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Glossary of key terms

Sustainable, responsible and ethical investment glossary

You will see many of the following terms used in fund and fund manager information and the filters on Fund EcoMarket – our fund database:

  • Aligned – matching a fund strategy to a stated metric, such as a benchmark eg ‘Paris Aligned’  indicates an intended reduction 7% eCO2 pa
  • AFM – authorised fund manager ie fund management company (used on Fund EcoMarket filters)
  • Corporate Governance – refers to company management issues such as board structure, remuneration, reporting and bribery/corruption issues.
  • Corporate Social Responsibility (CSR), also referred to as Corporate Responsibility (CR) –  describes typically ‘non core’ business activity aimed at helping named groups such as local (or other) communities. It typically takes the form of partnerships and donations but does not normally drive where an asset manager’s funds are invested.
  • ESG – the integration of ‘environmental, social and governance’ related risk into investment decision making. ESG analysis is now widely integrated into investment management practices as such risks are widely understood to be financially relevant (material) to investment returns.
  • Ethical investment – investments that are made in line with published values, or ethical issues, that may be of concern to individual individuals. These may include or overlap with sustainability issues and are often expressed in terms of avoidance or exclusion strategies.
  • Fund criteria – specific decision-useful requirements relating to sustainability characteristics or thresholds.  Sustainable funds are required to publish how they select investments from a sustainability perspective.  Criteria form an important aspect of this.
  • Green Investments – a generic term sometimes used to describe investments which focus on environmental issues.
  • Greenwashing – the overstatement of environmental or social characteristics for commercial benefit
  • Impact fund – fund that has policies and processes in place which direct investment into assets that contribute to, support, accelerate or enhance specific positive and measurable environmental or social outcomes alongside financial returns. (Source: BSI draft PAS 7342)
  • Intentionality investor’s intention to have a positive social or environmental impact through investment alongside a financial return (source: Global Impact Investing Network)
  • Net Zero – targeting total carbon (and other greenhouse gasses) emissions being equal to the rate at which they are absorbed (sequestered) so that together their ‘net’ total is nil. Typically refers to a business or country.
  • Responsible investment / stewardship – the FRC UK Stewardship Code 2020 describes this as ‘the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, which leads to sustainable benefits for the economy, the environment and society’.  In common usage however this tends to mean engagement and voting strategies   Note: this largely refers to investors engaging with investee assets and shareholder voting aimed at raising standards and therefore reducing longer term risk.
  • Screen / screening – an investment approach that leads certain  assets to be either excluded (negative screening) or invested in (positive screening)
  • Stewardship  – responsible ownership activity, typically investors ‘engaging’ with companies to encourage higher sustainability standards. Strategies normally comprise dialogue and shareholder voting.  Approaches vary. Fund managers are increasingly being encouraged to publish ‘escalation strategies’  to explain how stewardship activity will develop over time if their requests are not met.  This may lead to divestment.
  • Social, Ethical and Environmental (SEE) – an acronym historically used to describe the entire range of issues covered by sustainable and / or ethical investments. Used in the July 2000 disclosure amendment to the 1995 Pensions Act.
  • Social issues – a term used to describe the consideration of ‘people issues’ such as human rights and labour standards.
  • Sustainability – evolved from the term ‘Sustainable Development’ as defined in 1987 Brundtland Report – ‘…meeting the needs of the present without compromising the ability of future generations to meet their own needs.’  Or in other words perhaps… living, behaving, operating or investing in a way that does not risk damaging our longer-term prospects or quality of life.  In terms of investment this broadly means looking for companies that make decisions about environmental and social issues in a way that safeguard the quality of life of those that are (or may be) – directly or indirectly – affected by their operations (either today or at some time in the future).  /  Responding responsibly to the finite nature of environmental resources whilst having regard for the needs of future generations. A sustainable activity is one that can continue indefinitely.
  • Sustainable investment/investing – alignment of an investment strategy to forward looking, positive environmental and/or social sustainability objectives alongside financial goals. (This includes consideration of the products and services an investee asset provides, as well as how investee companies operate.)
  • Sustainability objective – statement of intention to undertake activities with the aim of directly or indirectly improving or pursuing positive environmental and/or social outcomes {SOURCE: FCA Sustainability Disclosure Requirements, PS23/16, Annex A [2]}
  • Sustainability strategy – strategy that sets out how fund operates, its aims and objectives, and how the fund manager plans to achieve them
  • Sustainability policies – the environmental and social issues considered, and approaches employed by a fund manager that form the basis of the fund’s sustainability strategy as applied in pursuit of the fund’s published sustainability objectives.
  • SRI / Sustainable and Responsible Investment  – we use this term as an umbrella descriptor for a wide range of investment strategies that focus on ethical, social and environmental issues.   SRI also refers to ‘Socially Responsible Investment’ a term that originates from the USA, and is widely used with reference to funds with strict exclusions.
  • Tilt – eg ‘Sustainability Tilt’ – an approach that leads fund managers to invest slightly more (overweight) or slightly less (underweight) in a named area or type of company, relative to their peers.