Guide to Jargon

There is a lot of jargon in the investment world and engaging in ethical investing adds more terminology.  We have provided a brief guide below.

1.5°C – A key goal from the Paris Agreement (in December 2015) to limit temperature rises to well below 2°C above pre-industrial levels, countries agree to ‘pursue efforts to’ limit temperature rises to 1.5°C above pre-industrial levels.  We are currently at 1.18C (December 2020) and we are on track to reach 1.5°C by 2040.

B-Corp – A B-Corp designation is an international recognition that the business balances purpose and profit and uses business as a force for good.  It is not easy to become certified (but is easier for small businesses as there are less moving parts).  Once certified, the busines shas to continue with its practices and enhancing its responsibility to workers, customers, suppliers, community and the environment.  B-Corp is run by a charitable organisation and there are currently 4,167 B-Corps in existence (December 2021) (with a waiting period of 6-10 months to have an application assessed and only 1 in 3 that submit receiving certification).  Some of our ethical fund managers are B-Corps.

COP – Conference of the parties – in 2021 COP26 in Glasgow was the 26th  meeting. Parties is a wide ranging definition, including Governments, NGO’s, other interested ‘parties’, and 25,000 delegates from nearly 200 countries attended.

IPCC – Intergovernmental Panel on Climate Change A UN body responsible for advancing knowledge on human induced climate change established in 1998. The sixth report in 2021 report stated that it is unequivocal that human behaviour has a significant contribution to global warming.  According to the report, it is only possible to avoid warming of 1.5 °C or 2 °C if massive and immediate cuts in greenhouse gas emissions are made In a front page story, The Guardian described the report as "its starkest warning yet" of "major inevitable and irreversible climate changes”.

Materiality – how ‘material’ that behaviour is to the analysis. For example, some fund managers say that they will only incorporate the ‘nasty’ if it represents more than 10% of the total revenue or profit of the company.  Similarly, when we are looking at fund managers, if the exposure to a company that has an issue is minor, we may still recommend that investment (as by the time the allocation comes through into your portfolio it is likely to be very small). For example, Alphinity Sustainable Share Fund owns a 2.50% exposure to Rio Tinto, but all other companies have no nasties, and we like their overall approach and style.

Modern Slavery legislation - Europe, UK, Australia, Canada now have Modern Slavery Reporting legislation for large companies and fund managers.  The frameworks are still being developed, and reporting is evolving.  Initially the reports paid lip service, but as a result of media research, more depth is being added to the reporting.

NDC’s – Nationally Determined Contributions – national plans containing targets on emission cuts (usually pegged to 2030 with some details on how they will be met).

Net Zero – reducing greenhouse gas emissions as far as possible, then offsetting any remaining irreducible emissions (eg form industrial processes that emit carbon dioxide, or sectors such as aviation where alternative technologies are not available), by fostering carbon sinks, such as forests.

Scope 1, 2 and 3 emissions – Scope 1 – direct emissions from owned or controlled sources, Scope 2 indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company.  Scope 3 includes all other indirect emissions that occur in the company’s value chain.

SDG’s – United Nations Sustainable Development Goals in the 2030 Agenda for Sustainable Development - https://sdgs.un.org/goals.

17 Goals with 169 Targets adopted by all UN member states in 2015, provides a shared blueprint for peace and prosperity.   While these have been developed as a framework for countries, a number of our leading ethical fund managers map the investments that they make to the SDG’s, using it as framework to guide their approach to ‘making the world a better place’ and ‘doing good’.

Stranded assets – usually relating to fossil fuels, these are assets held by companies that are no longer acceptable and where there is little market appetite to purchase.  The risk of holding investments that might have stranded assets is that the value of the assets ends up having unanticipated or premature write-down, devaluation or conversion to liabilities, or be negative – as they involve costs to shutter the asset.

TCFD – Task Force for Climate Related Financial Disclosures Acknowledging the the financial sector can have a real impact on climate change, by use of financing of projects and investing in and supporting companies that are doing good as compared to companies that are contributing to climate change.

UNFCCC – United Nations Framework on Climate Change (signed in 1992 binds all of the worlds nations) to ‘avoid dangerous climate change’.

UNPRI – United Nations Principles of Responsible Investment We see membership of this international body as basic starting point for our fund managers who are committed to ethical investing.[1]  Although this has been a tick box exercise historically, in the last few years the monitoring of members had increased and the responsibilities of members has become meaningful. Members are required to commit to active engagement and disclosing the outcomes of that active engagement (which has been a challenge for some fund managers).

[1] Some fund managers who aren’t committed to ethical investing across the board, but have very good ethical funds on offer have chosen not to join UNPRI (Eg Booster).

 

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