Socially Responsible Investment (SRI) refers to approaches that apply social and environmental criteria in evaluating companies, using a chosen set of criteria to score companies for qualification within the investment universe.
Doughnut Economics is a framework that balances ecological ceilings and social foundations, aiming to create a sustainable economy that meets the needs of all within the planet's boundaries.
The Nine Planetary Boundaries are a framework developed by the Stockholm Resilience Centre that identifies critical environmental thresholds that humanity must not exceed to maintain a stable and resilient Earth system.
The Certificate in ESG Investing aims to close a critical skills gap that persists throughout the investment industry by providing education on ESG considerations.
Best-in-Class Investment, also known as 'positive screening', involves selecting companies that meet a defined ranking hurdle based on ESG criteria within each sector or industry.
The mission of CFA Institute is to lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.
Green investment refers to allocating capital to assets that mitigate climate change, biodiversity loss, resource inefficiency, and other environmental challenges, including low-carbon power generation and pollution control.
Universal owners are large institutional investors whose diversified portfolios represent a slice of global capital markets, making their investment returns dependent on the overall health of the economy.
Doughnut economics is a framework developed by economist Kate Raworth that combines planetary boundaries with social boundaries to create a sustainable and just economy.
Climate change is a critical planetary boundary that, if crossed, could lead to severe environmental and societal consequences, affecting global stability and sustainability.
Negative megatrends refer to issues like resource scarcity and health and income inequalities that can create a drag on economic prosperity.
Social investment refers to allocating capital to assets that address social challenges, including products aimed at the bottom of the pyramid (BOP), which encompasses the poorest two-thirds of the economic human pyramid.
The economic cost of undernutrition in Ethiopia is just under US$70 million a year, highlighting the severe economic consequences of social issues.
Triple Bottom Line (TBL) accounting is a framework that incorporates three dimensions of performance: social, environmental, and financial, aiming to measure the sustainability and societal impact of an organization.
Responsible investment is a strategy and practice to incorporate ESG factors into investment decisions and active ownership, aimed at mitigating risky ESG practices to protect value.
Sustainable investment refers to a strategy that prioritizes the selection of companies with a positive impact or those that benefit from sustainable macro-trends, while screening out activities considered contrary to long-term environmental and social sustainability.
Climate change refers to the long-term alteration of temperature and typical weather patterns in a place, which poses significant risks to financial stability as its impacts may extend beyond the traditional horizons of financial actors, affecting future generations.
Negative Screening is an investment strategy that excludes certain sectors, companies, or practices from a portfolio based on specific ESG criteria, such as avoiding investments in weapons or tobacco.
Stranded assets refer to assets that become obsolete due to regulatory, environmental, or market constraints, rendering them unable to generate expected returns.
Investment professionals play a vital role in understanding, analyzing, and placing value on plans and intentions around environmental, social, and governance (ESG) factors.
Negative externalities are costs incurred by third parties as a result of an economic transaction, which are not reflected in the price of goods or services, potentially harming overall market returns.
The macro-level debate on ESG incorporation encompasses various perspectives, including risk, fiduciary duty, economics, impact and ethics, client demand, and regulation regarding the integration of ESG factors into investment decisions.
Shareholder Engagement reflects active ownership by investors who seek to influence a corporation’s decisions on ESG matters through dialogue with corporate officers or votes at shareholder assemblies.
BOP refers to a market-based model of economic development that seeks to alleviate poverty while providing growth and profits for businesses serving low-income communities.
Social impact bonds are a mechanism to contract with the public sector, where the sector pays for better social outcomes in certain services and shares part of the savings with investors.
ESG investing recognizes that social, environmental, and governance issues can impact the risk, volatility, and long-term returns of investments, and that investments can have both positive and negative effects on society and the environment.
Investments in firms that facilitate abortion, contraceptives, embryonic stem-cell research, or are involved in the production and sale of weapons.
Integrating ESG factors can lead to direct financial benefits and help manage risks associated with societal, regulatory, and client pressures.
The SDGs are an agreed framework for all UN member state governments to align with global priorities, such as transitioning to a low-carbon economy and eliminating human rights abuses in corporate supply chains.
Triple bottom line (TBL) accounting is an accounting framework that incorporates three dimensions of performance: social, environmental, and financial.
Key supranational ESG initiatives aim to promote responsible investment practices, enhance transparency, and drive progress in sustainability across global markets.
