Sustainable and Impact Glossary
In addition to the written description, click on each word below to view supplemental documentation describing the concept. Some definitions include links to other words defined in the glossary.
- B-Corp
- A company, ceritfied by B Lab, which meets high standards of social and environmental performance, public transparency, and legal accountability to balance profit and purpose.
- Carbon Disclosure Project (“CDP”)
- A not-for-profit charity that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. The organization helps measure and manage the risks and opportunities on climate change, water security and deforestation. The CDP provides annual scores that aim to incentivize and guide entities on a journey through disclosure towards becoming a leader on environmental transparency and action.
- Clean Technology (“CleanTech”)
- According to Merriam Webster, CleanTech represents technology that places an emphasis on environmentally friendly products, services, or practices. However, the term has become more broad, now emcompassing the investment asset class, technology, and business sectors which include clean energy, environmental, and sustainable or green, products and services.
- Climate Disclosure Standards Board (“CDSB”)
- An international consortium of business and environmental non-governmental organizations (NGOs) that are committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital. This is done by offering companies a framework for reporting environmental information with the same rigour as financial information. On 31st January 2022, the CDSB was consolidated into the IFRS Foundation to support the work of the International Sustainability Standards Board (ISSB).
- Community Development Bank (“CDB”)
- A community bank committed to helping the underserved.provide low- and moderate-income communities the credit they need by lending to small businesses, schools and hospitals. CDB's also help people, who have been turned away by other banks, build credit by offering safe, responsible small-dollar loans. They are a type of CDFI.
- Community Development Financial Institution (“CDFI”)
- Lenders with a mission to provide fair, responsible financing to communities that mainstream finance doesn’t traditionally reach. These institutions can be banks (e.g., CBDs), credit unions, loan funds, microloan funds, or venture capital providers. The institutions strive to foster economic opportunity and revitalize neighborhoods.
- Community Development Financial Institutions Fund (“CDFI Fund”)
- The vision of the CDFI Fund is to economically empower America’s underserved and distressed communities by offering tailored resources and innovative programs that invest federal dollars alongside private sector capital. The CDFI Fund serves mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities.
- Community Development Loan (“CDL”)
- A loan that has a primary purpose of community development (e.g., loans to borrowers that rehabilitate or construct affordable housing or to finance environmental cleanup or redevelopment of an industrial site). See page three of the linked document for more examples.
- Community Development Loan Fund (“CDLF”)
- Includes types of funds created to meet specific market needs and concerns that provide financing and development services to businesses, organizations, and individuals in low income communities. These funds are generally nonprofit and are governed by a board of directors with community representation. One example is the Chicago Community Loan Fund which aims to provide flexible, affordable and responsible financing and technical assistance for community stabilization and development efforts and initiatives that benefit low- to moderate-income neighborhoods, families and individuals throughout metropolitan Chicago.
- Community Investing
- Channels public and private investment to low income and other underserved communities in order to provide capital, credit and training that these communities would otherwise lack.
- Corporate Equality Index
- Produced by the Human Rights Campaign Foundation, this is the national benchmarking tool on corporate policies, practices and benefits pertinent to lesbian, gay, bisexual, transgender and queer (LGBTQ+) employees and helps drive workplace inclusion.
- Corporate Human Rights Benchmark
- Looks at the policies, processes, and practices some of the largest companies have in place to systematise their human rights approach and how they respond to serious allegations. Provides a year-over-year comparative snapshot across companies.
- Corporate Social Responsibility (“CSR”)
- A management concept under which companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. Helps a company achieves a balance of economic, environmental and social imperatives.
- Corporate Sustinability Reporting Directive (“CSRD”)
- Amends the European Union's 2014 non-financial reporting directive to include more detailed reporting requirements and ensures that large companies are required to report on sustainability issues such as environmental rights, social rights, human rights and governance factors. Under this, the European Commission defines a common reporting framework for non-financial data and the European Financial Reporting Advisory Group (“EFRAG”) will ultimately be responsible for establishing the European standards.
