ESG Glossary

As the ESG space continues to evolve, best practices / minimum expectations are pushed forward, it is critical to have a clear understanding of key terminology. We also see terms being misused, which adds another layer of confusion to the debate. Therefore, we have made our ESG Glossary publicly available. The glossary is updated on an ongoing basis. The glossary has been split into the following categories:

• Environment

• Financial Instruments

• Governance

• Green-Washing

• Industry Initiatives

• Investment Process

• Materiality

• Regulation

• Social

• Stewardship

Environment

Term	Definition	Example
Biodiversity	The variability of living organisms from all sources including, terrestrial, marine and other aquatic ecosystems and the ecological complexes of which they are a part; this includes diversity within species, between species and of ecosystems. (Convention on Biological Diversity)	An example of a biodiversity hotspot would be the Amazon rainforest, which is filled with an abundance of species, and provides vital eco-system services.
Cap-and-Trade	Also called Emissions Trading Scheme (ETS). A government program aimed to reduce emissions / pollution. Organisations are allocated a limited number of emissions permits ('cap') and incentivised to reduce their emissions by being allowed to trade excess permits. Thereby, a price is created for emissions.	Common cap and trade systems include the EU Emissions Trading System and California Cap and Trade system.
Carbon Credit	Tradeable permits given to polluters, where one credit equals one tonne of CO2e emitted.	1 tonne of CO2e emitted = 1 carbon credit
Carbon Footprint	The annual amount of greenhouse gas emissions, mainly carbon dioxide, that result from the activities of an individual or a group of people. This is measured through sources such as their energy use, transport, and consumption of goods and services.	For an individual, the majority of their carbon footprint will derive from energy usage at home, and commuting.
Carbon Neutral	An entity or activity that creates a balance between the amount of carbon released and the amount removed from the atmosphere (this can include the purchase of carbon offsets).	A company that engaged in enough offsetting projects to balance their own production of carbon dioxide, even if this was to increase, would be considered carbon neutral.
Carbon Offset	A reduction in GHG emissions elsewhere in the world to compensate for emissions created within the organisation or by an individual. One tonne of carbon offset represents one tonne of CO2e reduced or removed from the atmosphere.	A project focused on creating new forests (afforestation).
Carbon Tax	A tax levied on carbon emissions with the aim to place a price on the negative externalities created by the emissions, thereby incentivicing the market to shift towards more sustainable alternatives.	The UK levies taxes on carbon through duties on petrol and diesel.
Circular Economy	In contrast to the linear economic model, whereby resources are used to create products and then disposed of at the end of their life, a circular economy aims to reuse materials at the end of the life of the product, thereby minimising waste generated.	When electrical devices are designed in a way that it is easier to repair so that they will not easily go to waste.
Climate Neutral	Balancing GHG emissions with what is naturally removed by the planet's natural absorption such that there is no net effect on the climate system.	According to the Climate Neutral Certified Label, 303 brands have become "climate neutral", measuring and offsetting 1,112,528 tonnes of carbon.
CO2e	Carbon dioxide equivalent. A metric used to compare and aggregate different GHGs by converting them into the equivalent amount of CO2 emissions that would cause the same temperature change (IPCC).	1kg of methane emitted is commonly expressed as 28kg of CO2e, as its global warming potential (GWP) is a multiple of 28.
Decarbonisation	The reduction of carbon dioxide (CO2) and other GHG emissions released into the atmosphere. I.e. the transition towards a low-carbon economy requires decarbonisation across our global economy.	The act of switching to renewable energy sources instead of fossil fuels in the production of a good can be said to be an act of decarbonisation.
Ecosystem	The system of organisms and the physical environment they interact with.	Forest ecosystems, aquatic ecosystems.
Ecosystem Services	The benefits ("services") provided by the natural environment and natural ecosystem processes to humans.	Food, water, soil erosion, pollination.
Global-warming potential (GWP)	The heat absorbed by any GHG emissions in the atmosphere, as a multiple of the heat that would have been absorbed by the same mass of CO2.	Methane is estimated to have a GWP of 28; i.e. 1kg of methane emitted has the global warming potential of 28kg of CO2.
Natural Capital	The worlds stocks of natural assets that makes human life possible.	Timber
Net-Zero Emissions	An entity or activity that reduces all anthropogenic GHG emissions to the lowest feasible level, before using offsets to remove the rest.	A manufacturing firm shifting energy consumption to entirely renewable energy sources, minimises emissions from employee commuting, and reduces emissions from all other sources, then offsetting remaining emissions.
Science-based targets	GHG emissions reduction targets and consequent pathways for companies to reach the reductions required to limit global warming at 1.5 degrees Celcius. Science Based Targets Initiative (SBTi) is an industry initiative helping companies set these targets.	Reducing Scope 1 emissions by 50% by 2030, net-zero by 2050.
Scope 1 Emissions	Direct Emissions from sources owned or controlled by the entity.	Emissions from company vehicles are a common source of Scope 1 emissions.
Scope 2 Emissions	Indirect emissions from purchased electricity, heat, steam and cooling.	Purchased electricity, steam, heating and colling for own use.
Scope 3 Emissions	All other indirect emissions, including those related to the use of the company’s products and its investments.	Processing of sold products, transportation and distribution, waste generation in operations, business travels are examples of common Scope 3 emissions.
Environment	The 'E' in ESG refers to environmental factors that are relevant to businesses and their stakeholders.	Climate Change, Energy Use, Water and Waste, Materials Sourcing