Biosphere integrity refers to the health and stability of ecosystems and biodiversity, which is one of the Nine Planetary Boundaries that must be maintained to ensure a sustainable environment.
Active owners encourage high standards of ESG performance in the companies or entities in which they are invested.
Income inequality can create social stresses and economic risks, impacting the overall health of the economy and the investment returns of large institutional investors.
Global risks are significant threats that can impact economies and societies, including issues like asset bubbles, climate action failure, and geopolitical conflicts, which require attention from financial regulators.
The Financial Stability Board monitors risks to the financial system, including those posed by climate change, and aims to integrate these risks into financial regulatory frameworks.
Core boundaries are critical thresholds, such as climate change and biosphere integrity, whose significant alteration could drive the Earth system into a new state.
Short-termism covers activities where investors trade based on anticipation of short-term price movements rather than long-term value, and engage with investee companies prioritizing maximizing near-term financial results over long-term value creation.
The SDGs are a set of 17 goals launched by the United Nations in 2015 aimed at addressing global challenges such as poverty, inequality, and climate change.
They avoid investments in firms that profit from alcohol, pornography, gambling, pay interest, or are involved in pork-related businesses.
ESG investment refers to the integration of environmental, social, and governance factors into investment analysis and decision-making processes.
Negative Screening is the practice of avoiding investments in controversial sectors, such as arms or fossil fuels, often for ethical or religious reasons.
ESG megatrends are large-scale, systemic changes that impact companies and their practices, often driven by evolving societal expectations and regulatory frameworks.
Sustainable investment refers to the selection of assets that contribute to a sustainable economy, minimizing natural and social resource depletion, and may include best-in-class and/or ESG integration.
Thematic investment in an ESG context is an approach based on needs arising from environmental or social challenges, focusing on themes such as access to low-carbon energy and efficient use of water.
'Tragedy of the horizon' describes the challenge of recognizing that the catastrophic impacts of climate change will occur beyond the immediate future, creating a disconnect between current incentives and the need for long-term solutions.
The risk perspective in ESG integration highlights the increasing importance of environmental risks, such as extreme weather events and climate change, as significant factors affecting investment decisions.
The link between responsible investment and financial system stability involves understanding how integrating ESG considerations can contribute to a more stable financial system by addressing risks and promoting sustainable practices.
ESG investing is an approach to managing assets where investors explicitly incorporate environmental, social, and governance (ESG) factors in their investment decisions with the long-term return of an investment portfolio in mind.
Impact investing refers to investments made with the intent of generating positive, measurable social or environmental impact alongside a financial return.
The misconception is that fiduciary duty prevents the consideration of ESG factors in investments, when in fact, failing to incorporate financially material ESG factors may constitute a failure of fiduciary duty.
There is currently no universal standard for what factors are included under the 'E,' 'S,' and 'G' definitions, and they may overlap with one another.
The Paris Agreement aims to limit global warming to less than 2°C, and many companies are aligning their commitments to become 'net-zero' emitters in accordance with its goals.
PG&E was driven to bankruptcy proceedings due to wildfire liabilities, which were exacerbated by climate change and resulted in significant loss of life and property.
Investors typically reflect ESG considerations in their investment process through exclusionary screening, integration of ESG factors into financial analysis, and active ownership or engagement.
ESG investing refers to the practice of considering environmental, social, and governance factors in the context of security selection and portfolio construction, recognizing the benefits of effective sustainability management.
Effective sustainability management can reaffirm a company's license to operate, increase efficiency, meet regulatory requirements, reduce fines, improve employee satisfaction, and drive innovation.
CFA Institute applies rigorous standards across its Education portfolio to ensure the quality of the curriculum for the Certificate in ESG Investing.
Continuing education is significant for investment professionals as it equips them with the necessary tools to navigate the complex ESG landscape and act in the best interest of their clients.
Fiduciary duty refers to the obligation of financial institutions or individuals to manage money or assets on behalf of beneficiaries, ensuring that they act in the beneficiaries' best financial interests.
The Freshfields report argues that integrating ESG considerations into investment analysis is permissible and arguably required to reliably predict financial performance across all jurisdictions.
Stocks of companies that engage in activities considered unethical or immoral, such as alcohol, gambling, or tobacco production.
Governance Factors involve issues tied to countries or jurisdictions, common practices in an industry, and the interests of broader stakeholder groups.
Common exclusions in ethical investment include tobacco, alcohol, pornography, and weapons.
