Responsible Investment Glossary

A group of Central Banks and Supervisors willing, on a voluntary basis, to share best practices and contribute to the development of environment and climate risk management in the financial sector and to mobilise mainstream finance to support the transition towards a sustainable economy.

The negative effects that investment decisions and activities can have on sustainability factors, as defined under EU Sustainable Finance Disclosure Regulation (SFDR)

The process by which investment managers vote on behalf of underlying shareholders at company annual and extraordinary general meetings (AGMs and EGMs). This includes expressing approval or disapproval on company resolutions and proposing shareholder resolutions.

A strategy and practice to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership.

A metric used to assess how efficiently a company allocates capital.

The Sustainability Accounting Standards Board (SASB) provides a set of standards to support companies across 77 industries in identifying sustainability-related risks and opportunities and then disclose them to investors. Source: SASB

Scenarios that explore higher transition risk due to policies being delayed or divergent across countries and sectors. Carbon prices are typically higher for a given temperature outcome.

Scenarios that assume climate policies are introduced early and become gradually more stringent. Both physical and transition risks are relatively subdued.

A numerical model that generates projections for the future evolution of the world economies with a special focus on the development of the energy sector and the implications for our world climate. The goal of REMIND is to find the optimal mix of investments in the economy and the energy sectors of each of the 12 model regions given a set of population, technology, policy, and climate constraints. It also accounts for regional trade characteristics on goods, energy fuels, and emissions allowances. The most relevant greenhouse gas emissions due to human activities are represented in the model.

Scenarios that assume climate policies fall short of holding warming in check, so global efforts stall. Transition risk stays relatively subdued, but physical risks become severe and largely irreversible as warming continues through the century.

Science-based targets relate to climate or greenhouse gas emissions reduction. These targets have a clearly defined emissions reduction pathway, a defined baseline amount and year, a set target goal date, and are aligned with the latest climate science to achieve the goals of the Paris Agreement. Source: SBTi

The SBTi supports companies and financial institutions by defining emissions target best practice. It develops tools and guidance to enable companies to set and validate emission reduction and net-zero targets in line with the Paris Agreement. Source: SBTi

Emissions from sources owned or controlled directly by an organisation, such as burning of gas in on-site boilers. Source: National Grid

Emissions from indirect sources used or bought by the organisation, such as energy produced elsewhere but used by the organisation’s buildings. Source: National Grid

Emissions from indirect sources upstream and downstream of the value chain of an organisation that it is responsible for, such as product-level emissions or those from business travel. Source: National Grid

Emissions ‘avoided’ by an organisation, or a reduction in emissions that “occurs outside of a product’s life cycle or value chain but as a result of the use of that product”. Source: World Economic Forum

Applying filters to lists of potential investments to rule companies in or out of contention for investment, based on investor’s preferences, values, or ethics.

A component of executive remuneration packages designed to reward and incentivise the achievement of annual business objectives.

Aggressive scenario represents a more severe future physical climate and is derived from the 95th percentile of the cost distribution, exploring the most serious downside risk. Applies to the physical risk component only.

Social criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates.

Refers to the responsible use of influence by investors to preserve and enhance overall long-term asset value.

One of the labels introduced by the Financial Conduct Authority SDR regulation. Funds applying the Sustainability Focus label primarily invest in assets that focus on sustainability for people or the planet. Examples may include activities to support the production of energy from renewable sources, for example, from solar, wind, or hydrogen. See also: UK SDR

The 17 Sustainable Development Goals were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. Source: UNDP 

SDR regulation introduced four sustainable investing labels in the UK: Sustainability Focus, Sustainability Improvers, Sustainability Impact, and Sustainability Mixed Goals. More information about the labels can be found on the FCA website. See also: UK SDR

The TCFD, established in 2015 by the Financial Stability Board (FSB), provides a framework for companies and financial institutions to disclose information related to climate-related risks and opportunities. These can help investors to appropriately assess and price climate-related risks. Source: TCFD

A legally binding international treaty on climate change, adopted by 196 Parties at the UN Climate Change Conference (COP21) in Paris, France, in 2015. The Paris Agreement aims to limit global average temperature rise to well below 2°C above preindustrial levels, and to pursue efforts of limiting this to 1.5°C. Source: UNFCCC

A performance metric that reflects the total return an investor earns from holding a company’s stock over a specific time period.

When used in a ESG integration context, this refers to the openness and clarity with which an organisation discloses information, particularly regarding its operations, financial performance, and ESG practices. Greater transparency allows stakeholders to make more informed decisions and hold companies accountable.

Regulation introduced in the UK by the Financial Conduct Authority (FCA), designed to enhance transparency and mitigate greenwashing in the investment industry. The regulation established a labelling system for investment products to help investors make informed choices about sustainability-focused funds. See also: Sustainable investment labels

A membership organisation which aims to support its members to grow sustainable and responsible finance in the UK. It also seeks to influence policymaking that promotes the growth of sustainable finance.

Sets high stewardship standards for those investing money on behalf of UK savers and pensioners. It comprises a set of 12 ‘apply and explain’ Principles for asset managers and asset owners to demonstrate their stewardship role and performance.

A voluntary initiative where company leaders commit to implementing universal sustainability principles and to take steps to support United Nations goals.

Calculated by multiplying the carbon intensity of each fund holding by its portfolio weight. Carbon intensity is typically assessed by comparing a company’s emissions with its revenues. The carbon intensity of each fund holding is adjusted by its portfolio weight (the value of the holding relative to the total value of the portfolio, excluding cash). The weighted adjusted carbon intensities of each fund holding is then aggregated at the portfolio level.