ABC of ESG

B

‘Best in class’ investments

Share performance in specific sectors as ranked against ESG factors. It can be used as a way for investors to encourage good governance rather than excluding whole sectors of the economy from investment decisions.

Biodiversity

Biodiversity is the term given to describe the wide variety of all life on Earth. A biodiverse environment is seen as a positive aspect of the health of a given area, and a decline in biodiversity can be seen as a warning sign of environmental danger. For example, the decline in the number of pollinators can adversely impact the yields of crops requiring pollination.

The fifteenth goal in the UN SDGs deals with the need to preserve biodiversity (Life on land: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss).

Biofuel

A source of renewable energy that is derived from plants and animals, such as wood pellets and waste by-products.

Biomass power

Bioenergy is renewable energy derived from an organic matter that comes from recently living plants and organisms. According to Smarter Business, Biomass can be used to create energy in several different ways, but the most common is combustion. This means burning agricultural waste or woody materials to heat water and produce steam.

C

Carbon Border Adjustment Mechanism (CBAM)

A scheme proposed by the European Union to mitigate the risks of entities exporting industries/activities to countries with less robust carbon emission arrangements.

Carbon budget

The total amount of carbon that can be released into the atmosphere before breaching agreed limits.

Carbon capture and storage (CCS)

An approach to capturing carbon dioxide emissions close to their source and locking them into a permanent environment that limits their risk of further polluting the air. 

Carbon capture utilisation and storage (CCUS)

Adds to the above by identifying a way to reuse carbon dioxide in more environmentally friendly ways, such as creating ‘green’ cement.

Carbon dioxide/CO2

The Center for Scientific Education defines Carbon dioxide as a colourless and non-flammable gas at normal temperature and pressure. Although much less abundant than nitrogen and oxygen in Earth's atmosphere, carbon dioxide is an important constituent of the air. A molecule of carbon dioxide (CO2) is made up of one carbon atom and two oxygen atoms.

Carbon leakage

The action or transferring activities that create CO2 to a country with less robust rules regarding carbon dioxide emissions.

Carbon neutral

The balancing of carbon emissions by their removal. This is different from ‘net zero’.

Carbon offsetting

Activity to compensate or balance out CO2 emissions into the atmosphere, such as the planting of trees or seagrass.

Carbon price

An artificial price that can be applied by either a tax or permit to carbon dioxide generating industries to incentivise businesses to reduce CO2 production and emissions. 

Carbon sequestration

The process of storing CO2 either naturally (in plants etc.) or through man-made carbon capture activities.

Carbon Tracker Initiative

Carbon Tracker is an independent financial think tank that carries out in-depth analysis of the impact of the energy transition on capital markets and the potential investment in high-cost, carbon-intensive fossil fuels.

Charitable purposes

For an organisation to be recognised as a charity in the UK, it must generally have exclusively charitable purposes and provide public benefit. The definition of charitable purposes is different across the different jurisdictions of the UK. See:

• Charitable purposes England and Wales
• Charitable purposes Isle of Man
  
• Charitable purposes Jersey
• Charitable purposes Guernsey
• Charitable purposes Northern Ireland
• Charitable purposes Scotland

Charity trustee duties

Under charity law in England and Wales and in other jurisdictions of the UK, there are specific duties charity trustees must fulfil, as defined in charity and case law and regulations.

In England and Wales, the duties of charity trustees can be found in the Charity Commission’s CC3 - The essential trustee: what you need to know, what you need to do (CC3).

Guidance for charity trustees in Scotland can be found here.

Northern Ireland charity trustee guidance is here. 

Circular economy

A model of production and consumption which involves prolonging the use of materials and products for as long as possible. It is proposed that a circular economy can tackle climate change, biodiversity loss, waste and pollution by eliminating waste and pollution and better reuse and recycling of products and components of production. 

The Ellen Macarthur Foundation describes a circular economy as:

…a systemic approach to economic development designed to benefit businesses, society, and the environment. In contrast to the ‘take-make-waste’ linear model, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources.

