Green and Sustainable Finance 2023: Glossary PDF

Green and Sustainable Finance 2023: Glossary Term Definition Active investing Where investors make decisions based on their analysis of companies and economic/market factors, usually seeking an ab...

Green and Sustainable Finance 2023: Glossary Term Definition Active investing Where investors make decisions based on their analysis of companies and economic/market factors, usually seeking an above average return. Acute risks Risks from severe, short-term environmental events such as floods or hurricanes. Angel investing A type of very early-stage venture capital investing where (usually) wealthy individuals invest financially and offer advice, expertise and contacts to entrepreneurs. Annex II Parties Members of the OECD required to provide financial ($100 billion per year by 2020) and technical support to the Economies in Transition and Developing Countries to assist them in reducing their greenhouse gas emissions and manage the impacts of climate change. Anthropogenic climate Climate change caused by humans and human activities. change Article 2.1c The Paris Agreement has three objectives. Article 2.1c requires Parties to the Agreement to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. Artificial Intelligence (AI) The simulation of human intelligence by a computer or machine. Asset-backed A type of debt product where an issuer bundles together a securities range of loans, securitises the revenues from those loans, and issues securities backed by that income. Asset-Level Data A non-commercial, research-based initiative that aims to Initiative (ADI) collect, verify, and distribute asset-level data on all companies in key sectors globally. Basel III The current framework for international banking regulation, developed by the Basel Committee on Banking Supervision. Biodiversity The full range of ecosystems, species and gene pools – all plant and animal life found on Earth, and the habitats in which they live. Blended Finance Using public finance (usually from a development bank, or similar) to unlock additional private sector capital. Blockchain/Distributed A database of records or transactions that are shared among ledger participating parties, and verified by consensus of the majority of those parties – there is no central intermediary managing the database. Blockchains may be open access, or private with limited access. Blue Bond A sub-category of green bonds designed to support sustainable marine and fisheries projects. Blue economy The economic activities supported by our oceans including, but not limited to, sectors such as aquaculture, fishing, shipping, tourism; and renewable energy that relies on oceans, including tidal and wave power, and offshore wind. Blue finance Lending, investment and underwriting activities that support the ‘blue economy’ – also referred to as ‘ocean finance’. Cap-and-Trade Scheme Where organisations (usually large firms and/or major emitters of greenhouse gases) purchase permits that allow them to emit greenhouse gases, and can buy and sell these to others. Carbon border tax Charges on imports based on their carbon footprint to prevent cheaper imports from jurisdictions with lower carbon prices. Carbon bubble Hypothesised overvaluation of fossil fuel companies based on the notion that the current valuation of their assets does not reflect the risk of them becoming stranded. Carbon Capture and CO2 is captured from emissions at source, liquefied, and then Storage (CCS) stored underground in geological formations, for example in former oil and gas reservoirs. Carbon Capture, CO2 is captured from emissions at source, utilised in areas Utilization and Storage including food and drink production, and the production of urea, (CCUS) and/or stored. Carbon Dioxide The most commonly used measure of greenhouse gas Equivalent (CO2e) emissions, often expressed in annual CO2e. Carbon Disclosure The CDP is the most established environmental reporting Project (CDP) NGO. It provides a widely respected and utilised global system of disclosures for nearly 10,000 companies, more than 800 cities and over 130 regions and states, including nearly 300 financial institutions. Carbon Neutral A synonym for ‘net zero carbon emissions’ (i.e. focuses on carbon dioxide emissions only) Carbon offset credit A transferrable instrument, usually certified by a credible verification organisation, representing a reduction in emissions of CO2e. Carbon offsetting Compensating or cancelling out all or a portion of the greenhouse gas emissions released to the atmosphere through investments in activities that reduce or remove an equivalent amount of emissions. Carbon pricing Assigning an economic value to carbon to create an incentive for firms to invest in low-carbon technologies and reduce carbon use. CDSB Framework The Climate Disclosure Standards Board (CDSB) Framework is designed to help companies and others report environmental and climate change information in mainstream financial reports and regulatory filings in a consistent and comparable manner. The CDSB and its framework have been consolidated into the newly established International Sustainability Standards Board (ISSB). Central Bank A public institution that oversees the financial system and monetary policy of a country. Certification The process