ESG & Sustainable Investing

Selecting the strongest ESG performers within each sector rather than excluding entire sectors.

Example: The portfolioThe complete collection of investments owned by an investor or managed under one mandate. holds the lowest-emission producer in a difficult industryA more specific group of companies with closely related products or services..

Best-in-Class Investing describes selecting the strongest ESG performers within each sector rather than excluding entire sectors; a portfolio label says little unless the investorA person or organisation that commits capital with the expectation of a financial return. can see which companies qualify, why they qualify and how the decision affects expected returnThe probability-weighted average of possible future returns or an estimate of future return. and risk.

The portfolio holds the lowest-emission producer in a difficult industry.

For Best-in-Class Investing, inspect the methodology, data coverage, portfolio holdings, exceptions, stewardshipThe responsible oversight of invested assets, including monitoring companies and exercising ownership rights. record, fees and evidence supporting any impact claim.

The greenhouse-gas emissions associated with a company, portfolio, product, or activity under a stated method.

Example: A fund reports financed emissions per million naira invested.

Carbon Footprint is the greenhouse-gas emissions associated with a company, portfolio, product, or activity under a stated method; the substance of the approach lies in the methodology: data sources, exclusions, scoring, engagement, voting and measurement of financial and non-financial results.

A fund reports financed emissions per million naira invested.

Compare Carbon Footprint products by actual holdings and rules rather than by name; check whether the benchmarkA reference index or rate used to evaluate a fund's performance. and performance history use the same exclusions.

Emissions relative to revenue, output, energy, or another measure.

Example: Two utilities are compared by tonnes of emissions per unit of electricity.

Carbon Intensity describes emissions relative to revenue, output, energy, or another measure. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

Two utilities are compared by tonnes of emissions per unit of electricity.

Compare Carbon Intensity products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. Also compare Net Zero, defined here as a state in which remaining greenhouse-gas emissions are balanced by removals, under a defined boundary and date.

Considering both how sustainability issues affect a company and how the company affects people and the environment.

Example: The analysis covers climate costs to the business and emissions caused by the business.

Double MaterialityThe importance of information to a reasonable investor's decision or to financial statements. describes considering both how sustainability issues affect a company and how the company affects people and the environment. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

The analysis covers climate costs to the business and emissions caused by the business.

A sound review of Double Materiality distinguishes company disclosureThe provision of material information needed for informed decisions. from independently verified data and identifies where estimates or missing information affect scores; greenwashing is easiest where objectives and measurements remain vague.

Dialogue with companies intended to improve disclosure, strategy, governance, or sustainability practices.

Example: A shareholderA person or entity that owns one or more shares in a company. asks the board to publish climate targets.

Engagement describes dialogue with companies intended to improve disclosure, strategy, governance, or sustainability practices. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

A shareholder asks the board to publish climate targets.

Compare Engagement products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. Greenwashing is easiest where objectives and measurements remain vague.

An issue involving a company's effect on or exposure to the natural environment.

Example: Water use and carbon emissions are environmental factors.

Environmental Factor is an issue involving a company's effect on or exposure to the natural environment; the substance of the approach lies in the methodology: data sources, exclusions, scoring, engagement, voting and measurement of financial and non-financial results.

Water use and carbon emissions are environmental factors.

Before accepting a claim about Environmental Factor, ask what changed because of the investmentAn asset or commitment of money made with the expectation of future income, growth, or both., how it was measured and whether the manager reports failures as well as successes; exclusion can change portfolio exposures in unintended ways.

Systematically incorporating material ESG information into financial analysis and valuation.

Example: An analyst increases expected costs for a company facing environmental liabilities.

ESG Integration describes systematically incorporating material ESG information into financial analysis and valuation. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

An analyst increases expected costs for a company facing environmental liabilities.

Before accepting a claim about ESG Integration, ask what changed because of the investment, how it was measured and whether the manager reports failures as well as successes; exclusion can change portfolio exposures in unintended ways.

Incorporating environmental, social, and governance factors into investment analysis or ownership.

Example: An investor evaluates emissions, labour practices, and board quality alongside profit.