Climate

Climate is the long-term pattern of weather in a particular area. A region's weather patterns, usually tracked for at least 30 years, are considered its climate. Climate can be different for discrete parts of the Earth.

Climate action

According to the United Nations Development Programme, climate action ‘means stepped-up efforts to reduce greenhouse gas emissions and strengthen resilience and adaptive capacity to climate-induced impacts, including: climate-related hazards in all countries; integrating climate change measures into national policies, strategies and planning; and improving education, awareness-raising and human and institutional capacity with respect to climate change mitigation, adaptation, impact reduction and early warning.’

It is the thirteenth goal of the UN SDGs (Climate action: Take urgent action to combat climate change and its impacts).

Climate Action 100+: CA100+

An investor engagement initiative to tackle climate change through monitoring companies' commitments to net zero (through initiatives such as the Net Zero Company Benchmark).

For more information, see Climate Action 100+. 

Climate change

The impact on the climatology and weather systems impacts local environments and the planet more widely. Climate change is often linked to the effects of global warming, though the impact of that change will differ according to a variety of factors. It is generally agreed that climate change is a real phenomenon exacerbated by human activity.

Climate Change Act 2008

UK legislation that detailed a number of actions and commitments, including:

• setting a target for the year 2050 for the reduction of targeted greenhouse gas emissions;
• providing for a system of carbon budgeting;
• establishing a Committee on Climate Change;
• conferring powers to establish trading schemes for the purpose of limiting greenhouse gas emissions or encouraging activities that reduce such emissions or remove greenhouse gas from the atmosphere;
• making provisions about adaptation to climate change;
• conferring powers to make schemes for financial incentives to produce less domestic waste and to recycle more of what is produced;
• provisions about the collection of household waste;
• powers to make provision about charging for single-use carrier bags; and
• miscellaneous provisions about climate change and for connected purposes.

Climate Disclosure Standards Board (CDSB)

An international consortium of business and environmental NGOs committed to advancing and aligning the global mainstream corporate reporting model to equate natural capital with financial capital. Has developed a framework for reporting environmental information to a similar degree as financial information for the benefit of investors.

For more on disclosure arrangements, see S for standards.

Climate litigation

Action taken by individuals, campaigns or groups against a government or company to reduce harmful activities, change government policy or improve disclosure. For example, Client Earth’s or the Friends of the Earth action against Shell in the Netherlands.

Climate scenario analysis

A recommendation in the TCFD for organisations to stress-test/scenario plan their resilience to a range of climate change situations.

Commonwealth Blue Charter

The Commonwealth Blue Charter is an agreement by all 54 Commonwealth countries to actively co-operate to: solve ocean-related problems; and meet commitments for sustainable ocean development.

Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) 2018 Regulations

Regulations that introduced changes to the reporting requirements in the large and medium-sized companies and groups (Accounts and Reports) Regulations 2008 and in the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (the LLP Regulations).

The amendments introduced new requirements on quoted companies to make statements in the directors’ report concerning the company’s energy use from its activities and action taken to increase its energy efficiency. Large unquoted companies also included to make statements in the directors’ report concerning the company’s greenhouse gas (GHG) emissions, energy use and action taken to increase energy efficiency within the UK.

However, these statements are not required where making the statement would be seriously prejudicial to the interests of the company or if the company has used a small amount of energy in the financial year to which the directors’ report relates.

The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021

These Regulations came into force on 6 April 2022 and require traded and certain other companies to provide climate-related financial disclosures in their strategic report. There are some detailed requirements but, in general, a company having more than 500 employees or which has a turnover of more than £500 million is likely to fall within scope.

COP26: Conference of the Parties

The 26^th UN Climate Change Conference held in Glasgow in 2021.

COP26 Declaration of Asset Owner Climate Expectations

A declaration founded by Friends Provident Foundation, Students Organising for Sustainability (SOS), the Charities Responsible Investment Network (CRIN) and the Responsible Investment Network Universities (RINU) to set out minimum standards of expectations regarding tackling climate change in the asset management industry. It offers eight minimum standards to be applied by organisations when considering asset manager appointment, reviews and re-appointments.