by which a loan, investment or other financial activity is measured against recognised external standards and criteria. Chronic risks Risks from longer-term environmental changes such as rising sea levels. Circular economy Economic approach in which the value of products and materials is maintained for as long as possible, with waste and resource use minimised. CleanTech A term to encompass a wide range of technologies supporting environmental management, climate change mitigation and adaptation, and other related areas. Also referred to as ‘GreenTech’. Climate The average and spread in weather conditions for a particular area over a period of time, defined by the World Meteorological Organisation as 30 years. Climate / climate risk Insurance to individuals, communities and countries in the insurance developing world most exposed to climate change. Climate Bonds A sub-category of green bonds where the proceeds are used to finance projects for climate change mitigation or adaptation. Climate Bonds Developed by the Climate Bonds Initiative to provide a range Standard of sector-specific definitions for the ‘green’ use of bond proceeds. Issuers may seek certification against the Climate Bonds Standard to reassure investors of a bond’s green credentials. Climate change A change in the state of the climate that can be identified by changes in the mean and/or the variability of its properties that persists for an extended period, typically decades or longer (IPCC). This may be caused by natural forcing agents or by humans and human activities. Climate Change 2021 Refers to the first part of the IPCC’s report from its sixth assessment cycle: “Climate Change 2021: The Physical Science Basis. Working Group I Contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change”, published in August 2021 Climate Change 2022 Refers to the second part of the IPCC’s report from its sixth assessment cycle: “Climate Change 2022: Impacts, Adaptation and Vulnerability. Working Group II Contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change”, published in February 2022. Climate change Projects and activities that aim to improve resilience to the adaptation effects of climate change. Climate change Projects and activities that aim to reduce greenhouse gas mitigation emissions and the rate of climate change. Climate Neutral A synonym for ‘net zero’ (i.e. includes carbon dioxide and other greenhouse gases) Climate risk protection The difference between total economic losses from a climate- gap related event (for example, a tropical storm), or a series of such events, and the insured losses. Conference of the The governing body of the UNFCCC, which meets annually to Parties (COP) review the implementation of the Convention and agreed climate change instruments, and provides a forum for the negotiation of new climate change agreements and policies. Convention on Biological The United Nations Convention on Biological Diversity Diversity (CBD) launched at the UN Conference on Environment and Development in 1992, which entered into force in 1993 and has been ratified by 196 countries. The main global agreement and framework to address biodiversity loss. COP 26 Private Finance A roadmap to support the alignment of private finance with the Strategy objectives of the Paris Agreement, set out in “Building a Private Finance System for Net Zero – Priorities for Private Finance for COP 26” by UN Special Envoy for Climate Action and Finance Mark Carney. Its objective is to ensure that “every professional financial decision takes climate change into account.” Credit allocation policy A tool used by a central bank to direct the creation and allocation of credit towards certain industries or sectors. Crowdfunding/ Raising small amounts of capital from a large number of investors to finance projects or new business ventures, crowdinvesting typically via the internet. Cryptocurrency A digital asset used as a means of exchange for financial transactions without a central issuing authority, generally using blockchain (distributed ledger) technology. ‘Dark green’ strategies Strategies in which green and sustainable principles and practices are fully embedded and direct the strategy and operations of an organisation. De-carbonisation Reducing the amount of carbon (for example, carbon dioxide or methane) emitted from an agricultural, industrial or other process. Decoupling The concept that economic growth can be separated from growth in resource use and the resulting environmental impact. De-growth A planned economic contraction to bring us within our planetary boundaries. Development Bank A public (or part-public) financial institution tasked with promoting socio-economic development in a country or region. Divestment The opposite of an investment, for example, selling rather than buying an asset such as shares in a firm. Double Materiality Identifying and reporting both (i) the financial impacts of climate change and other environmental and social sustainability factors on an organisation and (ii) the environmental and social impacts of the organisation’s activities and operations on nature and society. Embedded approach An approach that sees the financial system as embedded in the economy, society and the environment. Energy efficiency Reduces the risk to building owners and managers of not