Financial Instruments

Term	Definition	Example
Blue Bonds	Fixed income instrument designed to specifically support healthy oceans and projects related to the preservation and regeneration of the marine environment.	Seychelles Blue Bond was the first blue bond to be issued by a sovereign nation, and focused on protecting the country's marine fisheries.
Green Bonds	Fixed income instrument where proceeds are earmarked for investments in environmental projects such as renewable energy, pollution prevention, clean transport, and climate change adaptation.	Anglian Water Green Bond - Issued a corporate green bond in order to direct water pipeline to drier areas of the UK, with the aim of improving drought resilience.
Green Finance	Investments focusing on reducing negative environmental impacts and targeting environmental benefits.	An investment in green building or energy infrastructure. These can be in the form of e.g., project financing, green loans or bonds, or sustainability-linked instruments.
Green Loans	Loans made to specifically finance or re-finance green projects such as renewable energy, pollution prevention, clean transport, and climate change adaptation.	A loan to a company in order to electrify its fleet of trucks.
Green Stocks	Shares in companies that engage in activities, or offer products / services that are considered to be environmentally friendly.	Shares in a renewable energy company.
Sin Stocks	Shares in companies that are involved in activities which are considered unethical.	Common sin stocks include Tobacco, Pornography, Gambling etc.
Social Bonds	Fixed income instrument where proceeds are earmarked for investments in social projects such as affordable housing, access to essential services, employment, food security, and socioeconomic advancement.	A municipality bond where the use of proceeds are to be directed at building more social / affordable housing.
Social Loans	Loans made to exclusively finance or re-finance social projects such as affordable housing, access to essential services, employment, food security, and socioeconomic advancement.	A loan to a real-estate company for building accessible and affordable housing.
Sustainability Bonds	Fixed income instrument where proceeds are earmarked for a combination of social and environmental projects.	A corporate bond focused on renewable energy solutions and affordable housing.
Sustainability-Linked Bonds	Proceeds are not earmarked and can be used for general purposes. The bond is linked to the issuer’s performance on sustainability performance targets (SPTs) and Key Performance Indicators (KPIs)that are pre-defined and externally verifiable.	Enel launched a Sustainability-Linked Bond, tying the coupon to its installed capacity of renewable energy sources. Eel was to meet a target of 55% installed renewable energy capacity by 2021, carrying a 25bps increase in the coupon if the target was not met. It has since added more ambitious targets to the bond.
Sustainability-Linked Loans	Proceeds are not earmarked and can be used for general purposes. The interest rate is linked to the borrower's performance on pre-defined Stand underlying KPIs.	Albacore Capital Group issued a sustainability-linked loan whereby the interest rate of the loan was tied to the delivery of affordable healthcare to under-served populations.
Transition Bonds	Fixed income instrument where the proceeds are earmarked for financing an activity's transition towards reduced environmental impact or lower carbon emissions.	An oil company raising a bond to help decommission oil assets.