COP27

The 27^th conference of parties to the UN Framework Convention on Climate Change (UNFCCC – See U for more details) will take place in Sharm El-Sheikh, Egypt, on 7-18 November 2022. The event was moved back a year due to the travel restrictions and social distancing measures introduced because of the COVID-19 pandemic.

Corruption

Dishonest or fraudulent conduct by those in a position of power. Forms of corruption vary but can include bribery, lobbying, extortion, cronyism, nepotism, parochialism, patronage, influence peddling, graft, and embezzlement.

Corporate social responsibility: CSR

Refers to practices and policies undertaken by corporations intended to have a positive influence on the world. It is a means by which entities can be held to account for their social commitments.

Culture

The ideas, customs, values and social behaviour of a particular people or society. Organisational culture is the collection of values, expectations, and practices that guide and inform the actions of all those who work for or represent an organisation. It is possible for large entities to have more than one culture. 

The Institute has developed a range of resources for different organisations to identify a healthy organisational culture:

• Academy Trusts
• Boardrooms
• Charities
• Sports bodies

D

Data

Leading Edge Group define data as being individual facts, statistics, or items of information, often numeric. In a more technical sense, data are a set of values of qualitative or quantitative variables about one or more persons or objects, while a datum (singular of data) is a single value of a single variable.

Directors duties

The Companies Act 2006 codified the legal duties of directors into the following:

• s171 Act within their powers
• s172 Act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole
• s173 Exercise independent judgement
• s174 Exercise reasonable care, skill and diligence
• s175 Avoid any situations in which they have, or could have, a direct or indirect interest that conflicts, or could conflict, with the interests of the company
• s176 Not to accept a benefit from a third party which is given because of the position held by the director or because of anything the director has done in his/her capacity as a director
• s177 Declare interests in transactions or arrangements.

Further details can be found on our page for Directors' Duties.

Disclosure

In the financial world, Investopedia describes disclosure as the timely release of all information about a company that may influence an investor's decision. It reveals both positive and negative news, data, and operational details that impact its business. 

For charities, there are a number of disclosure requirements arising from registering with the regulator and for those charities subject to the Charities Statement of Recommended Practice (SORP) which covers both financial and non-financial information.

Diversity

The Oxford Dictionary effectively capture the meaning of diversity as 'The practice or quality of including or involving people from a range of different social and ethnic backgrounds and of different genders, sexual orientations, etc.' At a minimum, diversity refers to the protected characteristics in the Equality Act 2010, but in its broadest sense, it can include social experiences, lived experience, personality traits and problem-solving approaches, different perspectives and neurodiversity.

Neurodiversity is defined as ‘…the idea that people experience and interact with the world around them in many different ways; there is no one ‘right’ way of thinking, learning, and behaving, and differences are not viewed as deficits’.

Divestment

An active decision to sell shares in an organisation or industry where a sector or entity fails to meet the required standards expected of the investor – via financial or ESG performance criteria.

E

Economic growth

Economic growth is seen as an increase in the amount of goods and services produced per head of the population over a period of time. It can be measured as an increase of people's real income: the ratio between people's income and the prices of what they can buy is increasing. For example, goods and services become more affordable, and people become less poor. 

It is the eighth goal of the UN SDGs (Decent work and economic growth: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all).

Education

The action or process of educating or of being educated or the knowledge and development resulting from the process of being educated. Primarily a field of study that deals mainly with methods of teaching and learning in schools.

It is key to the fourth goal of the UN SDGs (Quality education: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all).

Electric vehicles: EV

SoCal Tech Bridge describe an electric vehicle (EV) as being a vehicle that uses one or more electric motors for propulsion. It can be powered by a collector system, with electricity from extravehicular sources, or it can be powered autonomously by a battery (sometimes charged by solar panels or by converting fuel to electricity using fuel cells or a generator). EVs include, but are not limited to, road and rail vehicles, surface and underwater vessels, electric aircraft and electric spacecraft. There are different types of electric vehicles currently on offer:

Battery-electric vehicle (BEV): According to the Energy Saving Trust, a BEV is a vehicle powered only by electricity, also known as a ‘pure’ or 100% electric car. The vehicle is charged by an external power source, i.e. at a charge point. These vehicles do not produce any tailpipe emissions.

