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A green finance glossary

All the key terms to know about sustainable investing

Photo: Semtrio / Jack Sem, Flickr
31 October 2019
Ming Chun Tang

This topic will be discussed at the Global Landscapes Forum Luxembourg on 30 November.

From asset classes to equities, finance terminology can often seem like a language of its own. Yet as the field of green finance grows, expect this vocabulary to become ever more embedded into that of sustainability. Courtesy of the Stockholm Sustainable Finance Centre, the Global Environment Facility (GEF) and Investopedia, here’s a list of the most important green finance terms to know.

Active ownership: when investors address concerns over environmental, social and governance (ESG) issues through voting or by engaging corporate managers and directors on them

Asset class: a group of securities (see below) with similar characteristics and subject to the same laws and regulations. There are three main asset classes: equities (stocks), fixed income (bonds), and cash or cash equivalents. Other asset classes can include real estate, commodities, futures, other financial derivatives and even cryptocurrencies.

Bond: a debt investment in which an investor loans money to an entity for a defined period of time at a variable or fixed interest rate

Broad sustainable investing: a sustainable investing strategy that uses a general sustainability policy or approach rather than a product-specific policy, such as the seven strategies listed by GSIA, or a combination of them

Carbon finance: resources provided to a project to purchase reductions in greenhouse gases

Carbon market: a market created from the trading of carbon emission allowances to encourage or help countries and companies to limit their carbon emissions, known as carbon trading

Carbon offsetting: the purchasing of credits through carbon trading schemes or emissions reductions projects in order to reduce carbon emissions

Carbon tax: a tax on the carbon content of fossil fuels to directly set a price on carbon

Climate fund: financial resources at the multilateral, bilateral or national levels aimed at addressing climate change, such as the Green Climate Fund, Adaptation Fund, Least Developed Countries Fund and Climate Investment Funds

Crowdfunding: a joint effort by individuals to pool money to support a wide range of activities, including social and environmental activities

Crowdsourcing: the obtainment of services, ideas or content from a large group of people, which also includes crowdfunding

Ecosystem services: the benefits derived by humans from ecosystems, such as the air, carbon storage and pollination

Equity: a stock or other security representing a share of ownership in a company

Green bond: a financial instrument (bond) whose proceeds are invested exclusively in projects that generate climate or other environmental benefits

Impact investment: an investment that aims to generate substantial investment returns while also generating a positive environmental or socioeconomic outcome, both of which are measured and disclosed.

Leverage: public finance (e.g. from international finance institutions) in the form of loans, risk guarantees, insurance or private equity, used to encourage private investors to back a project by reducing its perceived risk

Microfinance: a source of financial services for individuals or small businesses that lack access to traditional banking services

Natural capital: elements of nature that produce direct or indirect value to people, such as forests, rivers, oceans and land

Security: a tradable financial instrument with some type of monetary value; includes bonds, stocks and options

Socially responsible investing (SRI): an investment strategy that attempts to screen out investments in companies or industries that do not align with a client’s values (i.e. a negative screening process)

Triple bottom line: an accounting framework that measures not only financial but also social and environmental performance, designed for companies to value their social and environmental profits and losses as well as financial ones

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