A sustainable finance lexicon – terminology for a growing market

Stockholm Sustainable Finance Centre recently published a sustainable finance lexicon. Users can browse words and phrases related to sustainable, green, and climate finance

Because sustainable finance is still in its infancy, common terminology, references and standards are lacking. This glossary – just one of the tools offered by the Centre to support financial actors in their work – provides a common denominator in terminology related to sustainable finance. Glossaries are especially critical in technical language. Correctly defined terms can help people communicate more efficiently and effectively, ensuring accuracy and consistency.

Historically, investors have based investment decisions on performance and financial returns. Over The last decade or so has seen a mind shift among financiers, whereby they are looking more towards environmental and social impact. The finance sector has become a crucial part of accelerating the energy transition, implementing urban transitions into sustainable living spaces, and shifting towards a circular economy. According to the Global Sustainable Investment Alliance (GSIA), US $23 trillion, or just over a quarter of all assets under management in 2016, took into account environmental, social and governance (ESG) factors (GSIA 2017)

Stockholm Sustainable Finance Centre is working on expanding its Knowledge Development Platform beyond a mere lexicon. The Centre hopes to include defined global and national standards on sustainable finance to guide financiers in their work on how to identify, promote and evaluate investment products for use in their portfolios. One example would be the Positive Impact Principles published last year by UNEP. Other examples include the Eurosif Transparency Guidelines and FNG Sustainability Profiles and Transparency Matrix.

With more data in place on ESG ratings and metrics, it has become easier for investors to judge an investment in term of its “sustainable profile”. But metrics for comparison, common terminology and best practices for assessment are still missing. As the Economist reported in April 2018, the European Union wants to change that, and has announced plans to set up an overarching framework for evaluating ESG ratings. This would help compare the different ratings themselves, rather than just providing another rating system altogether. 

For a glossary on purely financial terms Stockholm Sustainable Finance Centre recommends you visit the Financial Times Lexicon or Chartered Institute for Securities Investment (CISI) Financial Services Jargon Buster.