insurance achieving the anticipated energy and financial savings of capital investment in energy efficiency measures. Environmental insurance Insurance that provides protection from actual/potential liabilities arising from environmental damage; for example, coverage to protect against pollution, oil spills or other forms of environmental damage. Equity An ownership share in a business, sold to individual or institutional investors who provide capital in return for a share of profits. ESG investing An investment approach that integrates Environmental, Social and Governance factors into investment analysis and decision-making. Ethical investing A catch-all term generally used to describe investments, or investment approaches and strategies, based on investors’ or investment managers’ ethical and philosophical beliefs. Exchange Traded Fund Similar to an Index Fund, except that a wider range of (ETF) investment assets are used to deliver a risk/return profile similar to a market or similar index beyond the underlying assets themselves. ETFs can also be traded on stock exchanges. External review A catch-all term covering similar terms such as audit, assurance, attestation, certification, validation, verification and second- or third-party review. Externalities The effects of one party’s activities and operations which are not factored into its assessment of costs, risks, and rewards. Fiduciary duty A legal concept common requiring agents to act in the best interests of the individuals or organisations they are acting for, using due skill, care and diligence. Finance for Biodiversity Established in 2020, and with nearly 100 signatories (as of Pledge 2022), the Pledge provides a forum for the sharing of best practice, and a supportive community of professionals and institutions with a common interest in addressing biodiversity loss through collective action. Financial Stability Board The FSB, comprising central banks, public international (FSB) financial institutions and international standard-setting organisations, aims to strengthen financial systems and promote international financial stability by coordinating the development of strong regulatory, supervisory and other financial sector policies, and by encouraging consistency in the implementation of these. The FSB established the Task Force on Climate-Related Financial Disclosures (TCFD) in 2015. FinTech A term combining Finance and Technology. Enabled by advances in digital technology and data science, it includes a wide range of tools and techniques, including, but not limited  to, smartphones and banking apps, the Internet of Things (IoT), Application Programme Interfaces (APIs), distributed ledgers (blockchain), artificial intelligence (AI) and machine learning, and big data and data analytics. Also referred to as ‘digital finance’. Fossil fuels Fuel such as coal or oil formed from the decayed remains of plants or animals. FSB Financial Stability Board Fund labelling A ‘badge’, based on a certification scheme, that verifies that an investment fund has met minimum agreed standards (for example, relating to environmental and/or social sustainability performance). General insurers Insurance companies that provide non-life insurance, which includes property cover, health insurance, liability policies and miscellaneous financial loss cover for individuals, companies and others. Glasgow Financial Co-ordinates the activities of more than 160 financial Alliance for Net Zero institutions from net zero initiatives including the Net Zero (GFANZ) Banking Alliance, Net Zero Asset Owner Alliance and Net Zero Asset Manager Initiative, to accelerate the transition to net zero emissions by 2050 at the latest. Global Sustainability The GSSB is the GRI’s standard-setting board; it develops Standards Board and publishes the GRI Standards. (GSSB) Green Bond Index Collects together a basket of similar green and sustainable bonds, and provides a benchmark against which investors can compare the performance of the bonds they hold with this reference portfolio. Green Bond Principles Published by the International Capital Markets Association, the GDPs are voluntary process guidelines for green bond issuance; they recommend transparency and disclosure, and seek to promote integrity in and the development of the green bond market. Green Bonds Bonds where the proceeds raised are allocated to environmental uses or projects. Green Development National or sub-national banks whose purpose is to provide Banks financing for green and sustainable projects. Sometimes simply referred to as “Green Banks” Green economy An economic approach that balances economic progress with environmental and social sustainability. Green finance Any financial initiative, strategy, product or service that is designed to protect the natural environment and support the transition to a sustainable, low-carbon world, and/or manage climate-related and other environmental risks impacting finance and investment. Green Finance Launched in 2020, the Charter is an alliance of 12 leading Education Charter Chartered and professional bodies committed to developing and mainstreaming qualification and CPD programmes that incorporate green and sustainable finance principles and practice. Green insurance Insurance products and services that either allow an insurance premium