Certificate in ESG Investing key terms

An umbrella approach to investing that explicitly incorporates environmental, social and governance factors into decisions, ranging from screening and integration to engagement, voting and targeted thematic or impact strategies.

The idea that a sustainability matter is relevant both when it affects a company's financial performance and when the company's activities affect people or the environment, requiring disclosure on both directions.

The principle that only information capable of influencing an investor's economic decisions needs to be assessed and reported, so ESG issues are weighted by their likely effect on cash flows, risk or value.

The systematic and explicit inclusion of environmental, social and governance risks and opportunities into traditional financial analysis and investment decisions, rather than treating them as a separate overlay.

Excluding companies, sectors or countries from a portfolio because they fail defined ethical, normative or sustainability criteria, such as tobacco, controversial weapons or thermal coal.

Selecting or overweighting issuers that score well on chosen ESG criteria, often combined with financial filters, so the portfolio tilts towards better-rated companies within or across sectors.

An approach that invests in the highest ESG-rated companies within each sector or peer group, keeping sector exposures close to the benchmark while rewarding relative ESG leaders over laggards.

Building portfolios around a specific sustainability theme such as renewable energy, water, clean transport or health, selecting companies whose revenues are linked to that theme.

Investing made with the intention of generating measurable positive social or environmental outcomes alongside a financial return, with defined metrics and reporting on the achieved impact.

A structured description of how an investment's activities are expected to produce outputs, outcomes and ultimately measurable impact, used to test and evidence impact claims.

The extent to which an investment causes positive outcomes that would not otherwise have occurred, for example by providing capital that is otherwise unavailable to a project.

The United Nations Sustainable Development Goals: seventeen global goals for 2030 covering poverty, climate, inequality, water and institutions, often used as a framework for mapping portfolio contributions.

The Principles for Responsible Investment, a UN-supported investor initiative whose six voluntary principles commit signatories to incorporate ESG issues into investment practice, ownership and reporting.

The responsible allocation, management and oversight of capital to create long-term value for clients, exercised through monitoring investee companies, engagement, voting and escalation.

Using shareholder rights and influence, through voting, filing resolutions and direct dialogue, to encourage companies to improve governance and sustainability practices and protect long-term value.

Purposeful dialogue between investors and companies or other issuers, aimed at changing behaviour, improving disclosure or reducing risk, usually with defined objectives, milestones and escalation routes.

A staged set of increasingly forceful actions taken when engagement fails, such as writing to the board, voting against directors, filing resolutions, public statements or divestment.

Investors pooling their influence, often through investor networks or joint letters, to engage companies on shared ESG concerns where individual holdings are too small to be influential.

The exercise of voting rights at company meetings on behalf of clients, covering director elections, remuneration, auditor appointment and shareholder proposals on environmental or social issues.

Misrepresenting or overstating the sustainability characteristics of a product, company or investment, for example through vague labels, selective disclosure or unsubstantiated fund names.

The EU Sustainable Finance Disclosure Regulation, which requires financial market participants to disclose how they integrate sustainability risks and to classify products as Article 6, 8 or 9.

A classification system defining which economic activities are environmentally sustainable, based on substantial contribution to an environmental objective, do no significant harm, and minimum social safeguards.

The Task Force on Climate-related Financial Disclosures, whose framework asks companies to report governance, strategy, risk management and metrics around climate risks and opportunities.

The risk of harm to assets, operations or supply chains from climate hazards such as floods, heat, drought and storms, which can be acute events or chronic shifts in climate patterns.

The risk that policy, technology, market or reputational changes during the shift to a low-carbon economy reduce the value of assets or raise costs for carbon-intensive businesses.

Greenhouse gas emissions classified as direct from owned operations (scope 1), indirect from purchased energy (scope 2), and all other value-chain emissions including suppliers and product use (scope 3).

A measure of emissions relative to a unit of activity, revenue or output, allowing comparison between companies or portfolios of different sizes and supporting decarbonisation targets.

Weighted average carbon intensity: a portfolio metric that weights each holding's emissions per unit of revenue by its portfolio weight, giving a single figure for carbon exposure.

The principle that the shift to a low-carbon economy should be fair to workers and communities affected, addressing job losses, retraining and regional inequality as part of climate strategy.

How a company attracts, develops, motivates and retains employees, covering pay, safety, turnover, diversity and labour relations, and treated as a driver of productivity and reputational risk.

The ongoing acceptance of a company's operations by local communities, workers and wider stakeholders, which can be withdrawn through protest or opposition and thereby threaten projects.

The processes a company uses to consult and respond to groups affected by its activities, including employees, communities, suppliers and customers, which supports risk management and trust.

The proportion of board members free from material relationships with the company or management, a key governance indicator of the board's ability to challenge and oversee executives.

The mix of gender, ethnicity, skills, tenure and background on a board, associated with better decision-making and seen by investors as a governance quality indicator.

A shareholder vote on executive remuneration, often advisory, that lets investors signal approval or disapproval of pay levels, structures and alignment with long-term performance.

A capital structure in which some shares carry more votes than others, allowing founders or families to control decisions despite holding a minority of the economic interest, weakening minority rights.

Entitlements such as voting, receiving information, calling meetings, approving major transactions and protection from dilution, which determine how far investors can hold boards accountable.

Scores produced by data providers that assess issuers on environmental, social and governance criteria, using differing methodologies, scopes and weightings that can produce divergent results.

Setting and pursuing targets to reduce a portfolio's financed emissions over time, for example through engagement, tilting to lower-carbon holdings or investing in climate solutions.

A state in which the greenhouse gases added to the atmosphere are balanced by those removed, typically expressed as a target year and coverage for a company or an investment portfolio.