ESG Investing describes incorporating environmental, social, and governance factors into investment analysis or ownership; the approach incorporates environmental, social or governance information into securityA tradable financial claim or ownership interest, such as a share, bond, or fund unit. selection, ownership or the intended real-world outcome.

An investor evaluates emissions, labour practices, and board quality alongside profit.

Compare ESG Investing products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. Exclusion can change portfolio exposures in unintended ways.

An issue involving board structure, ownership, controls, pay, ethics, and shareholder rights.

Example: Board independence and related-party transactions are governance factors.

Governance Factor is an issue involving board structure, ownership, controls, pay, ethics, and shareholder rights; the approach incorporates environmental, social or governance information into security selection, ownership or the intended real-world outcome.

For example, board independence and related-party transactions are governance factors.

Before accepting a claim about Governance Factor, ask what changed because of the investment, how it was measured and whether the manager reports failures as well as successes; greenwashing is easiest where objectives and measurements remain vague. Also compare Socially Responsible Investing, defined here as an approach using ethical values and social criteria to include or exclude investments.

Misleading claims that make an investment or business appear more environmentally responsible than it is.

Example: A fund markets itself as green despite holding mostly unchanged broad-market assets.

Greenwashing describes misleading claims that make an investment or business appear more environmentally responsible than it is. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

A fund markets itself as green despite holding mostly unchanged broad-market assets.

Compare Greenwashing products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. ESG scores from different providers can disagree materially.

Investing with the intention of generating measurable positive social or environmental outcomes alongside financial return.

Example: A fund finances affordable healthcare clinics and tracks patient access.

Impact Investing describes investing with the intention of generating measurable positive social or environmental outcomes alongside financial return; a portfolio label says little unless the investor can see which companies qualify, why they qualify and how the decision affects expected return and risk.

A fund finances affordable healthcare clinics and tracks patient access.

For Impact Investing, inspect the methodology, data coverage, portfolio holdings, exceptions, stewardship record, fees and evidence supporting any impact claim; ESG scores from different providers can disagree materially.

Excluding companies, sectors, or activities based on specified criteria.

Example: A portfolio excludes thermal-coal producers.

Negative Screening describes excluding companies, sectors, or activities based on specified criteria; a portfolio label says little unless the investor can see which companies qualify, why they qualify and how the decision affects expected return and risk.

A portfolio excludes thermal-coal producers.

Before accepting a claim about Negative Screening, ask what changed because of the investment, how it was measured and whether the manager reports failures as well as successes; greenwashing is easiest where objectives and measurements remain vague.

A state in which remaining greenhouse-gas emissions are balanced by removals, under a defined boundary and date.

Example: A company targets net zero operations by 2050.

Net Zero is a state in which remaining greenhouse-gas emissions are balanced by removals, under a defined boundary and date. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

A company targets net zero operations by 2050.

Compare Net Zero products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. ESG scores from different providers can disagree materially.

Financial risk from acute or chronic physical effects of climate change.

Example: Flooding damages a coastal propertyLand and buildings held for use, rent, development, or capital appreciation. portfolio.

Physical Climate Risk describes financial risk from acute or chronic physical effects of climate change; the risk becomes financially relevant when an adverse event changes cash flows, prices, liquidityThe ease and speed with which an investment can be converted into cash without a major price concession., ownership rights or the ability to exit.

Flooding damages a coastal property portfolio.

For Physical Climate Risk, identify the trigger, estimate exposure and recovery, and decide whether to avoid, limit, diversify, hedge, insure or simply accept the risk; past stability can hide a risk that appears only under stress.

Selecting companies with comparatively strong sustainability performance.

Example: The fund favours banks with better financial-inclusion practices.

Positive Screening describes selecting companies with comparatively strong sustainability performance; a portfolio label says little unless the investor can see which companies qualify, why they qualify and how the decision affects expected return and risk.

The fund favours banks with better financial-inclusion practices.

Before accepting a claim about Positive Screening, ask what changed because of the investment, how it was measured and whether the manager reports failures as well as successes; ESG scores from different providers can disagree materially.

Using voting and dialogue to influence company behaviour.

Example: The asset manager votes against directors after repeated governance failures.

Proxy Engagement means using voting and dialogue to influence company behaviour; the substance of the approach lies in the methodology: data sources, exclusions, scoring, engagement, voting and measurement of financial and non-financial results.