Governance

Term	Definition	Example
ESG Oversight	The mechanism through which an organisation's ESG strategy supervised, reviewed and deemed to be appropriate, taking into account relevant ESG-related risks, opportunities and impacts.	A Chief Sustainability Officer (CSO) or ESG Committee may have ultimate ESG Oversight. Similarly, the responsibilities may sit with the full board or an existing committee (Risk, Audit, Compensation, etc.) depending on the specific ESG topic.
Executive Pay	The balanced compensation package for a company's executive officer, made up of a fixed salary, benefits based on key performance indicators, bonuses and share link incentives.	Barclays' Remuneration Report provides an overview of how executive director remuneration was decided.
Remuneration Policies	A document that outlines how employees will be paid accordingly, for their role within the organisation.	Barclays' Remuneration Policy, the SFDR requires firms in scope to disclose how sustainability risks are included in remuneration policies.
Governance	The "G" in ESG refers to governance factors that are relevant to businesses and their stakeholders.	ESG Oversight, Executive Pay, Remuneration.

Green-Washing

Term	Definition	Example
Blue-Washing	Overstating one's actions and ambitions around socially responsible practices. When corporations sign up for initiatives such as UN Global Compact and use their association with the United Nations to enhance their marketing strategies. This strategy is often used as a mechanism to shift attention away from controversial business practices.	A company that signs up to the UN Global Compact but continues to face allegations of child labour within their supply chain.
Gender-Washing	Making token efforts to report on gender equality, without focusing on other aspects such as equity and inclusion.	A company publicly communicating that they have a balanced workforce and care about DEI, yet most of minority employees sit in junior roles and DEI is not thought of throughout the firm.
Green-Hushing	Where a company chooses to under-report or not report at all, their sustainability-related actions or targets.	A company who has set a net-zero target but not publicly disclosed it to their stakeholders.
Green-Washing	Corporate, investor and governmental claims about sustainability practices that provide a false impression that the business is more environmentally friendly that it actually is.	An airline claiming it has the lowest carbon emissions out of all airlines solely because it purchases the most carbon offsets.
Impact-Washing	Making impact-focused claims without having pre-defined impact objectives, being able to quantifiably measure the impact or show additionality.	A manager claiming to be an impact-investor yet only purchases impact-focused bonds being traded on secondary markets.
Pink / Rainbow-Washing	The use of superficially sympathetic messages of support for LGBTQ+ people, with the sole intention of enhancing marketing.	A company that runs a prominent social media campaign during Pride Month, yet does nothing else internally or externally to create inclusive work environments or continues to operate in countries that have negative attitudes towards LGBTQ+ people.
SDG-Washing	Making SDG-focused claims without being able to demonstrate measurable impacts on the SDGs.	A fund manager whose entire portfolio is comprised of small companies operating in countries that have already met SDG 1 "No Poverty" yet claiming to be significantly contributing to that goal.
Social-Washing	Claims about products, services or practices that provide a false impression that an organisation is more socially responsible than it actually is.	A tobacco company promoting its cigarettes as being "healthy", just because it contains the lowest amount of nicotine compared to other brands.