- Environmental (“E”)
- The "E" of ESG, this relates to conservation of the natural world to include: 1) Climate change and carbon emissions; 2) Air and water pollution; 3) Biodiversity; 4) Deforestation; 5) Energy efficiency; 6) Waste management; and 7) Water scarcity.
- Environmental Finance
- Initially referred to applying environmental economics to finance and investment. The scope continues to broaden as environmental financial instruments evolve, the impact of environmental issues deepens, and environmental regulations strengthen. AKA "Green Finance" or "Sustainable Finance."
- Environmental, Social, and Governance (“ESG”)
- A framework that helps stakeholders (e.g., investors, suppliers, customers, and employees) understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria.
- Ethical Investing
- An investment strategy where the investor’s ethical values (moral, religious, social) are the primary objective, along with good returns.
- EU Taxonomy
- A classification system, establishing a list of environmentally sustainable economic activities. Provide appropriate, clear, and common definitions for which economic activities can be considered environmentally sustainable.
- Exclusionary Screening
- The most prevalent approach to ESG investing, which involves avoiding investment in material ESG risks or in areas that do not align with a values-based investment thesis. May also exclude particular companies or sectors from the investment universe based on ESG or ethical concerns. AKA Negative Screening
- Faith-Based Investing
- An investment strategy that seeks to maximize returns while using faith-based principles often choose managers, companies, and investments that align with their own religious values.
- Global Impact Investing Network (“GIIN”)
- A nonprofit organization dedicated to increasing the scale and effectiveness of impact investing by focusing on reducing barriers to impact investment.
- Global Reporting Initiative (“GRI”)
- The independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.
- Global Sustainability Standards Board
- A board with the sole responsibility for setting the world's first globally accepted standards for sustainability reporting (i.e., the GRI Standards).
- Governance (“G”)
- The "G" of ESG, this relates to the standards for running a company including: 1) Board composition; 2) Audit committee structure; 3) Bribery and corruption; 4) Executive compensation; 5) Lobbying; 6) Political contributions; and 7) Whistleblower schemes.
- Green America
- A nonprofit membership organization that promotes environmentally aware, ethical consumerism with a mission of harnessing economic power to create a socially just and environmentally sustainable society.
- Green Bonds
- Bonds created to fund projects that have positive environmental and/or climate benefits, of which the majority are green “use of proceeds” or asset-linked bonds. Proceeds from these bonds are earmarked for green projects but are backed by the issuer’s entire balance sheet.
- Green Financing
- Seeks to increase the level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities.
- Green Investing
- An investment strategy that seeks to innvest in assets aligned with environmentally friendly business practices and the conservation of natural resources.
- Greenhouse Gas Protocol (“GGP”)
- Provides standards and tools that help countries and cities track progress toward climate goals and emissions.
- GRI Standards
- The first global standards for sustainability reporting which are regularly reviewed to ensure they reflect global best practice for sustainability reporting, helping organizations respond to emerging information demands from stakeholders and regulators.
- Impact Investing
- An investmment strategy in which capital is deployed with the intention to generate positive, measurable social and environmental impact alongside a financial return. The targeted financial return may be below market or market rate depending on the investor's strategic goals.
- Inclusion Investing
- Making investments in sectors, companies or projects selected for positive ESG performance relative to industry peers. This can be focused on a single ESG subcategory (e.g., global warming). Investors may focus on companies that are actively improving their ESG scores or on companies that have already established high scores. AKA Positive Screening or Best-in-Class Investing
- International Integrated Reporting Countil (“IIRC”)
- A global coalition of regulators, investors, companies, standard setters, accounting professionals, academics and NGOs seeking to develop Integrated Reporting standards.
