ESG Toolkit | The Payments Association

Adverse impacts

The negative outcomes of investment decisions for society and the environment. These could include climate-related outcomes such as carbon emissions, greenhouse gas emissions, pollution, human rights infringements and so on. Qualitative and quantitative measures and tools can help identify adverse impacts.

B Corp

Certified B Corporations, or B Corps, are companies verified by B Lab (a non-profit network established to assist businesses become a ‘force for good’) to meet high standards of social and environmental performance, transparency and accountability.

B Lab

B Lab is the nonprofit network transforming the global economy to benefit all people, communities, and the planet.

Best-in-class

Investments and assets that outstrip their peers in environmental, social and governance criteria. These can be identified by positive screening in the investment process.

Biodiversity

The variety of species alive that make up the natural world. Each of these species contribute to ecosystems to support life on earth.

Carbon capture and storage (CCS)

A method of capturing carbon dioxide (CO2) at the source of emission, the transporting and storing / burying deep underground in a suitable place. The term also refers to the removal of CO2 from the atmosphere.

Carbon footprint

The amount of carbon dioxide (CO2) created by an organisation or individual. Other greenhouse gases are also often included in the definition in an investment context; it is seen as a marker of an entity’s contribution to climate change.

Carbon intensity

A measure of carbon emissions per unit of economic activity or production, for instance, in finance, the carbon emissions divided by revenues. It is used as a metric to compare emissions performance within a sector and at the portfolio level, giving an indication of efficiency.

Carbon neutrality

Carbon neutrality equates to parity between emissions and offsets. However, as this does not involve a commitment to reduce overall emissions, it is possible to achieve neutrality even when increasing emissions. Conversely, net zero involves reducing emissions creates with any residual amounts emitted matched by removal.

Carbon offsetting

Offsetting is a means of compensating for emissions by outsourcing the reduction or absorption of CO2 emissions. Offsetting examples include funding clean energy programs (reduction) or tree planting initiatives to sequester carbon (removal). Carbon offsetting is insufficient on its own to achieve net zero; best practice is for organisations to reduce emissions before offsetting.

Carbon pricing

Making the polluter “pay the price” of greenhouse emissions and their negative consequences. Two common, impactful, approaches include emissions trading schemes and carbon taxes.

Carbon removal

The process of using natural or technological methods to remove carbon dioxide from the atmosphere or generated by industry and storing it via schemes such as reforestation.

Carbon Tracker Initiative

Independent financial think-tank based in London, carrying out analysis on the impacts of energy transitions on capital markets and investments. Carbon Tracker is behind the popularisation of the “carbon bubble” concept, which posits an economic bubble on the valuation of companies reliant on fossil fuel production due to the incompatibility between such projects and the climate crisis. (See: https://carbontracker.org/)

Circular economy

An economic model that looks to replace the linear economic model of production and obsolescence through recycling, re-use and better use of resources to keep materials in use.

Clean tech

Technologies that utilise sustainable energy and generate efficiencies such that climate impacts are minimal.

Climate change

Changes in average global conditions, such as temperature and rainfall, due to the accumulation of greenhouse gases in the Earth’s atmosphere. Whilst natural factors such as solar activity, changes in the Earth’s orbit and volcanic activity can influence the climate, human emissions and activities have caused close to 100% of the warming observed since 1950, according to the Intergovernmental Panel on Climate Change’s fifth assessment report.

Climate transition

The transition to a low carbon economy and attendant planning related to changing regulations and policies.

Community impact investing

Directing investment capital to underserved communities excluded by traditional financial services for instance by providing access to credit and basic banking products etc.

Community investment

Community investment includes donating money, project costs or time to charities in one’s local area.

Corporate governance

The systems and processes governing the organisation of companies, and the impacts on stakeholders, clients, employees etc.

Corporate social responsibility

The concept that companies have social responsibilities beyond maximising profits. By implementing CSR strategies, a business model is achieved that introduces accountability, positive social impact is made and this can be communicated to stakeholders with beneficial outcomes.

Dark / light green Ethical investments are sometimes categorised according to shades of green, with dark green funds putting ethical issues front and centre, with strict processes that avoid companies failing to meet certain criteria. Light green funds are more flexible in approach, for example investing in energy companies who are diversifying or organisations taking steps to minimise emissions. Decent work According to the International Labour Organisation decent work involves opportunities for work that are productive and provide a fair income, job security, social protection for families, prospects and freedom of expression of concerns. Moreover, equality of opportunity and treatment for all women and men. Divestment (in an ESG context) Ceasing to hold an investment due to negative ESG reasons. Diversity, equity, and inclusion (D,E & I) Acronym used to denote these three values which promote the value in supporting diverse individuals, including on the grounds of different race, religion, ethnicity, gender, ability, sexual orientation and so on.

ESG

Acronym for Environmental, Social and Governance. The three key factors into which businesses’ ethical concerns and behaviours can be categorised.