differentiation on the basis of environmentally relevant characteristics/behaviour, or are designed to promote ‘green’ activities. Green loan A loan made available to finance or re-finance, in whole or in part, new and/or existing projects designed to achieve positive environmental outcomes. Although not a legal requirement, it is good practice for green loans to align with the Green Loan Principles. Green Loan Principles A voluntary framework and standards for lending to support (GLPs) positive environmental outcomes, developed by the Loan Market Association and others, designed to promote global consistency in the application and reporting of green loans. Green mortgage A mortgage on an energy-efficient home, usually (at present) referring to new-build homes. Green Sukuk A sharia-compliant bond where the proceeds are used to support projects with environmentally beneficial outcomes. Green Supporting Factor Reduces the amount of capital a bank needs to hold in reserve, facilitating the allocation of more capital and greater lending amounts to green and sustainable projects. Green tagging Linking the terms of a loan to the underlying asset’s energy performance, fuel efficiency or environmental standard. Greenhouse effect The process by which greenhouse gases absorb heat and raise the temperature of the atmosphere. Greenhouse gases Primarily Carbon Dioxide (CO2), Methane (CH4) and Nitrous Oxide (N2O). Although relatively scarce in our atmosphere (0.1%), they have a potent effect on the climate system. Greenium A premium for a green bond compared with its traditional ‘vanilla’ equivalent. Greenwashing Making false, misleading or unsubstantiated claims about the positive environmental impact of a product, service or activity. GRI The Global Reporting Initiative, which publishes standards for sustainability reporting with the aim of creating a ‘common language’ for organisations to report their sustainability impacts in a consistent and credible way. Three Universal GRI Standards provide a framework for the application of GRI Sector Standards and Topic Standards. Hedge fund Funds for professional investors that seek to outperform the market, with investment managers adopting a very wide range of investment strategies and able to invest in almost any asset class. Humanitarian blockchain Using distributed ledger technology to support humanitarian projects; for example, disbursing emergency funds for disaster relief or to refugees. ILG The Investment Leaders Group Impact investing An approach to investing that aims to achieve specific, measurable environmental and/or social objectives alongside financial returns. Impact monitoring Assessment and evaluation of the impacts and outcomes of investments or operations. Impact underwriting Insurance products and services that incentivise policyholders to adopt more sustainable behaviour, contributing to climate mitigation and/or adaptation efforts. Index A selection of assets with similar characteristics, such as size, geographic focus, sector, or impact/purpose, that provides a benchmark against which investors can compare the performance of the assets they hold. Index fund A popular type of passive investment fund, where the fund’s portfolio tracks and holds the components of a market index (for example, the FTSE 100). Index insurance Insurance products that link pay-outs to changes in a predetermined index or set of parameters. Institutional investors Professional investors investing on their own behalf, and/or pooling funds from a large number of individuals or other entities and investing on their behalf. Intergovernmental Panel The United Nations body that assesses the science related to on Climate Change climate change. The IPCC provides regular assessments of (IPCC) the scientific basis of climate change, its impacts and future risks, and options for adaptation and mitigation. International Green A voluntary code, increasingly widely adopted in national and Construction Code local building codes and standards, promoting a whole-system (IgCC) approach to the design, construction and operation of buildings. The Code sets out criteria in areas including energy efficiency, resource conservation, indoor environmental quality and building performance designed to improve sustainability. International A new global standards board, established in 2021 by the Sustainability Standards International Financial Reporting Standards Foundation. The Board (ISSB) ISSB will build on existing sustainability standards and frameworks to develop, in the public interest, a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. Internet of Things (IoT) Connecting objects and devices to the internet with a sensor allowing the sending and receiving of data. Investment banking Helping companies raise debt and equity finance through capital markets. Investment fund A selection of a (usually) diversified range of assets to deliver a risk/return profile that matches investors’ characteristics, preferences and requirements. Investment trust A closed-ended investment fund that raises a fixed amount of capital from investors. IPO Initial Public Offering Framework The International Integrated Reporting Council. The IIRC and the Framework have been consolidated into the newly established International Sustainability Standards Board (ISSB). IRIS The