The asset manager votes against directors after repeated governance failures.

A sound review of Proxy Engagement distinguishes company disclosure from independently verified data and identifies where estimates or missing information affect scores; greenwashing is easiest where objectives and measurements remain vague. Also compare Greenwashing, defined here as misleading claims that make an investment or business appear more environmentally responsible than it is.

A proposal submitted by shareholders for a vote at a company meeting.

Example: Investors file a resolution requesting stronger emissions disclosure.

Shareholder Resolution is a proposal submitted by shareholders for a vote at a company meeting; the substance of the approach lies in the methodology: data sources, exclusions, scoring, engagement, voting and measurement of financial and non-financial results.

Investors file a resolution requesting stronger emissions disclosure.

Compare Shareholder Resolution products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. Also compare Proxy Engagement, defined here as using voting and dialogue to influence company behaviour.

An issue involving employees, customers, communities, human rights, or social impact.

Example: Workplace safety and data privacy are social factors.

Social Factor is an issue involving employees, customers, communities, human rights, or social impact. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

Workplace safety and data privacy are social factors.

Before accepting a claim about Social Factor, ask what changed because of the investment, how it was measured and whether the manager reports failures as well as successes.

An approach using ethical values and social criteria to include or exclude investments.

Example: A fund excludes tobacco and gambling companies.

Socially Responsible Investing is an approach using ethical values and social criteria to include or exclude investments; a portfolio label says little unless the investor can see which companies qualify, why they qualify and how the decision affects expected return and risk.

A fund excludes tobacco and gambling companies.

Compare Socially Responsible Investing products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. ESG scores from different providers can disagree materially.

A set of principles guiding institutional investors' monitoring, engagement, and voting.

Example: An asset manager publishes how it applies the stewardship code.

Stewardship Code is a set of principles guiding institutional investors' monitoring, engagement, and voting. The approach can pursue risk management, values alignment or measurable impact; those objectives overlap but are not interchangeable.

An asset manager publishes how it applies the stewardship code.

A sound review of Stewardship Code distinguishes company disclosure from independently verified data and identifies where estimates or missing information affect scores; exclusion can change portfolio exposures in unintended ways. Also compare Engagement, defined here as dialogue with companies intended to improve disclosure, strategy, governance, or sustainability practices.

An asset that loses economic value earlier than expected because of market, regulatory, technological, or environmental change.

Example: A coal plant becomes uneconomic before the end of its planned life.

Stranded Asset is an asset that loses economic value earlier than expected because of market, regulatory, technological, or environmental change; a portfolio label says little unless the investor can see which companies qualify, why they qualify and how the decision affects expected return and risk.

A coal plant becomes uneconomic before the end of its planned life.

Compare Stranded Asset products by actual holdings and rules rather than by name; check whether the benchmark and performance history use the same exclusions. Exclusion can change portfolio exposures in unintended ways.

Disclosure of environmental, social, governance, and impact information.

Example: A company reports emissions, workplace injuries, and board diversity.

Sustainability Reporting describes disclosure of environmental, social, governance, and impact information; the approach incorporates environmental, social or governance information into security selection, ownership or the intended real-world outcome.

A company reports emissions, workplace injuries, and board diversity.

A sound review of Sustainability Reporting distinguishes company disclosure from independently verified data and identifies where estimates or missing information affect scores; a sustainable label does not guaranteeA contractual promise by another party to meet an obligation if the primary debtor does not. low financial risk or positive impact. Also compare Double Materiality, defined here as considering both how sustainability issues affect a company and how the company affects people and the environment.

Financial risk arising from policy, technology, legal, or demand changes during the shift to a lower-carbon economy.

Example: A carbon tax reduces the value of a high-emission plant.

Transition Risk describes financial risk arising from policy, technology, legal, or demand changes during the shift to a lower-carbon economy. The source of the risk may sit with the issuer, market, contract, intermediary or investor behaviour; understanding the loss mechanism is more useful than assigning a vague risk label.

A carbon tax reduces the value of a high-emission plant.

Do not stop at naming Transition Risk; measure where possible, inspect contractual protections and plan the action to take before the adverse event occurs.