Ethical investments

Selection of investments based on individual’s moral principles, choosing or avoiding investments that do not align with the investor’s beliefs on ESG principles.

Faith based investing

Faith-based investments align with the principles of religious groups, for instance the avoidance of investing in alcohol etc.

Fossil free

The fossil fuel economy eschews fossil fuels throughout the supply chain.

Global Reporting Initiative

An independent international organization that has developed global best practice reports on sustainability reporting and a widely used and extensive voluntary reporting framework for ESG. (See: globalreporting.org)

Green bond

A bond (fixed income instrument) whose proceeds are utilised to finance sustainability projects.

Green finance

Any financial instrument or investment – including equity, debt or derivatives – used to finance projects and activities that deliver environmental benefits.

Green investment

Investment activities that focus on companies or projects that are committed to the conservation of natural resources, the production and discovery of alternative energy sources, the implementation of clean air and water projects, or other environmentally conscious business practices.

Greenhouse gases (GHGs)

Gases including carbon dioxide, water and methane that trap some of the heat the earth radiates back out into space, leading to the earth being warmer than it otherwise would be – hence the term the “greenhouse effect.”

Greenhushing

The practice of deliberately under-reporting ESG initiatives / choosing not to publicise climate targets etc in order to avoid scrutiny of them. This could be to avoid an ESG backlash (e.g. due to negative political feeling in an area around acceptance of anthropocentric climate change) or so as not to incur a lawsuit or allegations that the organisation’s climate-based claims are false.

Greenwashing

Exaggerating or promoting a misleading view of the sustainability credentials of an organisation, product or service – for example the ESG criteria of an investment fund or payments process – in an attempt to gain an unfair competitive advantage.

Human rights

Human rights are rights that all human beings are inherently entitled to – they are not granted by any state and apply regardless of nationality, sex, national or ethnic origin, colour, religion, language, or any other status. (See: www.ohchr.org/en/what-are-human-right)

Human rights due diligence

Due diligence by organisations on the potential adverse human rights impacts of their activities.

Human Rights Watch

An international non-governmental organisation, based in New York, which investigates and reports on human rights abuses (See: hrw.org)

Impact investing

Investments which deliberately aim to make positive social outcomes.

Integrated Reporting (IR)

A reporting process that communicates a company’s performance and strategy across ESG factors, with equal weight given to financial and non-financial data, and giving similar weight to the interests of investors and other stakeholders in a drive towards greater ESG disclosure

Intergovernmental Panel on Climate Change (IPCC)

A UN body comprising of climate scientists and experts.

ISO 26000

International Standards Organization standard which provides guidance to those who recognize that respect for society and environment is a critical success factor. As well as being the “right thing” to do, application of ISO 26000 is increasingly viewed as a way of assessing an organization’s commitment to sustainability and its overall performance. (See: www.iso.org/iso-26000-social-responsibility)

Just transition

As the world shifts to a low carbon economy in response to the threat of climate change, a ‘just transition’ refers to provision for workers and communities whose circumstances will change. This was included as part of the 2015 Paris Agreement.

Living wage

A wage that is enough to meet basic needs and to provide some discretionary income beyond government-set minimum wages, which fall short of what many consider to be adequate.

Negative emissions technologies

Technologies that enable carbon to be removed, e.g. through carbon sequestration

Negative screening

Avoiding investing in companies whose products and business practices are harmful according to ESG principles, such that their exclusion can instead lead to investment in positively screened companies.

Net Zero target

Reducing emissions and removing residual amounts such that on balance emissions equate to zero. Often an organisation or State commits to a target date by which time emissions will ideally have been rendered to net zero.

Norms-based exclusions

Excluding securities from an investment scenario on account of non-compliance with recognised international standards, such as those initiated by the UN.

Paris Agreement

A historic international agreement signed in December 2015 at COP21 to combat climate change and secure a sustainable low carbon future. Its goal is to limit global warming to below 2ºC, preferably 1.5 ºC, compared to pre-industrial levels.

Partnership for Carbon Accounting Financials (PCAF)

A partnership within the financial sector to develop and implement a consistent approach for the accounting and disclosure of emissions associated with financial institutions’ loans and investments.

Portfolio tilting

An investment strategy that overweighs a particular investment style.

Positive Screening

The inclusion of positive CSR performers and ESG factors into an investment analysis so that socially conscious investors can own profitable companies that make positive contributions. Criteria can include employer practices, environmental impact, safety, human rights etc.

Resiliency

The ability to withstand changes in the marketplace and environment, for instance due to climate change.

Responsible investment (RI)

A generic description regarding integrating ESG considerations into investment decisions.

