This refers to investors addressing concerns of environmental, social and governance (ESG) issues by voting on such topics or engaging corporate managers and boards of directors on them. Active ownership generally regarded as one of the most effective mechanisms to reduce risks, maximise returns and have a positive impact on society and the environment – for passive and active investors.
Source: Principles for Responsible Investment (PRI)
Is a voluntary quality standard for sustainability research providers. It consists of guidelines and rules, commitments and verifiable evidence of the transparency, quality, accountability and verifiability of the processes involved in sustainability research. It was launched by ARISE, the Association for Responsible Investment Services.
Is an approach to sustainable community-driven development. Beyond the mobilisation of a particular community, it is concerned with how to link micro-assets to the macro-environment. Source:Nurture Development
Sustainability criteria and approaches can be applied to mainstream products or the full asset base of a fund manager or institutional asset owner by integrating them in the investment process. The application of sustainability in these cases relies on a general sustainability policy/approach instead of a product-specific policy referred to in the product prospectus. Usually, such mainstream sustainable investments apply one of the following approaches or a combination thereof: exclusions, norms-based screening, ESG integration, ESG voting, ESG integration.
Is the amount of CO2 the world can emit while still having a likely chance of limiting warming to the 2°C target. The Intergovernmental Panel on Climate Change’s Fifth Assessment Report, issued in 2014, estimates the world has burned through two-thirds of the budget, and WRI calculates we could spend it entirely in two decades if emissions continue unabated.
A market that is created from the trading of carbon emission allowances to encourage or help countries and companies to limit their carbon dioxide (CO2) emissions. This is also known as emissions or carbon trading.
Means annual zero net anthropogenic (human caused or influenced) CO2 emissions by a certain date. Every ton of anthropogenic CO2 emitted is compensated with an equivalent amount of CO2 removed (e.g. via carbon sequestration).
The long-term storage of carbon in plants, soils, geologic formations, and the ocean. Carbon sequestration occurs both naturally and as a result of anthropogenic activities and typically refers to the storage of carbon that has the immediate potential to become carbon dioxide gas. In response to growing concerns about climate change resulting from increased carbon dioxide concentrations in the atmosphere, considerable interest has been drawn to the possibility of increasing the rate of carbon sequestration through changes in land use and forestry and also through geoengineering techniques such as carbon capture and storage.
Are carbon credits which are backed by the UN and issued by the CDM Executive Board for emission reductions achieved by CDM projects. (One CER is equal to one metric ton of carbon dioxide equivalent (CO2e). It can be traded in a voluntary carbon market and used by developed countries to meet emission reduction commitments.
Are resources at multilateral, bilateral and/or national levels with the purpose to address climate change. Several climate change dedicated funds such as GCF, Least Development Countries Fund 7 Climate Finance Glossary (LDCF), Adaptation Fund, and Climate Investment Funds have been established to support poor and vulnerable developing countries. OECD publishes Climate Fund inventories and reports to the G20 Climate Finance Study Group on a regular basis.
CLIMATE PUBLIC EXPENDITURE INSTITUTIONAL REVIEW (CPEIR)
Is a methodological tool to analyse, how climate change related expenditure is being integrated into national and sub-national budgetary processes. It has three key pillars: Policy Analysis, Institutional Analysis and Climate Public Expenditure Analysis. It supports to identify and track climate related expenditure in the national budget.
Is a practice in which multiple agencies finance the same project. Climate Co-Finance is the amount of financial resources contributed by the external entities along with climate finance invested by Multilateral Development Banks (MDBs). The financial resource providers include, among others, government or government-affiliated institution as well as the private sector, which are in the form of trust funds and international climate funds managed by MDBs. Co-financing is an essential component of the Green Climate Fund.
A system not based on individual ownership but where consumers share products or services. Collaborative consumption differs from standard commercial consumption in that the cost of purchasing the good or service is not borne by one individual, but instead is divided across a larger group as the purchase price is recouped through renting or exchanging.
The joint effort of individuals who network and pool their money, usually online, to support a wide variety of activities including start-up company funding, disaster relief and campaigns. For many social enterprises the traditional funding models no longer exist, so crowd funding is a mechanism to establish or fundraise for a host of social/environmental activities.
Obtaining services, ideas or content by inviting contributions from a large group of people, especially an online community. It’s often used to fundraise start-up companies and charities. See crowd funding, above.
Is framed around decreasing the ratio of carbon dioxide (CO2) or all greenhouse gas emissions related to primary energy production. While full decarbonization means zero unabated (not captured by carbon sequestration or storage) CO2 emissions from energy generation and industrial processes, decarbonization doesn’t imply zero emissions, as emissions can be balanced by carbon sequestration if adequate reductions or enhanced carbon sinks exist. To effectively communicate the scale of change needed, the term must be accompanied by a timeframe and rates of decarbonization.
Charging varying amounts to sell the same product to different groups of customers. Lower prices are usually charged to people with fewer financial resources or in disadvantaged situations like mental or physical disabilities.
A set of processes and practices that enable an organisation to measure and ultimately reduce its environmental impacts. The most commonly used framework is the one developed by the International Organization for Standardisation (ISO) for the ISO 14001 standard.
