Show All↓

Brown

The label ‘Brown’ is commonly attached to terms or concepts to denote that they are environmentally unsustainable, have a high carbon intensity, or contribute to climate change.

Capital Requirements

Capital requirements are regulations in place for banks and other depository institutions that determine how much liquid capital (that is, easily sold securities and cash) must be held in proportion to the amount they lend to borrowers. Capital requirements are set in order to ensure that banks can sufficiently cushion their losses in the event that a borrower defaults on its loan. Higher capital requirements make it harder for banks to extend loans to borrowers. Capital requirements have been proposed as a regulatory tool to promote sustainable finance. This can be done by increasing capital requirements for brown assets or by reducing capital requirements for green assets.

Carbon Accounting

Carbon accounting is a means of quantifying the direct and indirect emissions of carbon dioxide and its equivalent greenhouse gases produced from industrial processes. It is typically expressed using the metric carbon dioxide equivalents (CO2e).

Carbon Budget

Global warming is caused by the absolute concentration of greenhouse gases in the atmosphere, which is made up of the cumulative emission of greenhouse gases over time. Therefore there is a limit to the cumulative amount of greenhouse gas emissions that can be emitted before global warming targets are breached. A carbon budget is an estimate of that remaining amount of greenhouse gases that can be emitted. Various carbon budgets have been calculated and published by different institutions in the energy and climate change sector, chief amongst which is the IPCC Special Report on Global Warming of 1.5ºC (2018).

Carbon Tax

A carbon tax imposes a tax on each unit of greenhouse gas emissions, increasing the costs involved in the production of goods or services. This gives firms and individuals an incentive to switch to less carbon-intensive production and consumption whenever doing so would cost less than paying the tax. As such, the quantity of pollution reduced depends on the chosen level of the tax. An optimal tax rate is generally set by assessing the total social costs - including external costs, not borne by the producer or consumer - associated with each unit of pollution and the costs associated with controlling that pollution.

Carbon Trading

A carbon trading (also known as a cap-and-trade) system sets a maximum level of pollution (‘cap’) in a country or region and distributes emissions permits among firms that produce emissions. Companies must obtain a permit to cover each unit of pollution they produce. These permits are obtained either through an initial allocation or auction, or through trading with other firms. Since firms face varying costs in reducing pollution, trading takes place. Whilst the total allowable emissions is set in advance, the trading price of permits fluctuates depending on the relative demand and supply. A price on pollution is therefore created as a result of setting a ceiling on the overall quantity of emissions.

Climate Governance

Climate governance in the context of companies refers to the strategy, structure of rules and processes a company uses or incorporates into their business models in response to the financial risks and opportunities presented by climate change. Climate governance is also used to refer to diplomatic or legal instruments employed in multilateral and inter-governmental efforts to tackle climate change.

Climate Resilience (of a financial system)

Climate resilience is the ability of a financial system to prepare, plan for, recover from, and successfully adapt to adverse effects of climate-related risks

Climate Risk

Climate-related risks are risks posed by climate change. They are broadly classified into physical risk, transition risk and liability risk. Physical risk comprises impacts resulting directly from climate and weather-related events, such as damage to property or reduced productivity, or those that may arise indirectly through subsequent events, such as the disruption of global supply chains. Transition risk is financial risk resulting from the process of adjustment towards a low-carbon economy. This can be prompted by changes in climate policy or technological changes. Liability risk is associated with emerging legal cases related to climate change.

Cost-benefit Analysis

The systematic cataloguing of impacts as pros (benefits) and cons (costs), valuing in monetary terms, then determining the net benefits of the proposal relative to the status quo. (net benefits minus net costs). Cost-benefit analyses are often performed before embarking on any major investment or project.

Decarbonisation (in the financial sector - low carbon, no carbon)

Decarbonisation refers to the process of removing, reducing or transitioning away from the carbon-intensive sectors of a country’s economy, thereby decreasing the amount of greenhouse gases emitted. This typically involves shifting away from economic activity heavily reliant on fossil fuels, and shifting towards cleaner sources such as renewable energy. When applied to the financial sector, decarbonisation refers to the systematic reallocation of capital from high-carbon to low-carbon investments in order to achieve a low-carbon or decarbonised economy, which is an economy based on sources that result in minimal to zero greenhouse gas emissions.

