Climate Finance Glossary

What is Climate Finance?
Climate Finance is financing that supports the transition to a climate resilient economy by enabling mitigation actions, especially the reduction of greenhouse gas emissions, and adaptation initiatives promoting the climate resilience of infrastructure as well as generally of social and economic assets.

For a general financial terms please use this glossary from Investopedia.

What are shares?
A share of a company is like a piece of that company. If you own a share, you own a piece of a company. People who own shares are called shareholders.By owning part of a company, a shareholder benefits from company success. That also means if the company does not perform well, the value of the shares may go down.

What are bonds?
Bonds are loans split into smaller pieces. They allow companies, states and governments to finance projects and operations. Think of them as an ‘I owe you’. Organizations borrow your money and then return it with interest paid on top. Bonds have maturity dates. At this date, all the money must be paid back in full.

What are funds?
A fund is a collection of money put aside for a specific purpose. In the context of this platform, a fund is usually invested in shares in order to grow your money above the rate of inflation.

These funds are professionally managed by teams in investment firms (fund managers). They determine how best to invest the money for good financial returns. Usually, they invest the money in different companies on the stock market. So, through funds, you may own a small part of a company indirectly.

What is a portfolio?
A portfolio is a collection of financial assets and can include funds, bonds and cash.
Portfolios could be managed by a pension provider (meaning they pick the funds/financial assets to put in the portfolio, keep an eye on them over time and manage all of the admin and reporting). These financial professionals are trained and legally bound to make decisions in your best financial interest. They have to balance risk, financial performance and the investment objectives of the fund. When making financial decisions they will also consider timescale. Some investments are designed for shorter-term wins, others for long-term growth.

What is a shareholder?
A shareholder is someone who owns part of a company through owning shares.

Am I a shareholder?
A shareholder is someone who owns shares in a company. You probably own a pension, which is used to buy shares in lots of companies. Therefore, we refer to you as a shareholder.

Technically speaking, because you own shares via your pension, you are an ‘indirect shareholder’. You didn’t go out and buy the companies yourself, but your pension did, and you bought your pension. This keeps things simple from an investment perspective, and is generally a good thing (imagine buying all of those companies individually..)! However, it does mean that your fund manager (who is the ‘direct shareholder’) probably holds the legal right to the shareholder vote instead of you.

What is Climate Finance?
Climate Finance is financing that supports the transition to a climate resilient economy by enabling mitigation actions, especially the reduction of greenhouse gas emissions, and adaptation initiatives promoting the climate resilience of infrastructure as well as generally of social and economic assets.

For a general financial terms please use this glossary from Investopedia.

What are shares?
A share of a company is like a piece of that company. If you own a share, you own a piece of a company. People who own shares are called shareholders.By owning part of a company, a shareholder benefits from company success. That also means if the company does not perform well, the value of the shares may go down.

What are bonds?
Bonds are loans split into smaller pieces. They allow companies, states and governments to finance projects and operations. Think of them as an ‘I owe you’. Organizations borrow your money and then return it with interest paid on top. Bonds have maturity dates. At this date, all the money must be paid back in full.

What are funds?
A fund is a collection of money put aside for a specific purpose. In the context of this platform, a fund is usually invested in shares in order to grow your money above the rate of inflation.

These funds are professionally managed by teams in investment firms (fund managers). They determine how best to invest the money for good financial returns. Usually, they invest the money in different companies on the stock market. So, through funds, you may own a small part of a company indirectly.

What is a portfolio?
A portfolio is a collection of financial assets and can include funds, bonds and cash.
Portfolios could be managed by a pension provider (meaning they pick the funds/financial assets to put in the portfolio, keep an eye on them over time and manage all of the admin and reporting). These financial professionals are trained and legally bound to make decisions in your best financial interest. They have to balance risk, financial performance and the investment objectives of the fund. When making financial decisions they will also consider timescale. Some investments are designed for shorter-term wins, others for long-term growth.

What is a shareholder?
A shareholder is someone who owns part of a company through owning shares.

Am I a shareholder?
A shareholder is someone who owns shares in a company. You probably own a pension, which is used to buy shares in lots of companies. Therefore, we refer to you as a shareholder.

Technically speaking, because you own shares via your pension, you are an ‘indirect shareholder’. You didn’t go out and buy the companies yourself, but your pension did, and you bought your pension. This keeps things simple from an investment perspective, and is generally a good thing (imagine buying all of those companies individually..)! However, it does mean that your fund manager (who is the ‘direct shareholder’) probably holds the legal right to the shareholder vote instead of you.

What is a pension fund?

Pension funds are investment pools that pay for workers’ retirements. Funds are paid for by either employees, employers, or both. Corporations and all levels of government provide pensions.

Types
There are two types of pension funds. The first, the defined benefit pension fund, is what most people think of when they say “pensions.” The retiree receives the same guaranteed amount. The second, the defined contribution plan, is the familiar 401(k) plan. The payout depends on how well the fund does.