Industry Initiatives

Term	Definition	Example
B Corporation	For-profit companies that have amended their corporate bylaws to clearly outline that their reason for existing goes beyond maximising shareholder profit. In other words, by law, their mission considers the impact on stakeholders as well (employees, community, environment, shareholders, suppliers) and the fiduciary duty of directors therefore extends beyond shareholders to non-financial stakeholders.	Patagonia is an example of a certified B Corporation.
B Corp Certification	Companies that meet the following requirements can get certified B Corporation status: (1) Make a legal commitment to change corporate governance structure to be accountable to all stakeholders and achieve benefit corporation status (as above) in their jurisdiction. (2) Complete a B Impact Assessment (provided by B Lab) and passing their risk review. (3) Commit to transparency by publicly sharing their performance against the B Lab’s standards.	Coutts became a certified B-Crop in 2021.
Carbon Disclosure Project (CDP)	A non-profit charity organisation that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.	For more information, please see the CDP website.
Climate Action 100+	An investor-led initiative with the mission to influence large corporate greenhouse gas emitters to take the necessary action on climate change.	For more information, please see the Climate Action 100+ website.
Climate Disclosure Standards Board (CDSB)	An international consortium of business and environmental NGOs that are committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital.	For more information, please see the CDSB website.
Disclosure Frameworks	Also called reporting standards. These help organisations structure their sustainability-related disclosures and aim to provide more transparency to the overall market. The focus of the frameworks depends on the audience, with some disclosure frameworks targeting specific topics (CDP Forest), financial materiality (SASB), or double materiality (GRI). Currently, there is no globally agreed disclosure framework, and companies tend to report on voluntary basis.	SASB and GRI are both examples of disclosure frameworks
Education Forums	Groups that are including responsible investment sections within their wider investment education syllabus.	The CFA's Certificate in ESG Investing makes the CFA an educational forum for ESG and Responsible Investment.
Engagement Groups	Collectives of investors who facilitate engagement with companies in order to advance ESG issues.	Climate Action 100+ is an example of an engagement group.
ESG4VC	A group that aims to increase the adoption of ESG policies at venture capital firms through education and knowledge sharing.	For more information, please see the ESG4VC website.
European Green Deal	A European Union policy initiative that aims to ensure the EU becomes climate neutral by 2050.	For more information, please see the EU's website for further information.
Global Impact Investing Network (GIIN)	A global organisation that is dedicated to increasing the scale and effectiveness of impact investing, with the goal of having more investors allocating capital to impact investment strategies.	For more information, please see the GIIN website.
Global Industry Classification Standards (GICS)	Developed by MSCI and S&P, it is a tool designed to assign companies to a specific economic sector and industry group that best defines its business operations.	For more infromation, please see full GICS classification standard.
Global Real Estate Sustainability Benchmark (GRESB)	An investor-led organisation that aims to provide actionable and transparent ESG data to financial markets, with a particular focus on real-estate and infrastructure.	For more information, please see the GRESB website.
Global Reporting Initiative (GRI)	An international independent standards organisation aims to provide businesses, governments and organisations a common for language for communicating their impact on sustainability-related topics.	For more information, please see the GRI website.
Industry Bodies	Groups that look to promote and further the implementation of responsible investment within the wider investment industry. They convene working groups which discuss the best ways to tackle different responsible investment issues.	The UN PRI is an example of an ESG focused industry body.
Intergovernmental Panel on Climate Change (IPCC)	A United Nations body responsible for assessing the science related to climate change, providing regular assessments of the scientific basis of climate change, its impacts, future risks and options for adaption and mitigation.	For more information, please see the IPCC website.
