Sustainability Jargon Buster For Asset Managers

Michelle Horsfield

25 years: Sustainable Finance

Have you heard of terms like Paris Agreement, net zero, carbon neutrality and wondered what these are? Let’s break down essential sustainability jargon in the asset management.

ESG Financial Products

Have you heard of terms like Paris Agreement, net zero, carbon neutrality and wondered what these are? Let’s break down essential sustainability jargon in the asset management.

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Sustainability Jargon Buster For Asset Managers

11 mins 41 secs

Key learning objectives:

Understand key sustainability concepts
Understand the importance of managing climate-related risks in asset portfolios
Explore frameworks such as the Paris Agreement and SDGs in investment strategies

Overview:

Sustainable asset management integrates financial growth with environmental and social responsibility. In line with the Paris Agreement, asset managers are tasked with minimising climate impacts by aligning investment activities with emissions reduction goals. Managing climate-related risks, both physical and transitional, requires robust frameworks like climate stress testing. Asset managers adopt net zero and carbon neutrality strategies, focusing on Scope 1, 2, and 3 emissions. Tools such as science-based targets and labelled bonds support structured emission reduction and transparency in sustainability initiatives. Navigating these challenges also involves vigilance against greenwashing, ensuring authentic and impactful sustainable practices across the asset management sector.

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Summary

What is sustainable investing?

Sustainable investing urges asset managers to not only prioritise financial gains but also to consider how your investment decisions impact the world around you. Finding the balance between financial success and responsibility towards the environment and society.

What is the Paris Agreement?

The Paris Agreement is a global treaty that commits countries to limit global warming to well below 2°C, ideally closer to 1.5°C. For banks, it means aligning financial activities with these climate goals.

What are physical and transition climate risks?

Physical risks are financial risks due to climate impacts like extreme weather, while transition risks are financial risks from the shift to a low-carbon economy, such as new regulations on carbon emissions.

What is climate risk management?

Climate risk management involves identifying and managing the financial risks that arise from climate change. This includes using tools like stress testing and scenario analysis to understand potential impacts on operations.

What is net zero?

Net zero refers to balancing the emissions produced with emissions removed from the atmosphere. In asset management, it involves reducing emissions from operations and investment activities to achieve no net increase in greenhouse gases.

What is a carbon footprint?

A carbon footprint measures the total greenhouse gases a person, company, or asset manager is responsible for, typically divided into Scope 1, 2, and 3 emissions, from direct emissions to those from financed activities.

What is carbon neutrality?

Carbon neutrality is achieving a balance between emitted greenhouse gases and an equivalent amount removed or offset, often through projects like reforestation or renewable energy investments.

What are science-based targets?

Science-based targets provide a clear, scientific path for reducing emissions to limit global warming to 1.5°C. They outline specific reductions needed to meet climate goals, helping banks align with the Paris Agreement.

What is greenwashing?

Greenwashing is when companies make misleading claims about their environmental practices. It often involves exaggerating or falsely advertising eco-friendly actions, detracting from genuine sustainability efforts.

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Michelle Horsfield

Michelle Horsfield, an environmental scientist with a climate change specialisation, transitioned into the financial sector four years ago to apply her knowledge to the largest reallocation of capital in history, as the economy moves towards a lower carbon future.

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