Defined Benefit Fund
A defined benefit fund pays a fixed income to the beneficiary, regardless of how well the fund does. The employee pays a fixed amount into the fund. The fund managers invest these contributions conservatively. They must beat inflation without losing the principal. The fund manager must earn enough of a return on the investment to pay for the benefits.

The employer must pay for any shortfall. It’s like an annuity provided by an insurance company. In this case, the employer functions as the insurance company and sustains all the risk if the market drops. That risk is why many companies have stopped offering these plans.

The multi-employer plans allow small companies to band together to create diversified pensions. Employees benefit from being able to change companies without losing their pension benefits. There are 10 million current and retired workers in multi-employer plans. Many of them will probably run out of funds.

The benefits of these plans are guaranteed by the federal government’s Pension Benefit Guaranty Corporation. The PBGC guarantees the pension incomes for 35 million workers. The Single-Employer program successfully covers 28 million participants. The Multiemployer program faces insolvency by 2025. That’s because 130 multiemployer plans will run out of money by 2040.

Defined Contribution Plan
In a defined contribution plan, the employee’s benefits depend on how well the fund does. The most common of these are 401(k)s. The employer doesn’t have to pay out defined benefits if the fund drops in value. All the risk is transferred to the employee. The shift in risk is the most important difference between the defined benefit and the defined contribution plan.

What is the energy sector?
The energy sector is a category of companies in the business related to the production and supply of energy. According to the Global Industry Classification Standard (GICS), the energy sector covers the companies that explore, produce, refine, market, store, and transport oil and gas, coal, and other consumable fuels. Companies offering oil and gas equipment are also considered part of the energy sector.

What is the Global Industry Classification Standard?

• GICS is a four-tiered, hierarchical industry classification system.
• Companies are classified quantitatively and qualitatively. Each company is assigned a single GICS classification at the Sub-Industry level according to its principal business activity. MSCI and S&P Dow Jones Indices use revenues as a key factor in determining a firm’s principal business activity.
• Earnings and market perception, however, are also recognized as important and relevant information for classification purposes, and are taken into account during the annual review process.
• Use this interactive site to explore this definition

What is the CU 200?
The Carbon Underground 200™, compiled and maintained by FFI Solutions (formerly Fossil Free Indexes℠), identifies the top 100 coal and the top 100 oil and gas publicly-traded reserve holders globally, ranked by the potential carbon emissions content of their reported reserves.

Rankings are constructed using a reserves-based methodology with the underlying core data based on “reported” reserves. Coal reserves are the sum of proven and probable reserves based on the last reported reserves amount by mine. Reserves are allocated to listed companies based on percentage ownership of individual mines. Oil and gas companies are ranked on proven reserves (1P) net of royalty payments.

The Carbon Underground 200™ relies on the IPCC Revised 1996 Guidelines for National Greenhouse Gas Inventories as a methodological framework. The calculation of CO2 emission potential requires several conversions to the raw reserves figure.

What is ESG?
Refers to Environmental, Social and Governance matters in the context of financing or investment activities. Assessment of ESG factors is often referred to as a measure of the “sustainability” of a financing or investment transaction.

ESG Investing
Responsible Investing, also known as ESG Investing , refers to strategies and practices that incorporate material ESG factors in investment decisions and active ownership with a view to minimize risks and maximize returns. It can be pursued by all investors as part of their fiduciary duty on the basis that ESG factors are considered as having a material impact on returns.

Sustainable finance
Sustainable Finance supports Sustainable Activities / Development. Sustainable Finance includes the financing of activities that create environmental and social benefits while also adding wider considerations concerning the longer term economic sustainability of the organizations that are being funded, as well as the role and stability of the overall financial system in which they operate.

Sustainability bond
A Bond that aligns to the Sustainability Bond Guidelines established by the Green Bond Principles and Social Bond Principles Executive Committee under the secretariat of the International Capital Markets Association. The use of proceeds of a Sustainability Bond are exclusively applied to finance or re-finance eligible activities and projects that generate environmental benefits and / or social benefits.

Sustainability linked loan
Any type of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) which incentivize the borrower’s achievement of ambitious, predetermined sustainability performance objectives. The borrower’s sustainability performance is measured using sustainability performance targets (SPTs), as set against key performance indicators, external ratings and/or equivalent metrics and which measure improvements in the borrower’s sustainability profile. The Sustainability Linked Loan Principles (SLLP) is established by the global Loan Market Associations to promote the development and preserve the integrity of the sustainability linked loan product by providing guidelines which capture the fundamental characteristics of these loans.

Sustainability linked bond
A Bond that aligns to the Sustainability-Linked Bond Principles and incentivizes the issuer’s achievement of material, quantitative, pre-determined, ambitious, regularly monitored and externally verified sustainability objectives through Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPT). Sustainability-Linked Bonds aim to further develop the key role that debt markets can play in funding and encouraging companies that contribute to sustainability (from an environmental and/or social and/or governance perspective).

Transition Risk
The risk of financial loss faced by an entity arising, directly or indirectly, from the process of transition to a low carbon and sustainable economic system. The risks may be manifested as a sustainability related consequence of any one or more of consumer action, regulatory or policy action, technological developments, financial partner actions.