International Corporate Governance Network (ICGN)	An organisation that aims to advance the highest standards of corporate governance and investor stewardship worldwide in order to create long-term value, as well as contributing to sustainable economies, societies and the environment.	For more information, please see the ICGN website.
Leadership in Energy and Environmental Design (LEED)	A green building certification programme that aims to create healthy, highly efficient, cost-saving green buildings.	For more information, please see the LEED website.
Net Zero Asset Manager Initiative	An international group of 236 asset managers, representing US$ 57.5 trillion AUM, who are committed to supporting the goal of net-zero emissions by 2050 or sooner across all AUM.	For more information, please see the Net Zero Asset Manager Initiative website.
Net Zero Asset Owner Alliance	An initiative where institutional investors commit to transitioning their portfolio to Net-Zero emissions by 2050.	For more information, please see the Net Zero Asset Owner Alliance website.
Net Zero Banking Alliance	An initiative representing 40% of global banking assets, signatories of the Net-Zero Banking Alliance are committed to aligning lending and investment portfolio with net-zero emissions by 2050.	For more information, please see the Net Zero Banking Alliance website.
OECD Guidelines for Multinational Enterprises	A set of government supported guidelines for responsible business conduct.	For more information, please see the OECD website.
Science Based Targets Initiative (SBTi)	An organisation that defines and promotes best practice science-based target setting for decarbonisation.	For more information, please see the SBTI website.
Sustainability Accounting Standards Board (SASB) Standards	A disclosure framework that guides the disclosure of financially material information by companies to their investors, through identifying a subset of ESG issues most relevant to the financial performance of 77 industries.	For more information, please see the SASB standards.
Sustainable Development Goals (SDGs)	A set of 17 global sustainable development aspirations for 2030 that seeks to mobilize global efforts to improve living standards and opportunity for everyone, within the boundaries of the planet.	For more information, please see the UN SDG website.
Sustainable Industry Classification System (SICS)	Developed by SASB, it aims to group companies into sectors and industries in accordance with a fundamental view of their business model, their resource intensity and sustainability impacts, and their sustainability innovation potential.	For more information, please see the SICS classification system.
TaskForce on Climate-Related Financial Disclosure (TCFD)	An organisation that develops recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in assessing and pricing a specific set of risks- risks related to climate change.	For more information, please see the TCFD website.
Taskforce on Nature-related Financial Disclosures (TNFD)	An organisation that aims to develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks, with the ultimate aim of supporting a shift in global financial flows away from nature-negative outcomes and towards nature-positive outcomes.	For more information, please see the TNFD website.
Transition Pathway Initiative (TPI)	A global, asset owner led initiative that assesses a company's preparedness for the transition to a low-carbon economy.	For more information, please see the TPI website.
UN Global Compact	A global corporate sustainability initiative, calling on organisation to align their strategies and operations with universal principles on human rights, labour, environment and anti-corruption.	For more information, please see the UN Global Compact website.
UN Principles for Responsible Investment (UN PRI)	A UN supported organisation that aims to advance responsible investment through understanding the investment implications of ESG factors and acting as an international support network for investors working to incorporate ESG factors into investment and ownership decisions.	For more information, please see the UN PRI website.
United Nations Framework Convention on Climate Change (UNFCCC)	A multilateral environmental agreement that aims to stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.	For more information, please see the UNFCCC website.
VentureESG	A non-profit initiative consisting of 300 VC funds and 90 LPs aiming to make ESG a standard part of due diligence, portfolio management and internal fund management.	For more information, please see the VentureESG website.
WELL	A performance-based system for measuring, certifying and monitoring features of the built environment that impact human health and well-being, through air, water, nourishment, light, fitness, comfort and mind.	For more information, please see the WELL website.