Impact Reporting and Investment Standards, published by the Global Impact Investment Network. ISO 14097 A new international standard for assessing and reporting investments and financing activities related to climate change. Just transition Ensuring that the transition from a high to low-carbon economy is fair for current and future generations, particularly those communities and workers most impacted. Kyoto Protocol Prior to the Paris Agreement coming into effect in 2020, the 1997 Kyoto Protocol was the main global framework for cutting greenhouse gas emissions. In its first phase (2008-12) the Protocol covered only some 12% of global emissions, as some major emitters (e.g. the USA) and developing countries did not ratify or were not included in the Agreement. Liability risks Risks arising from parties who have suffered loss from the effects of climate change, or environmental damage and/or social harms, and who seek compensation from those they hold responsible Life insurers Insurance companies that provide benefits in the event of death, retirement or changes in health. ‘Light green’ strategies Strategies in which green and sustainability factors are not central to an organisation’s strategy and operations. Listed equities Shares listed on stock exchanges and traded on public markets. Machine learning A form of artificial intelligence (AI) that enables systems to learn and improve from experience without being explicitly programmed. Machine learning encompasses a variety of techniques; most involve the use of large quantities of data for pattern recognition and inference to train the system. Macroprudential policy Policy aimed at preventing an excessive build-up of systemic risk in the financial system resulting from factors such as asset price bubbles or excessive risk-taking by banks. Margin Adjustment A variation in loan pricing (interest rate) linked to a borrower’s ability to meet agreed targets. In the context of green and sustainable finance, these may relate to improvements in energy efficiency or other sustainable aims such as reducing pollution or waste. Microprudential Supervision of individual financial institutions to ensure that regulation they are resilient and solvent. Minsky Moment A dramatic collapse in asset values, and in financial markets overall. Multilateral Development Supranational institutions established by sovereign states, with Banks (MDBs) aims and objectives reflecting the development and cooperation policies of their sovereign shareholders. MDBs have played key roles in establishing and developing the green and sustainable finance sector. Nationally-Determined Countries’ plans to achieve their climate goals in line with the Contributions (NDCs) objectives of the Paris Agreement. Natural capital The stock of natural assets, including air, water, land and all living things. Nature-based finance Finance that recognises our dependency on nature, and seeks to conserve and benefit the environment and nature Nature-based solutions Defined by the International Union for the Conservation of Nature as: “ … actions to protect, sustainably manage, and restore natural or modified ecosystems that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits.” Negative Emissions Removing carbon dioxide or other greenhouse gases from the atmosphere. Techniques have not yet been developed successfully at the scale required to make a substantial contribution towards net zero targets. Negative screening The exclusion of certain assets, companies or sectors from an investment portfolio in line with pre-defined criteria. Net carbon footprint The total greenhouse gas emissions associated with the production, processing and consumption of products and services, offset by activities to mitigate emissions, such as Carbon Capture and Storage. Net Zero Balancing carbon dioxide and other greenhouse gas emissions from production and other activities released into the atmosphere with equivalent amounts captured and stored, and/or offset (for example, through buying carbon credits) Net Zero Carbon Balancing carbon dioxide emissions from production and other Emissions activities released into the atmosphere with equivalent amounts captured and stored, and/or offset (i.e. focuses on carbon dioxide only, not other greenhouse gases) Network for Greening An organisation of 114 central banks and financial regulators the Financial System aiming to accelerate and coordinate regulatory approaches to (NGFS) climate risk and wider environmental risks, and to support the mainstreaming of green finance. NGFS Network for Greening the Financial System, established in 2017. The NGFS co-ordinates the work of central banks and  financial regulators in response to climate change and broader environmental and sustainability risks Ocean finance Lending, investment and underwriting activities that support the ‘blue economy’ – also referred to as ‘blue finance’. OECD Organisation for Economic Co-operation and Development PACTA The Paris Agreement Capital Transition Assessment; it is used by more than 1,500 financial institutions to measure the alignment of portfolios with climate scenarios, including Scope 3 financed emissions. Paris Agreement In December 2015, countries agreed to combat climate change and to accelerate and intensify the actions and investments needed to support