ESG investing attempts to integrate environmental, social and governance criteria into the investment analysis process. The screening process can be positive or negative. An investment manager may choose a higher allocation to strong ESG performers and/or may choose to short the worst ESG performers.
Is a cornerstone of the EU’s policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world’s first major carbon market and remains the biggest one.
Are innovative financial instruments where the proceeds are invested exclusively (either by specifying the use of the proceeds, direct project exposure, or securitization) in green projects that generate climate or other environmental benefits.
Is a global fund created to support the efforts of developing countries to respond to the challenge of climate change. Established in 2010, GCF helps developing countries limit or reduce their greenhouse gas (GHG) emissions and adapt to climate change.
Any of the atmospheric gases that contribute to the greenhouse effect by absorbing infrared radiation produced by solar warming of the Earth’s surface. They include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and water vapor.
Impact investing attempts to generate solid investment returns but also generate a desired socioeconomic, environmental or behavioural outcome. Impact investors are often concerned with measuring and disclosing the degree of impact being made. There is no standardized procedure for measuring impact, but techniques often include cross-sectional and intertemporal comparative measures.
Investment crowdfunding is a way to source money for a company by asking a large number of backers to each invest a relatively small amount in it. In return, backers receive equity shares of the company. Normally restricted to accredited investors, the 2012 Jobs Act in the United States allows for a greater scope of investors to invest via crowdfunding once better infrastructure is in place to do so. Investment crowdfunding may also entail obtaining debt as well as equity stakes.
Is used in the context of climate finance in which it refers to public finance (e.g. from international finance institutions) that is used to encourage private investors to back the same project. This can be in the form of loans, risk guarantees and insurance or private equity. This is also intended to reduce the perceived risk for the private sector. Financial institutions apply the terminology ‘leveraging’ to understand how their core contributions (for example, money provided by donor governments to a multilateral development bank) can be invested in capital markets to create an internal multiplier effect.
refers to the negative effects of climate change that people have not been able to cope with or adapt to. Loss and damage emanating from climate change impacts can be both economic and non-economic in nature. The concept was introduced in UNFCCC in the 13th Session of the COP in Bali, Indonesia and later, in Cancun Adaptation Framework in 2010.
The concept of low carbon development has its roots in the UNFCCC adopted in Rio in 1992. In the context of this convention, low carbon development is now generally expressed using the term low-emission development strategies (LEDS – also known as low-carbon development strategies, or low-carbon growth plans). Though no formally agreed definition exists, LEDS are generally used to describe forward-looking national economic development plans or strategies that encompass low-emission and/or climate-resilient economic growth.
A materiality matrix enables a company to decide which CSR (corporate social responsibility) initatives to invest in. The total value created by a CSR initiative can broadly be broken down into business and societal values.
A source of financial services for individuals or small businesses lacking access to traditional banking services. It can be a sustainable means of poverty alleviation by empowering entrepreneurs to build businesses, support their families and transform their communities.
Source: Adapted from Center for Global Development
Attempts to align investment capital with enterprises that complement the investor’s mission. Mission-related investors often place investment returns second to fulfilling the “mission” component of the investment. Sometimes, these investments even earn a neutral target return.
Is a tool that can help measure the full extent of a country’s natural assets and give perspective on the link between the economy, ecology and the environment. It allows to estimate economic benefits that derive from the natural environment.
Is an international agreement concluded at the 21st Session of the Conference of Parties (COP21) of the UNFCCC in 2015 in Paris, France. It aims to strengthen the global response to the threat of climate change by keeping a global temperature rise in this century well below 2 °C above pre-industrial level and to pursue efforts to limit the temperature increase even further to 1.5 degree Celsius.
The most common definition is that renewable energy is from an energy resource that is replaced rapidly by a natural process such as power generated from the sun or from the wind. Most renewable forms of energy, other than geothermal and tidal power, ultimately come from the Sun.
Are businesses that tackle social and environmental issues. They create jobs and generate income like any other business but, instead of channelling their profits to owners or shareholders, they reinvest these to support their social mission. Source: British Council
attempts to screen out investments in companies that don’t align with a client’s values. This process is, by definition, a negative screening process. A common criterion for screening is whether a company generates 5% or more of revenue from the controversial activity at any point on the supply chain. Source: Earthly
Is a newer, but less established concept in the investing world. Often defined as the umbrella principle the unifies the four investing concepts (ESG, SRI, impact and mission-related investing). Source: Earthly
A phrase first coined by John Elkington in 1994, it describes the separate financial, social and environmental ‘bottom lines’ of companies. In principle it is designed for companies to value their social and environmental profits and losses, as well as the financial ones. It consists of three Ps: profit, people and planet. Measures financial, social and environmental performance of a corporation over a period of time. Source: Adapted from the Economist
UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE (UNFCCC)
Is a framework for international cooperation to combat climate change. It aims to stabilize the greenhouse gas concentration in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. It focuses on both mitigation and adaptation measures. There are now 197 parties to the Convention that was adopted at the Earth Summit in 1992.
Source: United Nation Framework convention on Climate Change
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