In 2020-2021. the popularity of the topic of responsible investing has increased dramatically, or ESG. Idea about, that investments should not only be profitable, but also support ecology and social justice, led to this, that ESG funds have begun to play a significant role in the global capital markets.
Striving to maintain attractiveness in the eyes of investors, many companies have started adding information about their environmental and social initiatives to their annual reports, presentations and press releases. Let's look at the most popular ESG terms and reveal their meaning..
ESG Principles or Sustainable Investing
ESG stands for Environmental, Social and Government (environment, social factors and corporate governance). The idea is that, that the company in the course of its activities should strive not only for profit, but also to minimize the harmful effects on the environment (environmental), promote social projects (social) and implement the best practices of corporate governance and interaction with the state (government).
Supposed, that in the modern world such an approach will contribute to the long-term sustainable existence of the company. Therefore, this approach to investment was called sustainable (sustainable).
Synonyms: sustainable investing, sustainable investment (development), responsible investment (development).
Paris Climate Agreement
Not so long ago, experts from Europe and other developed countries became worried about global warming., which in the future can lead to serious cataclysms and complicate the life of mankind. In response to this challenge in 2015 G. countries signed the "Paris Climate Agreement". The goal of the agreement is to keep the global average temperature rise “much lower 2 degrees Celsius" on the horizon of the next century.
Synonyms: climate agreement.
Carbon neutrality (zero emission)
To implement the Paris agreement, it is proposed to reduce greenhouse gas emissions, mainly carbon dioxide (CO2), to zero. Carbon neutrality means, that a separate economic unit (state, enterprise) absorbs the same amount of CO2, how much it releases into the atmosphere. In this way, its effect on the concentration of CO2 in the atmosphere will be zero.
Synonyms: zero emission, zero emissions, net zero emission, carbon neutral.
Net Zero by 2050 (net zero k 2050 G.)
Study, published by the IEA in May 2021 G. The agency has formed a roadmap, how the world can achieve carbon neutrality by 2050 G. The ambitious project caused a resonance in the professional community. Among other things, The IEA called for limiting investment in new projects for the development of hydrocarbon fields. World governments reacted with restraint to this proposal.
Decarbonization
Reducing CO2 emissions into the atmosphere. May include a whole range of measures, including the rejection of burning fossil fuels in favor of alternative energy, improving energy efficiency, and carbon capture and storage.
Alternative and renewable energy
Energy is called alternative, which does not depend on the combustion of hydrocarbons. In its composition, renewable energy sources can be distinguished (VIE), which include solar, wind and water power generation. IEA predicts, that in the coming 20 years, renewable energy sources will grow at an outstripping pace and their share will significantly increase.
Clean (Green) energy
It gets, for example, from renewable energy. There is no CO2 emission during the production of this energy..
Energy efficiency
Reducing energy consumption and losses in production in order to reduce the amount of fuel burned and reduce CO2 emissions.
Carbon capture and storage
Release of carbon from smoke, resulting from fuel combustion, with its subsequent long-term storage in a place isolated from the atmosphere. Such repositories are usually located underground in deep geological formations..
Synonyms: carbon capture and storage technology (CCS), injection of CO2 in a layer
Net negative emissions
Situation, when an economic unit (state or enterprise) captures and stores more carbon, what it throws into the atmosphere.
CO2 emission allowances
The governments of developed countries limit carbon dioxide emissions into the atmosphere with special quotas. If the plant's emissions are above the quota, then it is necessary to pay compensation or outbid quotas from other companies. If the plant's emissions are below the quota, then you can sell the excess quota in the market.
Carbon units
CO2 emission allowances, which can be traded on a special platform. The most advanced project here turned out to be the European Union project., which united its sites into a single system called the European Union Emissions Trading System. The so-called EU Allowances became the main tool in it. (literally "EU authorized volumes"), which outside Europe are commonly referred to as "carbon credits".
Futures on the European EUA is today a benchmark for determining the price of any atmospheric emissions anywhere in the world - similar to, how Brent is the benchmark for other oil markets. This is the most liquid and demanded instrument on the market among similar.
Synonyms: carbon credits
Cross-border carbon regulation (TOUR)
EU project to extend quota rules to importers. May take effect on 2023 G. The purpose of the bill is, so that European manufacturers do not take dirty production abroad, saving on buying carbon credits. TOUR will also have an impact on Russian companies, who supply products to the EU.
ESG rating
Assessment of social and environmental risks of the company, as well as corporate governance risks. ESG ratings are assigned by rating agencies, approved the special methodology.
Green bonds
These are bonds, which are issued to finance environmental projects. Basic principles, which are recommended to be observed by the issuer of such bonds, formed by the international organization International Capital Markets Association (ICMA) and are called Green Bond Principies (GBP). Compliance of a particular release with these principles is verified by a verifier company., which is often used by credit rating agencies.
In Russia, the first issue of green bonds appeared in the IV quarter 2019 G. IN 2020 G. the regulatory framework was formed, and the market was replenished with new issuers, of which the largest is Russian Railways.
Synonyms: green bonds
Protection of water and land resources
Directions of sustainable development, assuming minimization of damage in the form of soil and water pollution as a result of the enterprise's activities. Including may involve actions to compensate for the damage caused in the form of treatment facilities and soil reclamation.
"Blue" and "green" hydrogen
It is proposed to use hydrogen fuel as an alternative to oil and gas. Depending on whether, how hydrogen will be produced, highlight "gray", "blue" and "green" hydrogen.
"Gray" and "blue" hydrogen is produced from natural gas by steam reforming - a chemical process, as a result of which hydrogen and carbon dioxide are obtained from methane and water. If CO2 is released into the atmosphere, then hydrogen is called "gray". If CO2 is captured, then hydrogen is called "blue".
"Green" hydrogen is produced by electrolysis of water. This is the cleanest, but also the most expensive production method.
Social bonds
Funds, attracted through the placement of such bonds, the issuer undertakes to send to social projects. It could be an improvement in education, social assistance, rehabilitation and employment of people with disabilities, homeless shelters, improvement of working conditions and other initiatives.
In Russia, the first social bonds appeared in 2020 G. One of the last issues was the issue of MTS, funds from which should cover the costs of connecting socially significant objects, including schools and hospitals, to the internet.
Synonyms: social impact bond (SIB)
Diversity и Inclusion
Diversity management principle (diversity) presupposes, that companies should hire a wide variety of people, regardless of age, Gender, race and religious outlook.
The principle of iclusion (turning on) says that, that all employees should be included in the decision-making process and have equal access to resources, to get the opportunity to express yourself fully and contribute to the common cause.
Usually these two terms are used together, but sometimes, for brevity, they write only about diversity. According to McKinsey research, in 2019 G. the likelihood of outstanding performance in teams with a high level of gender diversity was higher by 25%, and in teams with ethnic diversity - by 36%.
Governance Principle within ESG
The G in ESG stands for Corporate Governance. She means, that the company adheres to fair and transparent corporate practices, avoiding corruption, gray tax schemes, discrimination on gender and other grounds in the selection of personnel. Also, this could include the observance of the rights of all shareholders in the process of distribution of profits.
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