Key challenges include lack of ambition and leadership, securing quality data, and balancing carbon reduction with business and social impacts of the transition.
The water crisis in Brazil caused a reduction in CBA's EBITDA by between US$27 million and US$33 million due to shortfalls in hydropower generation.
The Financial Stability Board (FSB) has identified climate change as a potential systemic risk that could impact the stability of the financial system.
Corporate Social Responsibility (CSR) refers to the practices and policies undertaken by corporations to have a positive influence on the world, encompassing social, environmental, and economic considerations.
A significant international agreement that outlines fundamental human rights to be universally protected.
A strategy that involves avoiding investments in companies that do not align with certain ethical or moral beliefs, often referred to as 'sin stocks'.
Engagement in responsible investment refers to the efforts by equity owners and bondholders to influence an issuer's behavior regarding ESG matters, distinguishing it from other investment approaches focused solely on portfolio construction.
The Shareholder Rights Directive (SRD) is a regulation issued by the European Union in September 2020, requiring investors to be active owners and to act with a more long-term focus.
Externalities refer to the wider effects of investments on society, the environment, and the economy that are not reflected in the price of the investment.
Impact Investment is an investment strategy that aims to tackle social and environmental problems while providing financial returns, focusing on positive impacts and effective capital deployment.
Incorporating ESG in decision making can enhance returns, improve risk management, and contribute to financial system stability.
The nine planetary boundaries are thresholds within which humanity can safely operate, including climate change, loss of biosphere integrity, land-system change, and altered biogeochemical cycles.
ESG factors are criteria used to evaluate the environmental, social, and governance aspects of an investment, which include environmental issues like resource use, social issues affecting human capital and communities, and governance issues related to corporate practices.
Environmental Factors pertain to the natural world, including the use of and interaction with renewable and non-renewable resources such as water, minerals, ecosystems, and biodiversity.
Short-termism may lead to adverse long-term consequences such as promoting bubbles, financial instability, and general economic underperformance, while ignoring long-term factors like ESG.
Modern fiduciary duties require investors to incorporate financially material ESG factors into their investment decision-making and to understand the sustainability preferences of their beneficiaries.
Stakeholders are members of groups whose support is essential for an organization’s existence, including communities impacted by companies and regulators.
Corporate social responsibility (CSR) is a business model in which companies integrate social and environmental concerns in their operations and interactions with stakeholders.
Financial materiality of ESG integration refers to the relevance of ESG factors in influencing a company's financial performance and investment returns.
The Triple Bottom Line is a concept that evaluates a company's commitment to social, environmental, and economic sustainability, often referred to as the three Ps: people, planet, and profit.
Corporate Social Responsibility is a broad business concept that describes a company's commitment to ethical business practices, while Corporate Sustainability focuses on creating long-term stakeholder value through ethical, social, and environmental strategies.
ESG factors can significantly impact a company's financial results by influencing its reputation, operational efficiency, and regulatory compliance, among other aspects.
The spectrum of capital in responsible investment illustrates the range from finance-only investments with limited ESG consideration to investments that accept below-market returns for high positive social or environmental impact.
BlackRock committed to divesting from companies that generate more than 25% of their revenues from coal production for its actively managed portfolios and required reporting from investee companies on their climate-related risks.
Different approaches to ESG investing include responsible investment, socially responsible investment, sustainable investment, best-in-class investment, ethical/values-driven investment, thematic investment, green investment, social investment, and shareholder engagement.
Client Demand for transparency is increasing due to growing awareness that ESG factors influence company value, returns, and reputation, as well as the environmental and social impacts of their investments.
Responsible investment is an umbrella term for various approaches that allow investors to consider ESG factors in their security selection and portfolio construction, combining financial and non-financial outcomes.
Social Factors affect the lives of humans and include the management of human capital, non-human animals, local communities, and clients.
Ethical investment refers to investing in line with certain principles, often using negative screening to avoid companies whose products and services are deemed morally objectionable.
Faith-based investors engage in shareholder activism to improve the conduct of investee companies in alignment with their ethical beliefs.
Climate change has aggravated water depletion, leading to higher costs for companies and an increasing frequency of extreme weather events that disrupt manufacturing.
The Net-Zero Asset Owner Alliance is a group of asset owners committed to transitioning their investment portfolios to net-zero greenhouse gas emissions by 2050, launched under the auspices of the UN.