Plug-in hybrid electric vehicle (PHEV): This is a vehicle that has a battery, electric drive motor and an internal combustion engine (ICE). It can be driven using the ICE, the electric drive motor, or both and can be recharged from an external power source. PHEVs are only efficient if they are charged regularly. Otherwise, they can be more expensive to run than conventional petrol or diesel vehicle.

Extended range electric vehicle (E-REV): These are a version of plug-in hybrids. An E-REV combines a battery, an electric drive motor and a small petrol or diesel generator. The electric motor always drives the wheels, with the ICE acting as a generator when the battery is depleted.

Emissions

The emissions generated by different entities can come from a range of sources, both direct and indirect. These are referred to as Scope 1 to Scope 3 emissions.

Scope 1 emissions: released as a direct result of an activity at operational level. For example, the leaching of pollutants into waterways after being used for agricultural purposes. 

Scope 2 emissions: released as an indirect consumption of an energy commodity. For example, using electricity generated by burning fossil fuels.

Scope 3 emissions: indirect emissions not covered in Scope 2 and usually beyond the control or ownership of the organisation. For example, emissions created by third parties in the organisation’s supply line.

Emissions Reduction Plan

Part of the UK Government’s commitment to carbon net-zero. The Government’s approach to avoiding the risk of dangerous climate change is founded on the Climate Change Act 2008, which requires Government to reduce greenhouse gas emissions by: cutting emissions by at least 34% by 2020 and 80% by 2050 – below the 1990 baseline; setting and meeting five-yearly carbon budgets for the UK during that period; and requiring that those carbon budgets be set three budget periods ahead – so that it is always clear what the UK’s emissions will be for the next 15 years – and setting the trajectory towards the 2020 and 2050 targets.

Emissions targets

Goals to reduce greenhouse gas emissions within specific time frames (such as carbon net zero by 2050). Generally ‘science based’ to provide a clear path for meeting requirements to keep global warming to within 1.5 to 2˚c of pre-industrial temperatures.

Emissions Trading Schemes or Systems (ETS)

A scheme by which a limit or cap is placed on the total amount of greenhouse gases that can be emitted by industries and then issuing allowances or permits to the businesses operating in that sector. The cap is reduced over time to bring down total emissions. Allowances and permits can be traded within those eligible businesses, but the cap limit remains.

Engagement

The action of reaching out and responding to key organisations (e.g. funders, regulators) and individuals (e.g. clients, consumers, donors) to understand their concerns about a range of factors within the entity’s control.

Shareholder engagement: the process and act of an entity’s management deliberately working with its owners to improve its performance or activities. This can involve regular meetings between key investors and management to discuss issues, attending AGMs and voting on (for or against) resolutions.

Stakeholder engagement: the process and act of an organisation’s leadership reaching out, talking with, listening to and responding to the concerns of its key stakeholders. For charities, this may be a key function to understand the needs of the communities it seeks to serve and how best to support them.

See also ‘Directors Duties’ and ’s172’.

Environment Act 2021

The UK Government introduced legislation to include provisions about targets, plans and policies for improving the natural environment; statements and reports about environmental protection; to create the Office for Environmental Protection (OEP); about waste and resource efficiency; air quality; for the recall of products that fail to meet environmental standards; water quality; nature and biodiversity; for conservation covenants; and the regulation of chemicals.

Environmental

Environmental is defined as being someone or something relating to the environment or concerns about the impact humans are having on nature.

Equality

The Equality and Human Rights Commission defines equality is about ensuring that every individual has an equal opportunity to make the most of their lives and talents. It is also the belief that no one should have poorer life chances because of the way they were born, where they come from, what they believe, or whether they have a disability. For more information on equality rights, see the Equality Act 2010.

Equity

The quality of being fair and impartial. Within the EDI arena, there can be beneficial discussions to be gained by differentiating between promoting ‘equity’ and ‘equality’. For example, the United Way movement defines them as follows:

‘Equity recognises each person has different circumstances and needs, and therefore different groups of people need different resources and opportunities allocated to them in order to thrive.

