes. Source: Bates Wells



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.




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.

Mission led businesses

Mission-led businesses are profit-driven enterprises that commit to making a positive impact on society and the environment. Examples include Cook Trading Limited, Timpsons, and Patients Know Best. Source: Bates Wells

Misson lock

A mission lock is a clause in the constitutional document of a corporate structure that specifies the objects of that entity. For example, rather than a UK company limited by shares having unrestricted objects, a mission lock can be used to restrict the objects to a specific social mission. For some corporate forms, like Community Interest Companies and charitable companies, are required to have a mission lock. Source: Bates Wells



Negative screening

Negative screening is when investors screen out potential investments that do not align with their values; for example, an investor may not want their portfolio to include investments in tobacco, arms or gambling. This is not impact investing (i.e. investing to create a positive social / environmental impact), but an approach used to avoid financing specific activities. Source: Bates Wells

Natural capital

Natural capital is a term used to describe the natural assets of the world, including animals, soil and plants, minerals, water and the air, which humans need to survive. Source: Bates Wells



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.

Patient capital

Patient capital is used to describe investment that has a long-term timeframe. Patient capital is often important for businesses trying to achieve a social impact, which may take longer to generate financial returns whilst working to develop their social impact. Patient capital investors are more likely to prioritise social impact over financial return, offer flexible terms and have a higher risk tolerance. Patient capital may be deployed alongside other types of investments, to help bridge the gap between efficient, market-based approaches and achieving social impact. Source: Bates Wells



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.



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.

Social return on investment

Social Return on Investment (SROI) is a measure of the social, environmental and economic value of the outcomes of an activity (i.e. how much social value (£) is created for every £1 of investment). This measure is a way to capture the monetary value of a range of outcomes, even where a financial value is not readily attributable to a particular activity. Source: Bates Wells




‘Tech-for-good’ is a term used to refer to technological services and products that are designed to produce a positive social and/or environmental outcome. For example, tech-for-good can include apps or software to be used by the people they are designed to benefit, or technology that helps organisations with a public purpose, such as charities, to increase their social impact. The tech-for-good movement includes innovators using a range of technologies, from blockchain to AI and machine learning, to address a variety of social issues. Within the tech-for-good movement, the term ‘social tech’ is also used. Source: Bates Wells




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.