Certificate in ESG Investing flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

ESG integration

Explicit inclusion of material environmental, social and governance factors in financial analysis and investment decisions, alongside conventional financial factors, rather than applying a separate screen.

Double materiality

Reporting concept requiring disclosure of both how sustainability issues affect the company's financial performance and how the company affects society and the environment.

SFDR Article 8

EU product classification for funds that promote environmental or social characteristics, provided investee companies follow good governance practices, but do not have sustainable investment as their objective.

EU Taxonomy

Classification system defining environmentally sustainable economic activities through substantial contribution, do-no-significant-harm, minimum social safeguards and technical screening criteria.

Scope 3 emissions

Indirect greenhouse gas emissions across the value chain, including purchased goods, business travel, use of sold products and end-of-life treatment; usually the largest category for most sectors.

WACI

Weighted average carbon intensity: the sum across holdings of portfolio weight multiplied by issuer emissions divided by issuer revenue, expressed in tonnes CO2e per million dollars of revenue.

Just transition

Managing the social consequences of decarbonisation for workers and communities, including retraining, job creation and support, so climate action is fair and inclusive.

UN Guiding Principles

Framework on business and human rights built on three pillars: the state duty to protect, the corporate responsibility to respect, and access to remedy for affected people.

One share one vote

Governance principle that each share carries equal voting rights; deviations such as dual-class structures concentrate control and can weaken minority shareholder influence.

Stewardship

Responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, exercised through engagement and voting rather than only investment selection.

Escalation ladder

Sequenced engagement steps from informal dialogue through formal letters, votes against directors, shareholder resolutions and ultimately divestment when milestones are not met.

Materiality map

Sector-specific assessment identifying which ESG factors are likely to affect financial performance, used to focus analysis and avoid forcing immaterial factors into valuation.

Controversy screening

Monitoring companies for incidents such as fines, fatalities or spills, assessed by severity, frequency and management response, and used as an input to ESG analysis and engagement.

ESG-adjusted DCF

Valuation approach where material ESG factors change forecast cash flows, the discount rate or terminal value, with adjustments documented and sensitivity-tested.

Greenwashing

Misrepresenting sustainability characteristics through vague claims, unsubstantiated targets, selective disclosure or misleading fund names, whether intentional or caused by poor data.

Tracking error budget

Pre-set limit on the ex-ante deviation of a portfolio from its benchmark, used to size ESG constraints such as exclusions and carbon-intensity caps.

Implied temperature rise

Metric translating a portfolio's alignment with climate scenarios into a projected global temperature outcome; results are sensitive to methodology, sector mix and scenario assumptions.

Investment policy statement

Document specifying ESG objectives, exclusions, permitted approaches, benchmark, reporting requirements and constraints that a manager must follow for a given mandate.

Impact mandate

Investment mandate requiring measurable, additional and intentional positive environmental or social impact, together with an assessment framework and reporting against stated objectives.

Carbon footprint metric

Portfolio greenhouse gas emissions divided by portfolio value, expressed in tonnes CO2e per million dollars invested and weighted by ownership share.

TCFD four pillars

Climate disclosure structure covering governance, strategy, risk management, and metrics and targets, including scenario analysis under the strategy pillar.

ISSB S1 and S2

Global baseline sustainability disclosure standards issued in 2023: S1 covers general sustainability-related financial disclosures and S2 covers climate-specific disclosures.

GRI standards

Sustainability reporting standards focused on an organisation's impacts on the economy, environment and people, widely used for stakeholder-oriented impact reporting.

UN PRI six principles

Voluntary investor commitments covering ESG incorporation, active ownership, disclosure by investees, promotion of the principles, collaboration and reporting on progress.

Principal adverse impacts

Mandatory SFDR indicators of negative sustainability effects of investment decisions on environmental and social factors, reported by financial market participants above size thresholds.

ESG ratings dispersion

Moderate correlation between scores from different providers because they measure different constructs and use different methodologies, making results vendor-sensitive.

Green bond principles

ICMA voluntary guidelines covering use of proceeds, project evaluation and selection, management of proceeds, and reporting for bonds financing environmental projects.

Sustainability-linked bond

Bond whose coupon steps up or down depending on whether the issuer meets pre-defined sustainability performance targets, with ambition and timing as key terms.

Paris-aligned benchmark

EU benchmark label requiring at least 50% lower greenhouse gas intensity than the investable universe and 7% annual decarbonisation, with exclusion criteria.

Greenwashing prevention

Ensuring ESG claims are substantiated, comparable, verifiable and current, with defined terms, methodology disclosure and compliance sign-off before publication.

Financed emissions

Portfolio-company greenhouse gas emissions attributed to the investor pro rata to ownership, calculated following the PCAF standard for financial institutions.

Best-in-class screening

Positive screening approach selecting companies with the strongest ESG performance relative to sector peers, rather than excluding whole sectors.