Equality is giving everyone the exact same resources across the board, regardless of individuals’ or groups of people’s actual needs or opportunities/resources already provided to them.’

ESG: Environmental, social, governance

Environmental, social, and governance (ESG) criteria are a set of standards to measure or benchmark an organisation’s behaviour in the way it undertakes its business. Initially used by socially conscious investors to screen potential investments, the concept has evolved to incorporate a range of ethical, sustainable and leadership qualities that can be applied to all types of organisations.

Environmental criteria consider how an organisation safeguards the environment, including, for example, policies addressing climate change and recycling.

Social criteria examine how an entity manages relationships with employees, suppliers, customers, clients and the communities where it operates.

Governance deals with the way an organisation is led, the oversight by the board and the way it relates to other stakeholders on a range of issues such as strategy, executive pay, audits, internal controls, shareholder rights, boardroom behaviours, compliance and accountability. 

ESG issues can include:

• Board diversity
• Climate change – energy, biodiversity, CO2 emissions
• Data security
• Ethics
• Employment practices – EDI, wellbeing, living wage
• Executive pay
• Health and safety
• Resource use, scarcity and recycling
• Safe and high-quality services
• Supply chain – slavery, oil, gas
• Talent management
• Transparency.

Ethics

Organisational ethics includes various guidelines and principles that decide how individuals should behavein the workplace. It also refers to the code of conduct of the individuals working in a particular organisation. The ethics policy of an organisation is usually agreed upon by the board and cascaded down. However, some organisations' ethics will be set out in their governing document, such as cooperative bodies and some public benefit entities.

Exclusion

The purposeful act of investors to avoid investing in certain stocks or industries due to their real or perceived negative ESG actions. These stocks can sometimes be known as ‘sin stocks’. For example, divesting from ‘fast fashion’ because of its impact on the environment and/or the general perception of poor employment practices used by third parties making the garments. 

F

Fossil fuels

The remains of plants of animals that over millennia have turned into sources of energy, such as coal, petrol and natural gas. In burning these fuels, greenhouse gases are emitted.

G

Gender

Gender is the range of characteristics pertaining to femininity and masculinity and differentiating between them. Depending on the context, this may include sex-based social structures (i.e. gender roles) and gender identity.

Gender equality

Attempts by business, governments and society to promote more equal opportunities for women and girls to participate and contribute to economic, educational, social and cultural activities, amongst others. 

Initiatives in the UK aimed at improving gender equality and representation include shared parental leave and pay; gender pay gap reporting; and the Hampton Alexander Review.

Gender equality is the fifth goal of the UN SDGs (Gender equality: Achieve gender equality and empower all women and girls).

Glasgow Finance Alliance for Net Zero (GFANZ)

Group of financial institutions committed to the UN Race to Zero campaign. The campaign aims to reach net zero (carbon emissions) by 2050.

Global citizenship

Global citizenship is the umbrella term for social, political, environmental, and economic actions of -minded individuals and communities worldwide. The term can refer to the belief that individuals are members of multiple, diverse, local and non-local networks.

Global Reporting Initiative (GRI)

It is an independent, international organisation that helps businesses and other organisations take responsibility for their impacts by providing a global common language and standard to disclose such issues. Aimed at a broad range of stakeholders.

Global warming

Refers to the environment (land, air and water) heating up, particularly over the last century.

Governance

A term used for the way countries and organisations are run. There are various definitions, including:

Governance determines who has power, who makes decisions, how other players make their voices heard and how account is rendered (Cadbury Commission Report, 1992).

And 

Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.

This latter definition has been built upon since then, and the current UK Corporate Governance Code continues thus:

Companies do not exist in isolation. Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity. To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders. These relationships will be successful and enduring if they are based on respect, trust and mutual benefit. Accordingly, a company's culture should promote integrity and openness, value diversity and be responsive to the views of shareholders and wider stakeholders.

In other words, governance describes how countries, societies and organisations work: it is supported by a range of factors which differ in robustness and complexity, such as ways of working, handbooks, codes of practice, regulatory guidance or, ultimately, legislation.

