CESGA flashcards

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

Double materiality

Two-lens test: financial materiality asks whether ESG factors affect enterprise value; impact materiality asks whether the company affects people or the environment. CSRD/ESRS require both.

Enterprise value

Market value of equity plus net debt and minority interests; used as the denominator in PCAF attribution and as the anchor for ESG-adjusted valuation.

ESG integration

Explicit inclusion of material ESG factors into investment analysis and valuation, changing forecasts, discount rates, or position sizing rather than only screening.

Negative screening

Excluding issuers or sectors that fail defined criteria (e.g., tobacco, thermal coal). It is a values-based or risk-based filter, not a valuation adjustment.

Greenwashing

Misrepresenting the sustainability profile of a product or issuer, such as overstating alignment with a taxonomy or net-zero target without verifiable evidence.

Stewardship

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

Scope 1 emissions

Direct greenhouse gas emissions from sources owned or controlled by the reporting company, such as combustion on site or company-owned vehicles.

Scope 3 emissions

Indirect value-chain emissions, including purchased goods, business travel, and use of sold products; often the largest share of a company's footprint.

Transition risk

Risk from the shift to a low-carbon economy: policy changes, technology shifts, market and reputational effects that can strand assets or raise costs.

Physical risk

Risk from climate hazards: acute events (floods, wildfires, storms) and chronic shifts (heat, drought, sea-level rise) affecting assets and operations.

WACI

Weighted average carbon intensity: sum over holdings of portfolio weight times issuer Scope 1+2 emissions divided by revenue. A flow metric, not a stock footprint.

PCAF attribution

Partnership for Carbon Accounting Financials method attributing financed emissions to a lender or investor, typically using outstanding amount divided by enterprise value including cash.

Implied temperature rise

A forward-looking metric translating a portfolio's emissions trajectory into a projected warming outcome, sensitive to carbon budget and model assumptions.

TCFD pillars

Four disclosure areas: governance, strategy, risk management, and metrics and targets. The architecture underpins ISSB IFRS S2 and ESRS E1.

TNFD LEAP

Locate, Evaluate, Assess, Prepare: the four-step nature-related risk and opportunity assessment framework for corporates and financial institutions.

Stranded assets

Assets that lose value before the end of their useful life because of transition risk, such as fossil-fuel reserves uneconomic under a carbon price.

UN Guiding Principles

UNGP on Business and Human Rights: the state duty to protect, corporate responsibility to respect, and access to remedy. The reference standard for social due diligence.

Dual-class shares

Share structures with unequal voting rights, often giving founders control disproportionate to economic ownership. A common governance red flag in engagement.

Say-on-pay

A shareholder vote on executive remuneration, often advisory. Used to signal misalignment between pay outcomes and company performance or strategy.

Board independence

The share of directors with no material relationship to the company. Independence ratios below one-third are a common governance concern.

Human capital

The workforce dimension of social factors: health and safety, diversity, pay equity, training, and retention, reported under ESRS S1 and similar standards.

Just transition

Managing the distributional effects of decarbonisation on workers and communities, including reskilling and social dialogue, to avoid social backlash.

SFDR Article 8

EU product category for funds that promote environmental or social characteristics but do not have sustainable investment as their objective. Requires pre-contractual and periodic disclosure.

SFDR Article 9

EU product category for funds with sustainable investment as their objective; the strictest disclosure regime, requiring PAI reporting and taxonomy alignment disclosure.

EU Taxonomy

Classification of environmentally sustainable activities using four tests: substantial contribution, do-no-significant-harm, minimum social safeguards, and technical screening criteria.

CSRD

EU Corporate Sustainability Reporting Directive: expands sustainability reporting to large and listed companies, requires limited assurance, and uses ESRS with digital tagging.

PAI indicators

Principal adverse impact indicators under SFDR: 14 mandatory for corporate issuers plus 2 for sovereigns, with additional opt-in indicators reported annually.

CSDDD

EU Corporate Sustainability Due Diligence Directive: requires in-scope companies to identify, prevent, and remediate human rights and environmental impacts in their value chains.

IFRS S1

ISSB general sustainability disclosure standard: requires disclosure of material sustainability-related risks and opportunities using the four-pillar structure.

IFRS S2

ISSB climate-specific standard: requires Scope 1, 2, and 3 emissions, transition plans, and climate resilience assessment using scenario analysis.

ESRS E1

The climate change standard within ESRS: covers emissions, transition plans, targets aligned with 1.5°C, energy consumption, and physical and transition risk.

ESRS 2

General disclosures standard: requires strategy, governance, materiality assessment process, and metrics across all sustainability topics, independent of sector.

Limited assurance

A moderate level of assurance on sustainability information, lower than reasonable assurance; the current baseline for CSRD reporting and a common data-quality constraint.

Stewardship code

A principles-based framework (e.g., UK 2020 Code) for institutional investors on engagement, voting, and escalation, with signatory reporting requirements.