ESG Glossary

Under the EU's SFDR, an Article 8 fund 'promotes' environmental or social characteristics alongside financial objectives. Also called 'light green' funds. Companies in the portfolio do not need to have sustainability as their core objective, but the fund must disclose how ESG characteristics are considered.

Under the EU's SFDR, an Article 9 fund has sustainable investment as its core objective. Also called 'dark green' funds. These funds must demonstrate that all investments contribute to an environmental or social objective and do no significant harm (DNSH) to other objectives.

A state where net carbon emissions are zero, typically achieved by reducing emissions and offsetting remaining emissions through carbon credits or removal projects. Not to be confused with 'net zero' which typically requires deeper emission reductions.

A global disclosure system for companies to report environmental information to investors. CDP covers climate change, water security, and forests.

A negative event or allegation related to a company's ESG practices, such as environmental violations, labor disputes, governance failures, or product safety issues. In Walk-The-Talk Score, controversies can significantly reduce credibility scores.

EU regulation requiring large companies to report detailed sustainability information. CSRD significantly expands ESG disclosure requirements and introduces mandatory third-party assurance.

An approach to ESG assessment that considers both how sustainability issues affect the company (financial materiality) and how the company affects society and the environment (impact materiality).

Active dialogue between investors and companies to influence corporate behavior on ESG issues. Can include private discussions, shareholder resolutions, and proxy voting.

A framework for evaluating corporate behavior beyond financial performance. Environmental factors include climate impact and resource use. Social factors include labor practices, diversity, and community impact. Governance factors include board structure, executive compensation, and shareholder rights.

The systematic inclusion of ESG factors in investment analysis and decision-making to better manage risks and identify opportunities. Distinct from exclusionary screening or impact investing.

A classification system establishing which economic activities qualify as environmentally sustainable. Used to direct capital toward activities that contribute to climate and environmental objectives.

The practice of making misleading or unsubstantiated claims about the environmental benefits of a product, service, or company. Greenwashing can be intentional deception or the result of poor measurement and verification.

An international organization providing the most widely used sustainability reporting standards. GRI standards cover economic, environmental, and social impacts.

Investments made with the intention of generating measurable positive social and environmental impact alongside financial returns.

The first of two inaugural standards from the IFRS Foundation's International Sustainability Standards Board (ISSB). S1 requires companies to disclose material sustainability-related risks and opportunities across their entire value chain, covering governance, strategy, risk management, and metrics.

The second ISSB standard, focused specifically on climate-related risks and opportunities. S2 builds on TCFD recommendations and requires disclosure of Scope 1, 2, and 3 greenhouse gas emissions, climate scenario analysis, and transition planning. Effective for annual reporting periods from January 2024.

The principle that the shift to a sustainable economy should be fair and inclusive, ensuring workers and communities dependent on carbon-intensive industries are supported through the transition.

The concept that ESG factors are relevant if they could influence investor decisions or significantly impact stakeholders. Double materiality considers both financial impact on the company and the company's impact on society and environment.

An investment approach that excludes companies or sectors based on specific ESG criteria, such as tobacco, weapons, or fossil fuels.

A commitment to reduce greenhouse gas emissions to as close to zero as possible, with any remaining emissions balanced by carbon removal. More ambitious than carbon neutral, net zero typically requires 90%+ emission reductions before offsets.

Under the EU's SFDR, Principal Adverse Impacts are the negative effects that investment decisions have on sustainability factors - including climate, environment, social and employee matters, human rights, and anti-corruption. Financial market participants must report on 18 mandatory PAI indicators annually.

Financial risks arising from the physical impacts of climate change, including acute risks (extreme weather events) and chronic risks (sea level rise, temperature increases).

An investment approach that actively selects companies with strong ESG performance relative to peers, often called 'best-in-class' investing.

The process by which shareholders vote on corporate matters, including director elections, executive compensation, and shareholder proposals on ESG topics.

Industry-specific sustainability disclosure standards focused on financially material ESG topics. Now part of the IFRS Foundation's International Sustainability Standards Board.

Emission reduction targets aligned with climate science and the Paris Agreement goals. The Science Based Targets initiative validates corporate targets against pathways to limit warming to 1.5°C or well below 2°C.

Direct greenhouse gas emissions from sources owned or controlled by a company, such as company vehicles, on-site fuel combustion, and manufacturing processes.

Indirect greenhouse gas emissions from purchased electricity, steam, heating, and cooling consumed by a company. These are emissions the company causes indirectly through energy consumption.

All other indirect emissions in a company's value chain, including supply chain emissions, product use, employee commuting, and end-of-life treatment. Typically the largest source of emissions for most companies.

EU regulation requiring financial market participants to disclose how they integrate sustainability risks and consider adverse sustainability impacts in their investment decisions.

A form of capitalism where companies balance the interests of all stakeholders-employees, customers, suppliers, communities, and shareholders-rather than prioritizing shareholder value alone.

Assets that suffer from unanticipated or premature write-downs due to factors such as climate policy, technology shifts, or changing market demand. Commonly applied to fossil fuel reserves that may become uneconomic.

A framework for climate-related financial disclosures covering governance, strategy, risk management, and metrics and targets. Widely adopted and increasingly mandated by regulators.

A global initiative providing a framework for companies and financial institutions to assess, manage, and disclose nature-related risks and opportunities. Modelled on TCFD but focused on biodiversity, ecosystems, and natural capital rather than climate alone.

Financial risks arising from the adjustment to a lower-carbon economy, including policy changes, technology disruption, market shifts, and reputational impacts.

A proprietary ESG credibility metric that measures whether companies deliver on their sustainability commitments. Unlike disclosure-based scores, Walk-The-Talk Score compares stated commitments to verified evidence of action.