the transition to a low-carbon world. The Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise in the 21st century below 2 degrees Celsius above pre-industrial levels and to pursue greater efforts to limit the temperature increase to 1.5 degrees Celsius. The Agreement entered into force in November 2016 after countries accounting in total for at least 55% of total global greenhouse gas emissions ratified the Agreement. Partial credit guarantee Partial insurance against non-payment by a borrower for any reason – political, commercial or otherwise. Partnership for Established in 2019 and currently (2022) comprising some 36 Biodiversity Accounting financial institutions, PBAF’s aim is to develop global Financials (PBAF) standards for assessing and measuring positive and negative biodiversity impacts from financial institutions’ lending and investment activities. Passive investing Where investors track the performance of a chosen market or index, seeking to achieve an average market return through a diversified portfolio. Patient capital Capital invested for the long term, usually more than 10 years. Patient capital is often, but not necessarily, deployed mainly by MDBs and other public sector financial institutions more easily able to take a long-term perspective. PCAF The Partnership for Carbon Accounting Financials (PCAF), a global collaboration between financial institutions to develop and implement a harmonised approach to measuring and reporting greenhouse emissions associated with lending and investments. The PCAF has published the Global GHG Accounting and Reporting Standard for the Financial Industry, which includes guidance on reporting Scope 3 financed emissions. Peer-to-peer (P2P) Lending to individuals, businesses or projects via an online lending marketplace that matches lenders and borrowers. Physical risks Risks arising from the direct impacts of climate-related hazards inherent in human and natural systems, such as droughts, floods and storms. Planetary boundaries The environmental limits within which we must remain to ensure the safety of human life. Positive screening The inclusion of assets, companies or sectors within an investment portfolio that meet pre-defined criteria. Principles for Launched in 2006, the Principles for Responsible Investing Responsible Investing were developed by the UNEP Finance Initiative and the UN (PRI) Global Compact with the goal of working with investors to support a more sustainable global financial system. As of January 2021, the PRI have more than 3,000 signatories, representing US $103.4 trillion in assets under management. Private equity Investments in assets that are not listed or traded on public markets. Process monitoring Assessment and evaluation of an organisation’s principles, policies, procedures, and practices. Project Bonds Bonds backed by a green project’s or projects’ assets and balance sheet(s) only, rather than by an issuer’s whole balance sheet. Project finance Funding for large infrastructure projects, typically including a combination of equity investors and a syndicate of banks or other lending institutions that provide loans that are repaid through revenue generated by the project. Quantitative easing An unconventional form of monetary policy where a central bank creates new money electronically to buy financial assets, such as government bonds, in order to directly increase private sector spending in the economy and return inflation to target. Regulatory sandbox A regulatory environment that allows new approaches to be tested in controlled conditions. Reinsurers Insurance companies that provide insurance to other insurance companies, enabling the further diversification of risk. Renewable energy Energy that comes from a source that is not depleted when it is used or is naturally replenished within a human timescale. Representative Developed by the IPCC, RCPs describe future climate Concentration scenarios based on different levels of greenhouse gas Pathways (RCPs) emissions and concentrations. Responsible investing An approach to investment decision-making informed by and aligned with the UN Principles for Responsible Investment (PRI). Responsible investing encompasses an active approach to incorporating ESG factors into investment decision-making, strategies and engagement with investors and investees. Retail banking The provision of products and services by a bank to individual consumers and SMEs. Retail investors Non-professional investors investing their savings. SASB The Sustainability Accounting Standards Board; it has published a set of 77 industry standards, with each setting out guidance as to the environmental, social, and governance (ESG) issues most relevant to financial performance in each of those sectors. The SASB and its standards have been  consolidated into the newly established International Sustainability Standards Board (ISSB). Scenario analysis A well-established method for developing strategic plans that consider a range of future states. Science-Based Targets The Science-Based Targets Initiative provides clearly defined Initiative (SBTi) pathways for organisations to reduce their greenhouse gas emissions. Targets are considered ‘science-based’ if they are in line with what climate science deems necessary to meet the goals of the Paris Agreement. SBTi financial