Green bonds

A type of financial instrument designed to support investments in environmentally friendly activities or those which tackle climate change.

Similar bonds exist for other social purpose, social justice, environmental and conservation activities.

Green products

Products and services that claim to be more environmentally friendly and/or sustainable.

Greenhouse gas (GHG)

Greenhouse gases have been identified as the main contributors to global warming. They include carbon dioxide, methane, ozone, hydrofluorocarbons and nitrous oxide.

To help an organisation identify its GHG footprint, the following steps may be useful:

• Acknowledge the current relevant data the organisation captures.
• Identify any gaps in the data required and how to fill in those gas.
• Plot, as far as practicable, GHG emissions from scope 1 to scope 3 sources.
• Apply the appropriate science-based calculations using the most appropriate formula for the organisation.
• The board should discuss and agree on what is material to the aims of the organisation and focus its attention on those areas.
• Agree on realistic but also stretching targets for the organisation and cascade accordingly.
• Centralise responsibility for the initiative and dovetail it with other reporting arrangements (from the frontline to the boardroom and vice versa).
• Monitor progress and take remedial action where necessary.
• Celebrate success and share all experiences broadly.

Greenhouse gas emissions

The measurement of greenhouse gas emissions is becoming a key reporting requirement for some industries and businesses in the UK.

This is a trend that may transfer to the broader economy as the 2050 deadline approaches.

Greening Finance: A Roadmap to Sustainable Investing

A plan launched by the UK government in the run-up to COP 26 to meet its ‘long-term ambition to green the financial system and align it with the UK’s world-leading net zero commitment’. The long-term aim involves three phases: informing; acting; and shifting. The report covers the first of those three activities.

Greenwashing

The application of a ‘green’ or ethical veneer to portray a more socially acceptable product or activity when that is not the reality.

Geothermal power

Geothermal power is garnered from the heat that is trapped beneath the earth’s crust. By capturing the steam that comes from the heated water pumping below the surface, power can be stored. Although it is not a common form of renewable energy, it has significant potential for energy supply because it can be stored underground, leaves a minimal footprint on the land and is naturally replenished.

H

Health and wellbeing

Health and wellbeing can be described as the achievement and maintenance of physical fitness and mental stability. Initiatives in the UK to improve the health and wellbeing of the population include: Change4Life; Thriving at Work; and the ONS wellbeing data and toolkit

Health and wellbeing are at the heart of the third goal in the SDGs (Good health and wellbeing: Ensure healthy lives and promote wellbeing for all at all ages).

Hydroelectric power

Created when water flows through a dam’s turbines to produce electricity, known as pumped-storage hydropower.

Hydrofluorocarbons (HFCs)

The Encyclopedia Britannica defines hydrofluorocarbons as any of several organic compounds composed of hydrogen, fluorine, and carbon. HFCs are produced synthetically and are used primarily as refrigerants. In order to aid the recovery of the ozone layer, HFCs were adopted to replace the more potent chlorofluorocarbons (CFCs), which were phased out in 1996. HFCs are also used in insulating foams, aerosol propellants, as solvents and for fire protection.

Hydrogen

Energy from hydrogen can be used for both fuel and electricity. However, it needs to be combined with other elements as it does not occur naturally as a gas on its own. It is a clean-burning fuel which means less pollution and a cleaner environment. It is also beneficial when used for fuel cells and can be used to power an electric motor.

There are different types of hydrogen energy:

Blue: Blue hydrogen is produced by natural gas and carbon emissions being captured, stored or reused.

Brown: Brown hydrogen refers to its creation by the burning of coal in its production.

Green: Green hydrogen is made using renewable energy to electrolyse water; separating hydrogen atoms from oxygen molecules.

Grey: Derived from natural gas via steam methane reformation without carbon capture.

Pink/Purple: Pink or purple hydrogen is created via the use of nuclear power to create electrolysis.

Turquoise: Turquoise hydrogen is created via methane pyrolysis, producing solid carbon and hydrogen.

I

Impact investing

The proactive decision to invest in an organisation or sector that not only avoids doing any harm to the planet or people but is engaged in actively trying to resolve an environmental or social issue.

