Common Terminology

Question 1

Decarbonization

Answer 1

The reduction in the carbon intensity of worldwide energy use; Related to CDP; COP21

Question 2

COP21

Answer 2

The 21st United Nations Conference of the Parties held in Paris in Dec. 2015; established concrete targets to limit further global warning. Related: Decarbonization; CDP

Question 3

CDP

Answer 3

The Carbon Disclosure Project is an international non-profit organization based in the UK, Germany, & US. Helps companies and cities disclose their environmental impact. Piggybacked on GRI’s concept of environmental disclosure in 2002, but focused on companies rather than nations. Since 2002 8,400 companies have publicly discloses environmental info. Related: Decarbonization; COP21

Question 4

What does ESG stand for?

Answer 4

Environmental, Social, and Governance

Question 5

GRI

Answer 5

Global Reporting Initiative formed in US in 1997 by Ceres (formerly the Coalition for Environmentally Responsible Economies). Now headquartered in Amsterdam, Netherlands. They are an “independent standards organization”, developing standards for sustainability reporting; help businesses, governments, and other orgs. report their impact on issues such as climate change, human rights, and corruption . Most recent update is known as the GRI Standards, launched in October 2016, is the most widely used.

Question 6

(E) Environment (7 issues)

Answer 6

Environment issues include 1) carbon emissions (disclosure/measurement/reporting), 2) climate change ( effect on company/risk exposure/opportunity), 3) air and water pollution, 4) renewable energy, 5) resource depletion, 6) waste management, and 7) water scarcity.

Question 7

(G) Corporate Governance (6 issues)

Answer 7

Rule, practices, and processes by which a company is managed (governed) and management is supervised. Governance issues include: 1) board composition and tenure, 2) dual-class share structure, 3) executive compensation (pay for performance, pay equity), 4) majority voting, 5) poison pills, and 6) bribery and corruption

Question 8

(S) Social (5 issues)

Answer 8

Social issues relate to the rights, well-being and interests of people and communities. these issues include 1) human rights, 2) labor standards in the supply chain, 3) child and forced labor (slavery) laws, 4) Work place health and safety (sexual harassment), and 5) relations with local communities.

Question 9

Climate Change

Answer 9

Changes in the weather patterns due to the heating of the Earth’s atmosphere or Global Warming. Monitored by the IPCC, EMF, and Bank of England. CC is a systemic issue that affects all asset types and sectors and therefore impacts the portfolio returns for global portfolios.

Question 10

IPCC

Answer 10

Intergovernmental Panel on Climate Change is the United Nations body for assessing the science related to climate change. Created in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP).

Question 11

Active Ownership (2 ways)

Answer 11

Actively exercise your rights as a shareholder through voting and engaging. Can influence companies through a multi-year engagement process rather than selling shares.

Question 12

Additionality

Answer 12

Fulfilling a good cause beyond the provision of private capital

Question 13

Best in class approach to Sustainable Investing

Answer 13

Such an investor does not exclude sectors or industries (like tobacco or mining) but instead in in the companies that make the most effort to meet ESG criteria related to their industries. Such an investor also engages with the companies to help improve their sustainability performance.

Question 14

Combined ESG Approaches (5)

Answer 14

When multiple ESG approaches are used within an investment strategy: exclusionary/negative screening; integration; positive/best-in-class ESG tilt; thematic, or impact.

Question 15

Corporate Controversies (4 examples; 3 damages)

Answer 15

Typically occur when company’s are dangerously negligent causing a major accident or human rights breach. Examples in include allegations of corruption, breach of privacy, unfit products or misleading marketing. They span the entire spectrum of ESG issues and lead to prosecutions, civil law suits or regulatory sanctions. All imply reputational damage which lower the value of the company’s securities, making it important to factor them into ESG analysis.

Question 16

Engagement

Answer 16

Investor engage companies to improve sustainability practices. Typically runs over a 3 yr period and track progress vs engagement objectives. Usually includes other institutional investors. Outcomes are communicated to analyst, pms, client to enable them to incorporate the info into their investment decisions. Engagement is preferred versus Exclusion

Question 17

ESG Integration

Answer 17

The structural incorporation of financially relevant info on ESG factor into the investment decision making process.

Question 18

Febelfin Quality Standard

Answer 18

The Belgian Finance Federation set forth a quality standard to “qualitatively and quantitatively” increase the level of sustainable financial products; called the “Febelfin Quality Standard - A Practical Guide to Avoiding Harm Requirements”

Question 19

Gender Equality (3 dimensions)

Answer 19

Providing the same opportunities for men and women in the workplace. It has 3 dimensions: 1) Improve the number of women on corporate boards 2) Same job, same pay regardless of gender 3) Improve gender participation in sectors where one gender dominates.

Question 20

Global Warming

Answer 20

Gradual and increasingly irreversible rise in average world temperatures at sea level. caused by human industrial revolution since 18th century. Principal causes is the widespread burning of fossil fuels (coal, oil and gas) for 1) electricity 2) heating 3) cooling & 4) transportation leading to the emission of carbon dioxide and other greenhouse gases.

Question 21

Green Bonds (GBP)

Answer 21

Debt securities where the proceeds are used to promote climate and environmental sustainability purposes. The projects must have clear environmental benefits that can be described or assessed such as renewable energy or waste management. In 2014, the Green Bond Principles were established to promote integrity in the green bond market; guidelines the recommend transparency, disclosure, and reporting.

Question 22

Greenhouse Gas Emissions (3 main type; 3 scopes)

Answer 22

Typically the levels of carbon dioxide, carbon monoxide, sulfur dioxide that cause global warming, trapped in Earth’s atmosphere, creating a blanket effect. The footprints are measured in three ways: Scope 1: those directly generated by a company; Scope 2: those created by generation of electricity or heat needed by the company to sell its main products; Scope 3: are emissions caused by the entire value chain, including the end users of the product over its life cycle.

Question 23

Greenwashing

Answer 23

The practice of trying to make people believe that a company is doing more to adopt sustainability than it really is, often for public relations reasons. It can be applied to asset managers as well who have a low exposure to sustainable companies..only token exposure.