Investment Process

Term	Definition	Example
Conduct-based Screening	Excluding a company from the investment universe based on controversial business conduct.	Not investing in companies involved in serious and systemic breaches of human rights.
ESG Integration	Embedding an analysis of financially material ESG factors alongside traditional financial data to inform investment decision and analysis. The purpose is to create a formal process to uncover investment risks and opportunities that may otherwise have gone unnoticed.	A long short equity fund that adjusts valuations based on financially material ESG information is practicing ESG Integration.
ESG Investing	Term used interchangeably with Responsible Investing. However, many take this to also mean that the investments should have impact or equating it with an exclusionary approach, so the actual interpretation varies depending on context. We would recommend to use this term as an umbrella term for all the nuances to how ESG information can be included in the investment process (i.e. synonymously to Responsible Investing).	A private credit fund focused on the health care space that consistently integrates factors such as product quality & safety, product access, and customer welfare can be said to be practicing ESG Investing. Similarly, an ETF that excludes fossil fuels, tobacco, and alcohol, could also be said to practice ESG Investing but clearly the two have very different processes and outcomes.
Ethical and faith-based investment	Investing in line with certain religious or norms-based principles, such as avoiding companies whose products and services are considered to be morally objectionable by investors, certain religions, international declarations, conventions or voluntary agreements.	A church pension fund that excludes abortifacient drugs. Not investing in 'sin-stocks' such as alcohol, gambling, or pork products.
Impact Aligned Investing	Investment universe is influenced by assessing the potential impact of investments and targeting a pre-defined impact alongside competitive returns.	Investing in a company because of its financial performance potential and because it has a measurable positive impact on access to technology, focusing on underserved communities.
Impact First Investing	Investment universe is defined by targeting investments that are aiming to solve environmental or social problems (including community investing).	Investing in a company providing educational opportunities for minorities and underserved communities.
Negative Screening	Restricting the investment universe based on pre-determined criteria. This is a general term and refers to both conduct and product-based screening.	Not investing in a company because it is involved in the production of antipersonnel landmines.
Non ESG	Investment strategies that do not take ESG information into account in investment decisions and portfolio construction, rather being purely focused on traditional financial performance analysis.	Investing in a company solely based on the analysis of traditional financial metrics, without the assessment of any non-financial factors.
Norms-based Screening	Screening the investment universe to exclude investments that may violate international norms, which most commonly include the UN Global Compact, the UN Human Rights Declaration, the Kyoto Protocol, or the UN/ EU/ US Sanctions Lists.	Not investing in the sovereign debt of a country which is on the EU sanctions list.
Positive Screening / Best-In-Class	Actively including companies, sectors, or regions that perform better than their peers against pre-determined ESG criteria.	A passive investor that tilts their portfolio to increase weighting on high performing ESG rated companies is considered to be practicing "positive / best-in-class screening".
Product-based Screening	Excluding a company from the investment universe due to the products and services they provide.	Not investing in a company because it produces tobacco is considered a product-based screen.
Responsible Investment	A strategy / practice to incorporate ESG factors in investment decisions and active ownership.	A long-only equity fund that practices ESG integration and actively engages with portfolio companies on ESG issues, impact funds or ETFs with negative/positive screens, etc.
Sustainability-themed / Thematic	Investing in companies or assets that fall under a specific sustainability focused theme.	Investing in companies considered to be providing renewable energy solutions.
Sustainable Investing	Vague term sometimes used to refer to Responsible Investing in general (as with ESG Investing). Context is required to determine 'how' the investment practices are deemed to be 'sustainable'. In the EU, the SFDR aims to provide guidance as to what can be called a 'sustainable investment'.	A fund that invests in a mixture of assets, such as green technology, clean energy transition fund, and sustainable agriculture, a fund that invests in EU Taxonomy-aligned projects, etc.

Materiality

Term	Definition	Example
Financial Materiality	Financially material ESG issues are issues that may have an impact on the financial performance of a company or an asset. Initially introduced by the SEC and then further refined in 1982 as an issue being material if “there is a substantial likelihood that a reasonable person would consider it information important”.	For an insurance firm, according to SASB, unclear insurance policies, ambiguous product terms, and potentially misleading sales tactics can erode brand reputation, lead to legal disputes, and reduce the number of services and products offered. Selling practices and labelling of products is therefore a material ESG issue.
Double Materiality	Where ESG factors have both an impact on the financial performance of a company and where the company has a direct impact on the ESG factor externally (i.e. on its stakeholders).	How a company manages its physical climate risk can be financially material for the firm, while the company's operations and products / services also has an impact on climate change and therefore its stakeholders.
Dynamic Materiality	The notion that the materiality of ESG factors changes over time.	The issues ESG that were considered financially material 20 years ago may not be material to the same degree today. E.g., climate change risks will become much more material over time, as have data security related practices.
Materiality Assessment	The process an entity goes through to understand what ESG factors are important for its business and stakeholders, feeding into the sustainability strategy of the firm.	For more information, please see the Coca Cola's materiality assessment.
Materiality Map	A visual / document that organisation's use to understand which ESG factors are financially material for their own operations. Investors use materiality maps to understand the likely ESG issues for an organisation based on its industry.	For more information, please see the Coca Cola's materiality assessment. Coca Cola's materiality map.
Universal Materiality	ESG factors which are considered to be financially material across all sectors.	Climate change is increasingly being seen as a "universally material" ESG factor.