Inclusion

A key aspect of the equality/equity, diversity and inclusion movement to improve representation in boardrooms and throughout all types of organisation, including government, the legal profession and charities. The practise or policy of providing equal access to opportunities and resources for people who might otherwise be excluded or marginalised.

Industry, innovation and infrastructure

A term used to describe efforts to develop quality, reliable, sustainable and resilient infrastructure to support economic development and human wellbeing, with a focus on affordable and equitable access for all.

It is the ninth goal of the UN SDGs (Industry, innovation and infrastructure: Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation).

Inequality

Inequality can refer to the fact that resources can be distributed in an unequal and/or unjust manner among members of a given society. The term can encompass distinct yet overlapping economic, social, and spatial dimensions. Examples of UK initiatives to reduce inequalities in society include Disability Confident and Access to Work programmes.

Reducing inequality is the tenth goal of the UN SDGs (Reduced inequality: Reduce inequality within and among countries).

Institutional Investors Group on Climate Change: IIGCC

The Institutional Investors Group on Climate Change is a European membership body for investor collaboration on climate change and the voice of investors taking action for a prosperous, low carbon future.

Intergovernmental Panel on Climate Change: IPCC

A scientific body established in 1988 by the UN Environment Programme and the World Meteorological Organisation to provide scientific insight into the issues of global warming and climate change.

International Financial Reporting Standards: IFRS

The IFRS Foundation is a not-for-profit, public interest organisation established to develop a single set of high-quality, understandable, enforceable and globally accepted accounting and sustainability disclosure standards: IFRS Standards. 

The standards are developed by two boards: the International Accounting Standards Board (IASB) and the newly created International Sustainability Standards Board (ISSB). The IASB sets IFRS Accounting Standards, and the ISSB sets IFRS Sustainability Disclosure Standards.

IFRS Accounting Standards set out how a company prepares its financial statements. IFRS Sustainability Disclosure Standards set out how a company discloses information about sustainability-related factors that may help or hinder a company in creating value. 

International Integrated Reporting Council: IIRC

International Integrated Reporting Council launched the Integrated Reporting Framework in 2010, aimed at providing investors with an insight into an organisation’s risks, performance, strategy and outlook.

International Integrated Reporting Framework

A global framework supporting the content and approach of integrated reports for commercial entities. 

Investments

Brown: Brown investments are traditionally seen as ‘dirty’ investment opportunities or ‘sin stocks’. However, evolving approaches to ESG have promoted brown investments as one way of actively engaging with companies to instil a more environmentally friendly or sustainable approach to doing business.

Green: Green investments tend to be seen as those opportunities to invest in activities that are more environmentally friendly, socially just, or sustainable. Investors do not need to persuade organisations and industries of the need to ‘go green’ as that decision has already been made.

Mission related investments: are when investment decisions are directly linked to a charity’s charitable purposes (or other aims if a social purpose entity). A financial return is still anticipated, but it is not the sole purpose of the investment.

Responsible: Responsible investments for charities have been the centre of a recent court case (Butler-Sloss & others v Charity Commission and Attorney General) to clarify the rights of duties of trustees with regard to investing charity assets. The court judgment confirmed that charity trustees have a discretion to exclude investments that they reasonably believe to conflict with the charitable purposes.

Key points for charities thinking about responsible investments include:

• Think about your charity’s purposes and how the investment under consideration may impact on the aim. For example, would an animal conservation charity investing in a sector that relies on animal vivisection be in tune with furthering the charitable aims? Or would the reputational risk outweigh any projected financial gains? Alternatively, would an anti-slavery charity be well advised to invest in fast fashion, given the poor employment practices in some garment factories overseas?
• Review your governing document to make sure there is nothing in it that would prevent you from investing or investing responsibly.
• Consider if your investment policy needs to be refreshed to mirror the changes you wish to make to your investment approach.
• Stay alert to the Charity Commission’s revised CC14 (coming in due course), and reflect any changes in your investment practices.

Regularly review investment performance to ensure they are delivering what you intended.

J