The Ultimate Glossary of Sustainability Terms and Buzzwords – Part 5
With 2020 long gone, and a new year with new opportunities in place, we think it's time once again to review the hottest buzzwords in sustainability. In this blog, we will look at the most commonly used terms in sustainable financing. Get knowledgeable with these six buzzwords!
ESG makes up a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.
The EU Taxonomy was established in 2018 by the European Commission to help facilitate Europe’s move to net-zero carbon emissions by 2050, as well as combat climate change in the long-term. In March 2020, the initiative was updated, aiming to help companies access green financing to improve environmental performance. The EU Taxonomy aims “to help investors, companies, issuers and project promoters navigate the transition to a low carbon, resilient and resource-efficient economy.”
The transition to a sustainable global economy requires scaling up the financing of investments that provide environmental and social benefits. The bond markets through Green, Social and Sustainability Bonds can play an essential role in attracting private capital to finance these global needs. Green, Social and Sustainability Bonds are any type of bond instrument where the proceeds will be exclusively applied to eligible environmental and/or social projects. They are regulated instruments subject to the same capital market and financial regulation as other listed fixed income securities.
Task Force on Climate-related Financial Disclosures (TCFD)
The work and recommendations of the Task Force help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.
The SFDR was adopted by the European Commission in the spring of 2019 as a proposal for “a regulation on disclosures relating to sustainable investments and sustainability risks”. The primary goal is to increase transparency on sustainability to ensure that financial market participants (FMP) are able to finance growth in a sustainable manner. It consists of disclosure requirements on both business and product-level to standardize sustainability disclosure while combat “greenwashing”.
Investment in activities that have a positive social and/or environmental impact. It includes screening positive characteristics in, or negative characteristics out, of an investment option. It can also include using assessment criteria like environmental, social and governance criteria or strategic sustainability criteria.
Download the complete Buzzword guide to explore the vocabulary.