Regulation

Term	Definition	Example
Do No Significant Harm (EU Definition)	A European Union requirement for investments classified as "sustainable" or "taxonomy-aligned" to have been assessed to ensure they do not harm the objectives laid out in the EU Taxonomy.	A carbon capture technology company that dumped waste ocean/freshwater resources would be seen as violating the EU's Do No Significant Harm criteria.
ESG Audit (UN PRI Definition)	The testing and verification of claims on ESG factors and sustainability outcomes for an organisation’s fund, product, or policy, by someone independent of that organisation.	An asset manager that onboards a third-party, independent consultant to conduct a review of their responsible investment process, with the purpose of ensuring that all external claims are aligned with internal processes and practices.
EU Taxonomy	A European Union classification system that establishes a list of environmentally sustainable economic activities.	Click here to see the full Taxonomy Regulation.
EU Taxonomy Environmental Objectives	"The six environmental objectives defined by the EU in the EU Taxonomy include: 1. Climate change mitigation 2. Climate change adaptation 3. The sustainable use and protection of water and marine resources 4. The transition to a circular economy 5. Pollution prevention and control 6. The protection and restoration of biodiversity and ecosystems	Click here to see the EU Taxonomy Compass, a visual representation of the contents of the EU Taxonomy.
Good Governance (EU Definition)	Company practices that include sound management structure, employee relations, remuneration of staff and tax compliance. This is considered by the European Union as an investment pre-requisite for both Article 8 and 9 funds.	A large company's board without independent directors could be viewed as not meeting the EU's definition of good governance.
Minimum Safeguards (EU Definition)	Requires compliance with the OECD Guidelines for multinational enterprises and the UN Guiding Principles on Business and Human Rights.	A company that was found to not have policies and procedures necessary for meeting the OECD Guidelines for Multinational Enterprises would be considered as not meeting the EU's minimum safeguards.
SFDR Annex 1	A template for principle adverse sustainability impacts statement.	Click here to see the full Annex 1.
SFDR Annex 2	Template pre-contractual disclosure for Article 8 funds. This includes descriptions of the E and/ or S characteristics, their indicators, whether the fund makes sustainable investments or not, details around asset allocation and the characteristics, and whether there is any alignment with the EU Taxonomy.	Click here to see the full Annex 2.
SFDR Annex 3	Template pre-contractual disclosure for Article 9 funds. This includes descriptions of the E and/ or S characteristics, their indicators, whether the fund makes sustainable investments or not, details around asset allocation and the characteristics, and whether there is any alignment with the EU Taxonomy.	Click here to see the full Annex 3.
SFDR Annex 4	Template periodic disclosures for Article 8 funds.	Click here to see the full Annex 4.
SFDR Annex 5	Template periodic disclosures for Article 9 funds.	Click here to see the full Annex 5.
SFDR Article 6	Funds that do not consider ESG in their investment process and funds that have an ESG integration focus. I.e. the funds do not promote any characteristic or have any pre-defined impact objectives.	For more information, please see JP Morgan's article 6 disclosures.
SFDR Article 8	A fund that promotes environmental and/ or social characteristics.	For more information, please see Robeco's article 8 disclosures.
SFDR Article 9	A fund that has sustainable investments as its objective.	For more information, please see Robeco's article 9 disclosures.
SFDR Principle Adverse Impacts (PAIs)	Negative, material, or likely to be material effects on sustainability factors that are caused, compounded by, or directly linked to an investment decision.	Click here to see the full list of PAIs.
SFDR Regulatory Technical Standards (RTS)	The document that sets out the content and presentation of the sustainability-related disclosures.	Click here to see the full RTS.
Sustainability Indicators (EU Definition)	A measure for how the environmental or social characteristics promoted by an Article 8 fund are attained.	A common sustainability indicator is tonnes of waste generated, which would be considered an indicator for waste management / reduction.
Sustainable Finance Regulation Disclosure (SFDR)	A regulation to support investors in the European Union with comparing, selecting, and monitoring the sustainability characteristics of a fund through standardising sustainability-related disclosures.	Click here to see the SFDR legislation.
Sustainable Investment (EU Definition)	An investment in an economic activity that contributes to an environmental or social objective, provided that the investment does not significantly harm any environmental or social objective and that the investee companies follow good governance practices. Current requirements not strictly defined.
Physical Risk	Acute and chronic risks of climate change to businesses and society. Acute risks include droughts, wildfires, floods, etc., while chronic risks include increasing extreme temperatures, diseases, and loss of biodiversity	Damage to a company's packaging facility from climate-changed induced floods.
Sustainability Risk	An ESG-related event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.	Damage to a company's reputation due to consumers finding out about modern slavery practices within the company's supply chain.
Transition Risk	Risks to business following the societal and economic shifts towards a low carbon economy. Particularly as it relates to policy action taken to address climate change.	The risk to an energy company stemming from introductions of carbon-tax, changing consumer behaviour and stakeholder expectations, particularly if the company fails to adapt.