sector guidance covers reduction targets for Scope 1, 2, and 3 emissions. SDG Bond A bond where proceeds are used to support the achievement of one or more of the UN Sustainable Development Goals. SDG Impact Standards Published by the United Nations Development Programme (UNDP), these standards seek to provide greater credibility and rigour to the issue of SDG bonds, and fit with existing principles, frameworks and tools whilst addressing gaps in current market practice. SDG-linked Bond An SDG bond that includes a covenant linking the bond’s coupon (and occasionally other features) to the issuer’s achievement of, or progress towards, one or more of the UN Sustainable Development Goals. Securitisation Bundling together revenues from loans to create larger, tradeable securities. Shared Socioeconomic A set of scenarios used by the IPCC and others that use Pathways (SSPs) socioeconomic factors, including economic growth, population and technological development, to develop different scenarios for emissions based on different speeds and scales of climate policy action. Shareholder activist A person or entity who seeks to influence change in a company by exercising (or threatening to exercise) their voting rights. Smart contract A self-executing contract between parties where the terms of the agreement are expressed and run as computer code,  usually utilising blockchain/distributed ledger technology to provide verification and ensure trust without the need for a central, legal authority. Social Bond Use of proceeds bonds that raise finance to support organisations, projects and activities with positive social outcomes. Social Bond Principles Published by the International Capital Markets Association, the SBPs are voluntary process guidelines that recommend transparency and disclosure, and seek to promote integrity in and the development of the social bond market. Social loan A loan made available to finance or re-finance, in whole or in part, new and/or existing projects designed to achieve positive social outcomes. Although not a legal requirement, it is good practice for social loans to align with the Social Loan Principles. Social Loan Principles A voluntary framework and standards for lending to support (SLPs) positive social outcomes, developed by the Loan Market Association and others, designed to promote global consistency in application and reporting of social loans. Solvency II The EU framework for insurance regulation. Sovereign catastrophe When governments or other organisations such as risk pooling humanitarian agencies take out insurance policies that will provide a pay-out in the event of a defined extreme weather event such as a major drought or hurricane occurring in a country. SRI investing Socially responsible investing, where investments are selected or eliminated in accordance with ethical guidelines and SRI ‘screens’ determined by the investor or investment manager. Stakeholder value An approach that sees the role of business as generating approach value for all the stakeholders it serves. Steady-state economy An economy that is not based on increasing levels of production and consumption. Stranded asset risk The risk of assets suffering from unanticipated or premature write-downs, devaluations or conversion to liabilities. Stranded assets Assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities. Stress testing Assessments conducted (or ordered) by central banks to model the resilience of the financial sector overall, and/or that of individual financial institutions, to shocks and scenarios. Sustainability Bond A bond where proceeds are used to finance a combination of both green and social projects, often linked to the UN’s Sustainable Development Goals (SDGs). They therefore combine the use of proceeds of green and social bonds. Sustainability Bond Published by the International Capital Markets Association, the Guidelines SBGs are voluntary process guidelines that aim to promote consistency, integrity and transparency in this category of bonds. Sustainability Linked A voluntary framework and standards for lending, developed Loan Principles (SLLPs) by the Loan Market Association and others, designed to support the development of the Sustainability Linked Loan (SLL) market and consistency in the application of SLLs. Sustainability-linked A sustainability bond that includes a covenant linking the Bond bond’s coupon (and occasionally other features) to the issuer’s achievement of, or progress towards, agreed sustainability objectives. Sustainability-Linked Published by the International Capital Markets Association, the Bond Principles SLBPs are voluntary process guidelines that seek to incentivise issuers to achieve material sustainability (ESG) objectives, and that recommend bond structuring features, disclosure, reporting and verification to ensure this. Sustainability-linked loan A corporate loan where the pricing (interest rate) and/or other (SLL) features are dependent on the sustainability profile and targets of the borrower. Although not a legal requirement, it is good practice for SLLs loans to align with the Sustainability Linked Loan Principles. Sustainable finance The inclusion of economic, environmental, and social factors in an organisation’s strategy, management, activities and operations; combined with the financing of