ESG Investing Glossary

Urbanization refers to the process of the increasing concentration of population in urban areas, resulting in the growth and expansion of cities. It involves the movement of people from rural areas to cities and the transformation of rural landscapes into urbanized environments. Urbanization is a global phenomenon driven by various social, economic, and demographic factors.

Unmanageable risk refers to risks that are difficult or impossible to address or mitigate through conventional risk management practices. These risks pose significant challenges because they cannot be easily controlled or managed by the affected parties or through specific actions or initiatives.

Universal ownership refers to the concept that large institutional investors, such as pension funds or sovereign wealth funds, hold diversified portfolios that represent a significant portion of the entire market or economy. These investors are considered ''universal owners'' because their investments span multiple sectors, industries, and geographic regions.

The United Nations Global Compact (UNGC) is a voluntary initiative launched in 2000 that brings together companies, organizations, and other stakeholders committed to sustainable and responsible business practices. It is the largest corporate sustainability initiative in the world, with thousands of participating companies and organizations from various sectors and countries.

The United Nations Environment Programme Finance Initiative (UNEP FI) is a partnership between the United Nations Environment Programme (UNEP) and the global financial sector. It was established in 1992 to mobilize the finance industry towards sustainable development. UNEP FI works with over 400 member institutions, including banks, insurance companies, investment firms, and other financial institutions, to promote sustainable finance practices and integrate environmental, social, and governance (ESG) factors into their decision-making processes.

A unitary board, also known as a single-tier board, is a type of corporate governance structure where both executive and non-executive directors serve on the same board. In contrast to a two-tier board system, which separates executive management and oversight functions into separate boards, a unitary board combines both roles into a single governing body.

The United Nations Framework Convention on Climate Change (UNFCCC) is an international treaty adopted in 1992 with the objective of addressing climate change. It was a response to growing concerns about the impact of human activities on the Earth's climate system. The UNFCCC aims to stabilize greenhouse gas concentrations in the atmosphere and prevent dangerous anthropogenic interference with the climate system.

The triple bottom line (TBL) is an accounting framework that considers three dimensions of performance: social, environmental (or ecological), and financial. It recognizes that businesses have impacts and responsibilities beyond just generating profit. The three dimensions, often referred to as the ''3Ps,'' stand for People, Planet, and Profit.

- People: The social dimension of the triple bottom line focuses on the well-being of people, both within and outside the organization. It encompasses factors such as labor practices, human rights, employee welfare, diversity and inclusion, community engagement, and social equity. Companies that prioritize the ''people'' aspect strive to create positive social impacts and contribute to the betterment of society.

- Planet: The environmental dimension of the triple bottom line addresses the impact of business activities on the natural environment. It involves considerations such as resource consumption, waste management, pollution control, greenhouse gas emissions, biodiversity conservation, and sustainable use of natural resources. Businesses that emphasize the ''planet'' aspect aim to operate in an environmentally responsible and sustainable manner.

- Profit: The financial dimension of the triple bottom line focuses on economic performance and profitability. It recognizes that businesses need to be financially viable to sustain their operations and create value for shareholders. While profit is an essential aspect, it is viewed within the context of social and environmental responsibilities. The goal is to achieve long-term profitability while simultaneously considering the well-being of people and the planet.

Transition risk refers to the potential financial risks that arise from the transition to a low-carbon and sustainable economy. It is primarily associated with the shift away from fossil fuels and the adoption of cleaner and more sustainable technologies and practices.

Tracking error is a metric used to measure the deviation of a portfolio's performance from its benchmark index. It quantifies the volatility of a portfolio's relative returns to its benchmark.