- International Integrated Reporting Framework (“IIRF”)
- A principles-based, multi-capital, framework that is used to accelerate the adoption of integrated reporting across the world by providing a clear and concise representation of how organizations create value now and in the future.
- International Sustainability Standards Board (“ISSB”)
- Created with the intention to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide capital market participants with high quality, transparent, reliable and comparable information about companies’ sustainability-related risks and opportunities.
- Islamic Finance
- Refers to the provision of financial services in accordance with Shari'ah Islamic law, principles, and rules. Shari'ah does not permit reciept and payment of interest ("riba"), excessive uncertainty ("gharar"), gambling ("maysir"), short sales or financing activities that it considers harmful to society.
- Low-Income Credit Union (“LICU”)
- A credit union in which a majority (>50%) of its membership qualifies as low-income members. To qualify as a LICU, a majority of a credit union’s membership must meet certain low-income thresholds based on data available from the U.S. Census Bureau.
- Minority Depository Institutions (“MDI”)
- The FDIC provides two definitions for how FDIC-insured commercial banks and savings associations may qualify as an MDI:be a federal insured depository institution for which (1) at least 51% of the voting stock is owned by minority individuals; or (2) a majority of the board of directors is minority and the community that the institution serves is predominantly minority. The National Credit Union Administration ("NCUA") provides a list of registered MDIs.
- Mission Related Investments (“MRI”)
- Investment activity that furthers the investor’s (e.g., foundations or endowments) organizational mission across asset class and issue area. Typically, the investments are risk-adjusted market-rate investments. Unlike Program-Related Investments, MRIs are not an official designation by the Internal Revenue Service ("IRS").
- Opportunity Finance Network (“OFN”)
- A Washington DC based financial intermediary and a national network of CDFIs. The OFN partner with investors, funders, and policymakers to align capital with opportunity to catalyze change and create economic opportunities for people and places traditional finance doesn’t reach.
- Program-Related Investments
- A mission or social investment made by foundations to help achieve their philanthropic goals. Unlike MRIs they are designated by the Internal Revenue Service ("IRS") and may be included in a foundation's annual required payout. These investments may generate limited or no financial return as long as they meet three criteria: (1) the primary purpose of the investment is to advance the foundation's charitable objectives; (2) neither the production of income nor the appreciation of property can be a significant purpose; and (3) the funds cannot be used directly or indirectly to lobby or for political purposes.
- Principles for Responsible Investment (“PRI”)
- Six principles that offer possible actions for incorporating ESG issues into the investment process. The PRI was developed by an international group of institutional investors and convened by the United Nations ("UN") Secretary-General. By implementing the PRI, institutional investors contribute to developing a more sustainable global financial system.
- Proactive Engagement
- A technique used by institutional investors to integrate ESG factors in portfolio construction and management. This technique identifies ESG as a level for value creation and pursues improvements in a company's ESG performance by engaging with the company's board or management.
- Proxy Voting
- Shareholders have the right to vote on big issues that impact a company (e.g., mergers & acquisitions, shareholder structure). Shareholders do not have to attend meetings in person to vote, and instead can submit a proxy vote - allowing someone else to vote in their place. Proxy voting is now a mainstream tool used to advocate for ESG related issues and concerns to help drive change.
- Responsible Investing
- The PRI defines responsible investment as a strategy and practice to incorporate ESG factors in investment decisions and active ownership.
- Retail Note
- A fixed income security issued by corporations directly to individuals in small denominations. Recently, these have been used to allow individual investors to drive positive societal outcomes. Two examples of such notes include the Calvert Community Investment Note and the Capital Impact Investment Note.
- Shareowner advocacy
- Leverages the power of stock ownership in publicly-traded companies to promote ESG change from within. This advocacy can take the form of a dialogue between shareholders and the company or shareholders may file a resolution under guidelines set by the U.S. Securities and Exchange Commission ("SEC"). AKA Active Ownership.