sustainable economic, environmental and social objectives. Sustainable investing An active approach to investing and investment decision- making, involving the positive selection of investments that deliver environmental and social benefits and support the transition to a sustainable, low-carbon world, combined with reducing or eliminating investments in harmful sectors and firms. Syndicated loan A large loan offered by a group of lenders – referred to as a syndicate – that work together to provide funds for a single borrower to finance a major project. Task Force on Climate- Established in 2015 by the Financial Stability Board, the TCFD related Financial has developed a global framework for the voluntary disclosure Disclosures (TCFD) of climate-related financial risks. Task Force on Nature- Established in 2021, the TNFD brings together financial related Financial institutions, governments, international organisations and Disclosures (TNFD) NGOs to steer finance towards outcomes that are nature- positive. Taskforce on Scaling Established in 2020 by the Institute of International Finance, Voluntary Carbon the Taskforce aims to develop proposals to accelerate the Markets. development of the voluntary carbon market to scale up the use of offsets whilst maintaining their quality, TFCR Task Force on Climate-related Financial Risks, established by the Bank for International Settlements in 2020 Trade finance Products and services offered by banks to help exporters manage cash flow, credit risk, exchange risk and other risks of trading internationally. Tragedy of the horizon The mismatch between business, political and regulatory cycles, and the timescale needed to prevent climate change impacting financial stability. Transition Bond Transition bonds are designed to incentivise major greenhouse gas emitters to move to more sustainable, lower- carbon business models. There is no recognised set of principles or guidance setting out agreed use of proceeds and similar criteria; however, the International Capital Markets Association has published a Climate Transition Finance Handbook to provide guidance to issuers and investors. Transition finance Finance that supports the transition of firms, sectors and economic activities to low-carbon means of production and distribution, aligned with the objectives and timescales of the Paris Agreement. Transition risks Risks arising from the transition to a lower-carbon economy, such as developments in climate policy, new disruptive technology and shifting investor sentiment. UN Principles for Launched in September 2019 with 130 banks from 49 Responsible Banking countries as the founding signatories, the Principles provide a framework for banks to align their strategies and activities with sustainable finance principles and societal goals, as expressed in the UN Sustainable Development Goals and the Paris Agreement. UN Principles for A global framework for the insurance industry to address Sustainable Insurance environmental, social and governance risks and opportunities. (UN PSI) UN Sustainable 17 objectives agreed by 193 countries in 2015 to address the Development Goals major environmental, social and economic challenges of our time. UNEP FI A partnership between the UN Environment Programme and the global financial sector to promote sustainable finance. UNFCCC The United Nations Framework Convention on Climate Change. Agreed in 1992 and ratified by 197 parties to the Convention, the UNFCCC is the key international treaty providing a global framework for combating climate change.  The Paris Agreement (see above) is an agreement reached within the UNFCCC. process. UNFCCC Standing The UN body responsible for monitoring, measuring and Committee on Finance reporting flows of climate finance. Unit trust An open-ended investment fund made up of units that are created by the fund manager when investors want to buy, and then cancelled/redeemed when they want to sell. Usage-based insurance Vehicle insurance based on how a vehicle is driven (Pay How You Drive – PHYD) and/or the distance driven and type of journey undertaken (Pay As You Drive – PAYD). Use of Proceeds Bond Organisation-guaranteed bonds used to raise money for general purposes and that are backed by the issuing organisation as a whole. Use of the money raised (proceeds) may be linked to certain qualifying assets or purposes – in the case of green use of proceeds bonds, for activities delivering environmental sustainability benefits. Values-based investing An approach to investing that takes into account investors’ beliefs, preferences and values alongside their desire for a financial return. Venture Capital A specific type of private equity investing with greater emphasis on investing in and developing new or early-stage businesses. Verification Obtaining independent third-party assurance against designated criteria, often including reference to international or market standards and guidance. Voluntary carbon market The purchase, trading and development of instruments based on voluntary carbon offset credits. Wholesale banking The provision of products and services by a bank to larger corporations and to other banks. Zero Carbon No carbon is emitted through production or other activities, therefore – in contrast with ‘net zero’ – no carbon needs to be captured or offset