ESG & Sustainable Finance
30 ESG & Sustainable Finance terms, defined in plain English — part of the 1345-term Finicade finance glossary. Each one has its own page, and links to the free game that teaches it.
- Additionality
- Additionality asks whether an outcome would have happened anyway without your money.
- Carbon Credit
- A carbon credit represents one tonne of emissions avoided or removed, bought to offset emissions elsewhere.
- Carbon Footprint
- A carbon footprint is total greenhouse gas emissions attributed to an entity, product or portfolio.
- Carbon Price
- A carbon price makes emitting cost money, either through a tax or a cap-and-trade system where a fixed number of permits are traded.
- Circular Economy
- A circular economy designs out waste by keeping materials in use through repair, reuse, remanufacture and recycling, replacing take-make-dispose.
- Climate Stress Test
- A climate stress test runs a bank or insurer balance sheet through climate scenarios — orderly transition, disorderly transition, no action.
- CSRD
- The CSRD is the EU sustainability reporting regime, requiring detailed audited disclosure from thousands of companies, including large non-EU groups.
- Divestment
- Divestment is selling holdings in an industry on principle, most prominently fossil fuels.
- Double Materiality
- Double materiality asks two questions: how sustainability issues affect the company financially, and how the company affects people and the environment.
- ESG Rating
- An ESG rating scores a company on environmental, social and governance criteria.
- Green Bond
- A green bond ring-fences its proceeds for environmental projects, with reporting on how the money was used.
- Greenwashing
- Greenwashing is presenting an investment, product or company as more environmentally responsible than it is.
- Impact Investing
- Impact investing seeks measurable social or environmental outcomes alongside a return, with the impact intentional and reported rather than incidental.
- Just Transition
- A just transition means decarbonising without pushing the cost onto workers and communities dependent on high-carbon industries.
- Natural Capital
- Natural capital treats ecosystems — water, soil, pollination, fisheries, forests — as assets that produce services the economy depends on.
- Net Zero
- Net zero means cutting emissions as far as possible and neutralising the residual with permanent removals.
- Physical Risk
- Physical risk is financial damage from climate change itself: acute events like floods and fires, and chronic shifts like heat and sea level rise.
- Proxy Voting
- Proxy voting is exercising shareholder votes on directors, pay and resolutions, usually by instruction rather than in person.
- Renewable Energy Certificate
- A renewable energy certificate represents one megawatt-hour of renewable generation and can be sold separately from the electricity itself.
- Science-Based Targets
- Science-based targets are corporate emission goals aligned with what climate science says is needed, validated by an independent initiative.
- Scope 1, 2 and 3 Emissions
- Scope 1 is emissions a company produces directly, Scope 2 is from the energy it buys, and Scope 3 is everything else in its value chain.
- SFDR
- SFDR requires EU fund managers to disclose how they handle sustainability, with funds classified as Article 6, 8 or 9.
- Socially Responsible Investing
- SRI excludes companies or sectors an investor objects to — tobacco, weapons, fossil fuels, gambling.
- Stewardship
- Stewardship is investors using ownership rights — engagement, voting, escalation — to influence company behaviour rather than simply selling.
- Stranded Asset
- A stranded asset loses value before the end of its expected life because of regulation, technology or demand shifts — coal plants, unburnable reserves.
- Sustainability-Linked Loan
- A sustainability-linked instrument ties the interest rate to the borrower hitting sustainability targets, rather than restricting how the money is spent.
- Sustainable Investing
- Sustainable investing incorporates environmental, social and governance factors alongside financial ones.
- TCFD
- TCFD set the template for climate disclosure across four pillars — governance, strategy, risk management, and metrics and targets — including scenario analysis.
- Transition Finance
- Transition finance funds high-emitting companies to decarbonise, rather than excluding them.
- Transition Risk
- Transition risk is financial damage from the shift to a low-carbon economy — carbon pricing, regulation, technology substitution, changing customer preferences.