Sustainable and ESG investing terminology

An investment approach which focuses on companies that are leaders in meeting sustainable standards. The approach can vary from selecting the best-performing companies to excluding the worst. 

The rules, practices, and processes used to direct and manage a company. The main force influencing corporate governance is a company’s board of directors, although the board can be influenced by shareholders, creditors, customers and suppliers too.

Ethical investments are sometimes described as exhibiting various shades of green. Dark green funds put ethical issues at the heart of everything they do. They have a strict process that completely avoids any company or industry that fails to meet environmental or other ethical criteria. The types of industries that dark green funds avoid include, oil, gas, animal testing and tobacco.

A process that considers environmental, social and governance factors together with the typical financial ones. The process allows investments in any business, sector, or region, provided ESG risks are considered. 

A measurable way to gain an understanding of a company’s investment standards and long-term commitment to environmental, social, governance (ESG), and socially responsible investments (SRI). Company ratings can be aggregated to provide an overall score for a fund.

Greenwashing means giving a false impression that a company’s products and services provide greater environmental (or green) benefits than they really do. It can also refer to the exaggeration of an investment fund’s sustainability criteria.

These funds are a lot more flexible in their approach to the companies in which they invest. Funds on the lighter green end of the scale recognise that responsible practices but be evident in an industry that is otherwise considered less ethical. Examples include transport companies seeking to reduce carbon emissions, oil and gas companies diversifying into renewable energy or solar panel manufacturers.

A strategy designed to specifically exclude companies based on their involvement in undesirable industries. These may include tobacco, alcohol or armaments. 

A strategy designed to specifically filter companies based on their involvement with good ESG practice. Some of these good practices may include promotion of human rights and reduced carbon emissions. 

Stewardship describes the process of monitoring and engaging with companies over their strategy, objectives, performance, risk, structure, and corporate governance. The goal is to enhance shareholder value, by helping companies to achieve their potential while also delivering benefits to society and the environment.