Social

Term	Definition	Example
Diversity	Any characteristics that can be used to differentiate individuals from one-another.	Gender identity, race and ethnicity, abilities and disabilities, religion, culture, education, socioeconomic background, age, and sexual orientation.
Equity	Where people, given their individual backgrounds and circumstances, are provided with the necessary resources for them to succeed.	Making targeted adjustments for employees who are cognitively diverse by creating "quiet spaces" within the office.
Inclusion	A culture of belonging, whereby all employees within an organisation, irrespective or background, identity, or personal circumstances, feel valued, are heard, accepted, and supported to succeed.	Nurturing empathetic leadership and having an open mindset to team member's ideas and concerns. This can be done by encouraging team members, celebrating successes and sharing personal experiences of how challenges have been overcome in the past.
Labour Rights	Rights that aim at promoting opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and dignity.	A company that coercers its employees into unpaid overtime would be considered as violating their labour rights.
Social	The "S" in ESG refers to social factors that are relevant to businesses and their stakeholders.	Employee Health & Safety, Customer Privacy, Labour Rights, Diversity Equity and Inclusion.

Stewardship

Term	Definition	Example
Advocacy	Where investors collaborate with wider stakeholders, such as other investors and regulators, to strengthen their own stewardship activity.	Responding to a public consultation from a regulator regarding proposed ESG related disclosure rules.
Engagement	Where investors actively initiate dialogue, with a specific and targeted objective, to create a change in the strategy or practices within a firm or country.	A public equity managers that is working with a portfolio company to better manage issues such as climate change.
Stewardship / Active Ownership	Where investors use their rights and position of ownership to influence the behaviour and performance of their investments, with the aim of preserving and enhancing their value over time.	A private equity manager working with a portfolio company to improve their energy efficiency would be considered as engaging in active ownership.
Stewardship Code	UK Stewardship Code requires institutional investors to be transparent about their investment processes, engaging with investee companies and voting at shareholder meetings.	The UK 2020 Stewardship Code.
Voting	A mechanism that shareholders with voting rights can use to influence investee companies' management. Investors submit their votes to elect board members, approving financial statements, ratifying decisiong made by the board in relation to divident payments, providing views on shareholder proposals, and so on. Those who cannot attend in person usually vote by proxy.	A public equity manager voting against / for management on a shareholder proposal about ESG disclosures during the annual general meeting of an investee company.