- Shareholder Resolution
- Proposals made by shareholders to the company management to be voted on in the next annual meeting and can cover topics including company policies and procedures, corporate governance or issues of social or environmental concern. They can serve as a meaningful way for shareholders to encourage corporate responsibility and discourage company practices that are unsustainable or unethical. As You Sow, which represents investors across a broad range of ESG issue areas and empowers shareholders through the use of shareholder resolutions to drive companies toward a sustainable future maintains a list of proposals on which it represents investors.
- Social ("S")
- The "S" of ESG, this relates to the considerations of people and relationships including: 1) Customer satisfaction; 2) Data protection and privacy; 3) Gender and diversity; 4) Employee engagement; 5) Community relations; 6) Human rights; and 7) Labor standards.
- Socially Responsible Investing (“SRI”)
- Another term used to describe an investment strategy that aims to generate both social change and financial returns for an investor.
- Streamlined Energy and Carbon Reporting Regulation (“SECR”)
- Regulation that makes it mandatory for large businesses in the United Kingdom ("UK") to annually report on their energy and carbon emissions as well as any efficiency measures.
- Sustainability Accounting Standards Board (“SASB”)
- Maintained by the Value Reporting Foundation, these guide the disclosure of financially material sustainability information by companies to their investors. Available for 77 industries, the SASB identify the subset of ESG issues most relevant to financial performance in each industry.
- Sustainable Development Goals (“SDG”)
- As part of the 2030 Agenda for Sustainable Development, the SDGs are an urgent call for action by all developed and emerging countries in a global partnership. The SDGs recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.
- Sustainable Finance Disclosure Regulation (“SFDR”)
- A European regulation introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around sustainability claims made by financial market participants.
- Sustainable Investing
- An investment strategy that balances traditional investing with ESG insights to improve long-term outcomes.
- Task Force on Climate-related Financial Disclosure (“TCFD”)
- The Financial Stability Board (FSB) created the TCFD to improve and increase reporting of climate-related financial information.
- Triple-Bottom-Line Approach
- A business concept under which firms commit to measuring more than solely financial performance and also measure social and environmental impact by evlauating the “three Ps”: (1) profit, (2) people, and (3) the planet.
- Values Based Investing
- An investment strategy with origin ties to religious groups in which investors select investments based on their values, not just on whether the investments will generate a profit. This can include negative screening or positive screening.
- Value Reporting Foundation
- A global nonprofit organization that offers a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value—how it is created, preserved, or eroded.
- Workforce Disclosure Initiative (“WDI”)
- An initiative that aims to (1) improve corporate transparency and accountability on workforce issues, (2) provide companies and investors with comprehensive and comparable data and (3) help increase the provision of good jobs worldwide.
Disclaimer
The information in this report was prepared by Fire Capital Management. Any views, ideas or forecasts expressed in this report are solely the opinion of Fire Capital Management, unless specifically stated otherwise. The information, data, and statements of fact as of the date of this report are for general purposes only and are believed to be accurate from reliable sources, but no representation or guarantee is made as to their completeness or accuracy. Market conditions can change very quickly. Fire Capital Management reserves the right to alter opinions and/or forecasts as of the date of this report without notice.
All investments involve risk and possible loss of principal. There is no assurance that any intended results and/or hypothetical projections will be achieved or that any forecasts expressed will be realized. The information in this report does guarantee future performance of any security, product, or market. Fire Capital Management does not accept any liability for any loss arising from the use of information or opinions stated in this report.
The information in this report may not to be suitable or useful to all investors. Every individual has unique circumstances, risk tolerance, financial goals, investment objectives, and investment constraints. This report and its contents should not be used as the sole basis for any investment decision. Fire Capital Management is a boutique investment management company and operates as a Registered Investment Advisor (RIA). Additional information about the firm and its processes can be found in the company ADV or on the company website (firecapitalmanagement.com).
CFA® and Chartered Financial Analyst® are trademarks owned by CFA institute.
