Getting Started With a Glossary of Financial Acronyms and Terms You Should Know in 2022
ESG refers to the environmental, social, and governance practices of an investment that may have a material impact on the performance of that investment. Environment includes; Energy, Pollution, Water Technologies, Climate Change, Animal Welfare. Social Includes Human Rights, Child and forced Labour, Employee rights, Health and Safety. Governance includes; Quality of Management, Conflicts of Interest, Executive Compensation, Shareholder rights, diversity in Management and Board of Directions.
ESG factors are used to enhance traditional financial analysis by identifying potential risks and opportunities beyond technical valuations.
Socially responsible investment is a process that is actively eliminating or selecting investments according to specific ethical guidelines.
The motive could be religion, personal values, or political beliefs.
Unlike ESG analysis which shapes valuations, SRI uses ESG factors to apply negative or positive screens on the investment universe.
SRI Screens often include Fossil Fuels, Alcohol, tobacco, and other addictive substances. Gambling, Environmental Damage, Human Rights and Labor Violations, Production of Weapons and Defense tools.
In impact or thematic investing, positive outcomes are of the utmost importance—meaning the investments need to have a positive impact in some way.
So the objective of impact investing is to help a business or organization accomplish specific goals that are beneficial to society or the environment.
This can be investing in a Bond that targets affordable housing for example, or a Mutual Fund or Pension Manager actively campaigning and using their leverage to convince a company to change their practises.
Greenwashing and green marketing are essentially companies, and investments that portray themselves as having positive impacts, when they actually have very little, or even harmful impacts.
It takes quite a bit of research to differentiate between companies, mutual funds, and other investments that present themselves as having positive impacts, and those that actually do.
We are seeing that in many places, such as Europe, regulations and laws are being created, to ensure that investments that are presented as having positive impacts, actually are, in a real and measurable manner.
We know navigating these new waters can be confusing.
Let us know what terms and acronyms are confusing or are of interest to you.
We will continue to add to this glossary of terms you should know for your investing future.
By Brett Harrington | January 2022