Science-Based Targets Initiative (SBTI)

A collaboration (between the United Nations Global Compact, CDP – a global disclosure system, the World Resources Institute and the World-Wide Fund for Nature) which promotes best practice for climate action via target-setting resources and guidance. The targets are aligned with recognised scientific principles and focus on operations and supply chain issues as well as investments. The SBTI offers independent assessments, and achievement of this implies alignment with the Paris Agreement. (See: sciencebasedtargets.org)

Scope 1, 2 and 3 emissions

Scopes developed by the Greenhouse Gas Protocol, to categorize organisations’ emissions. Scope 3 emissions are the most difficult to record.

scope 1 emissions: directly generated by operations such as machinery, manufacturing, vehicles, heating etc.

scope 2 emissions: indirectly generated by an organization’s purchase and usage of energy.

scope 3 emissions: generated by activities of customers and suppliers.

Screening

The use of filter categories to ascertain which securities are eligible or not (positive / negative screening) to include in a fund.
Social bonds Bonds which finance social projects, as per the International Capital Market Association (ICMA)’s Social Bond Principles (SBPs). (See: icmagroup.org)

Social infrastructure

Services such as healthcare, education and transportation and their means of facilitation and maintenance.

Socially responsible investment (SRI)

An alternative means of expressing investment screening for ESG principles, such as human rights and environmental factors.

Stewardship

According to the UK Stewardship Code 2020, stewardship represents “the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.”

Stranded assets

An asset (e.g. piece of equipment or a resource) which has devalued or become a liability making them uneconomically unviable. In the context of ESG, this could be on account of changing social norms or governmental regulation changes which impact on these assets, for instance, emerging clean technologies and other factors could render coal mines as stranded assets with fossil fuels literally stranded in the ground.

Sustainability

“Sustainability” is a term broadly used to describe the ability to balance between meeting a given set of current needs without compromising the ability of future generations to meet their own needs.

Sustainability bonds

Bonds where the proceeds will be exclusively used to finance or re-finance a combination of green and social projects. These instruments are aligned with both the Green Bond Principles and the Social Bond Principles.

Sustainability report

A report informing an organisation’s stakeholders about the performance of its ESG principles and subsequent business performance. They are often voluntary, and can be independently audited.

Sustainability risks

Risks posed by environmental, social, and governance issues to the value of an asset. For instance, fines levied against a company for environmental harm could lead to the diminution in the price of an equity.
Sustainable investment An investment approach that takes account of ESG factors in determining which funds or businesses to invest in.

Sustainable taxonomy

The EU is developing a Taxonomy – a classification scheme of sustainable economic activities – including climate and other environmental issues in order to promote sustainable investment. Taxonomies aim to establish clarity over which economic activities are contributing most to the EU’s environmental objectives.

Triple Bottom Line

Also abbreviated to “TBL” or “3BL” ; an accounting aiming to measure sustainability by incorporating social, environmental (or ecological) and economic factors into the measurements.

UN Guiding Principles on Business and Human Rights (UN GP)

An instrument of 31 principles forming a global standard for preventing and addressing adverse human rights impacts on human rights by businesses; they form a framework for enhancing standards and practices to prevent abuses and facilitate practical implementation of the Universal Declaration of Human Rights. Investors can do due diligence on businesses they plan to invest in by checking the application of these principles in the given business.

Unconventional fossil fuels

Alternative sources of fossil fuels, typically: tar sands, oil shale, shale gas and deepwater oil. Exploration into these areas comes with social and environmental cost and political controversy, for instance, in the case of shale gas which is extracted by fracking. According to Greenpeace, the amount of greenhouse gases emitted per barrel of tar sands oil is 30% higher than conventional oil (May 2021).

United Nations Global Compact (UN CG)

A non-binding corporate responsibility pact whereby businesses agree to adopt and report on positive corporate sustainability policies comprising of ten principles around corruption, human rights, labour and environmental issues etc. Data on these can be used as a basis for investment decisions. (See: The Ten Principles | UN Global Compact)

United Nations Principles for Responsible Banking (UN PRB)

A voluntary sustainable banking framework developed by the UN Environment Finance Initiative (UNEP FI) and founding banks. It ensures that the signatories’ strategies and practices align with the UN Sustainable Development Goals. (See: https://www.unepfi.org/banking/bankingprinciples/)

United Nations Principles for Responsible Investment (UN PRI)

Guidelines for investors to incorporate ESG in decision-making processes including seeking disclosure prior to investment in companies. There are six principles.

United Nations Sustainable Development goals (UN SDGs)

A set of 17 goals by the UN for nations and organisations to achieve by 2030. The 2030 Agenda for Sustainable Development was adopted by all United Nations Member States in 2015.

Vice stocks / sin stocks

Stocks of companies associated directly or indirectly with potentially unethical or morally objectionable activities, such as gambling, tobacco production, conflict diamond mining, the arms trade and so on.

World Federation Exchanges (WFE) ESG Guidance and Metrics

A series of guidance and metrics for utilisation by member exchanges to “introduce, improve or require ESG reporting in their markets”.