20 ESG terms you need to know

Not sure how ESG differs from SRI? We explain the key terms used in clean, green investing.

1. Carbon footprint

From people to products and companies, we all leave behind a carbon footprint. It measures the total greenhouse gas emissions we create annually.

The Environmental Protection Authority of Victoria says Australian households generate at least one-fifth of the nation's greenhouse gases - more than 18 tonnes per household each year!

2. Decarbonisation

This refers to strategies that businesses, governments and other organisations adopt to reduce their carbon footprint.

3. ESG

Stands for environmental, social and governance factors that companies and investments use to develop sustainable practices.

4. Environmental

This is the E is ESG, and environmental issues cover everything from an organisation's waste management through to its greenhouse gas emissions and energy efficiency.

5. Ethical investing

This is all about investing in line with your own personal values and ethics. The trick is to find investments that match your own principals.

6. ETF

Exchange traded funds (ETFs) make it easy to for investors to follow a green theme.

Plenty of ETFs are listed on the Aussie stock exchange offering everything from sustainable investing more broadly, through to specific areas such as clean energy, electric vehicles and carbon control.

7. Governance

Governance is the G in ESG. It refers to the way companies and organisations balance the needs of different stakeholders from investors and employees, to suppliers, creditors and even the community.

8. Green bonds

These are bonds issued by government bodies or companies to raise funds for eco-friendly projects.

Victoria's state government was the first in Australia to issue Green Bonds with the international Climate Bond Certification. It used the proceeds to invest in transport, renewable energy and low carbon buildings.

9. Greenhouse gases

Gases like carbon dioxide, nitrous oxide and methane trap heat in the atmosphere and warm the planet, hence the name 'greenhouse' gases. They occur naturally but the arrival of the industrial revolution has seen a massive uptick in the volume of greenhouse gases reaching the atmosphere.

This means less heat escapes, leading to global warming. It's estimated our planet's temperature has risen by an average of 1 degree Celsius since pre-industrial times.

10. Greenwashing

The practice of making a product or investment sound more eco-friendly than it really is.

11. Impact investments

Impact investments are designed to bring about positive change such as affordable housing or sustainable agriculture, while still delivering healthy returns.

12. Negative screening

This is all about shunning investments that have a poor track record on environmental, social and governance issues.

13. Net zero emissions

The Climate Council describes net zero emissions as the balance between the greenhouse gas emissions we produce, and the emissions we take out of the atmosphere through steps like planting new forests. The Federal Government has committed to reaching net zero emissions by 2050.

14. Positive screening

Actively looking for - and investing in, companies that make a positive contribution to people and the planet.

15. RIAA

The Responsible Investment Association of Australasia is an industry body that helps to promote investing in a way that achieves a healthy society, environment and economy.

It has a certification process that lets investors see at a glance if a managed fund or other investment is living up to its ESG claims.

16. Sin stocks

These are shares in companies that exploit human weaknesses. They typically include activities such as gambling, alcohol, tobacco, firearms and adult entertainment.

17. Social

The S in ESG is all about people. It can cover human rights including labour standards, child labour and modern slavery, and address workplace health and safety as well as community involvement.

18. SRI

Socially Responsible Investing comes down to selecting investments that aim to have a positive impact on people.

19. Sustainable investing

This is all about investing your money in areas where you can help combat climate change, prevent destruction of the environment, and make the world a better, fairer place for all of us.

20. Themed investing

Investors can shape their portfolio by following a particular theme or idea. This could be 'sustainable investing' or it may drill down further to something like 'clean energy'.

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