Degrowth

Degrowth refers to the redirection of economies away from the pursuit of growth. For economies beyond the limits of their ecosystems, this includes a planned and controlled contraction to get back in line with planetary boundaries, with the eventual creation of a steady-state economic system which can keep with Earth’s limits. Degrowth does not necessarily entail economic decline, but entails an abandonment of faith in ‘growth’ as a driver of development.

ESG

The term ESG generally refers to environmental, social and corporate governance performance evaluation criteria. Such criteria form the basis for the measurement of sustainability, risk and impact of businesses, projects and investments. Prominent ESG frameworks include those by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).

Externalities

Externalities are cost or benefit caused by a producer that is not financially incurred or received by that producer. Instead, they are borne by third parties, including those not directly related to the transaction and who did not agree to incur that cost or benefit. The inability to account for these externalities is seen as a form of market failure. Climate change is often seen as a form of market failure, as harm to the environment caused from highly polluting economic activities are not borne directly by producers, leading to an excess of environmentally harmful economic behaviour.

Financial Institutions/Sectors

The Monetary Authority of Singapore (MAS) categorises financial institutions into four sectors for regulatory purposes: banking, capital markets, insurance and payments. Banking consists of deposit-taking institutions, including full banks, wholesale banks, merchant banks and finance companies. Capital market entities include fund managers, REIT managers, corporate finance advisers, trustees, dealers, credit rating agencies and financial advisers. Insurance includes insurance companies and insurance brokers. Payments comprises payment service providers and payment systems.

Green

The label ‘Green’ is commonly attached to terms or concepts to denote that they are environmentally sustainable or deliver on environmental objectives.

Green Bonds

Green bonds are a type of financial debt instrument whereby proceeds of the bonds issued will be exclusively applied to finance or refinance projects with environmentally sustainable benefits.

Green Financial Instruments

Green financial instruments are financial products that have been recognised as an effective means of directing investment capital towards climate change mitigation as well as climate change resilience and adaptation projects. Types of green financial instruments include green bonds and green loans.

Green New Deal

The Green New Deal refers to a comprehensive set of policies that combines decarbonisation with widespread economic transformation with decarbonisation and social justice. The term, which invokes the “New Deal” social and economic reforms undertaken in America in the 1930s, was first used by journalist Thomas Friedman in January 2007 in a New York Times column. The Green New Deal calls for a transitioning away from fossil fuels and undertaking a massive industrial project to scale up green energy. The term has gained political momentum in recent years in America, In particular after it was introduced by Representative Alexandria Ocasio-Cortez of New York and Senator Edward J. Markey of Massachusetts, both Democrats, and was part of the campaign of Democratic Presidential Candidate Bernie Sanders. While the term originates in the US, it has also been pitched in other parts of the world, such as South Korea and Europe. Green New Deal-type environmental policies typically differ from the more finance-oriented policies by focusing on state-directed infrastructural and industrial transformation to facilitate decarbonisation and meet the targets of the Paris Agreement.

Green Taxonomy

A taxonomy is a system for naming and organising things into groups that share similar qualities. In climate finance, a green taxonomy is a common language and a clear definition for what economic activities and assets can be considered sustainable. Green taxonomies can be developed by policymakers as a regulatory tool, or can be developed by private actors as a private governance practice for their financial activities.

Greenwashing

Greenwashing is the act of making false or misleading claims about the environmental benefits of a product or service, or the environmental performance of a company. This might be done to improve a brand’s image or public relations, or deflect attention away from negative public scrutiny. This may occur in the form of environmental claims that are false or inconsequential, obtaining undeserved certifications, or emphasising environmental benefits or performance that are inherently destructive for the environment.

Impact Investing

Impact investments are investments which aim to generate a positive, measurable social or environmental impact alongside a financial return. This can involve a range of financial instruments.

Impact Statement / Report, Impact Reporting

An impact statement or report discloses the economic, environmental and/or social impact of an organisation or a project. Such reports provide a picture of material topics, their related impacts, and how they are managed by the organisation or for the project. Impact reporting is generally used as a public communication strategy and can include monetary quantification of a company’s impact to its external environment.

Just transition

A just transition describes a transition to a low carbon economy that minimises negative impact to vulnerable or marginalised groups while tackling climate change. Recognised in the Paris Agreement, the concept is recognised in the Paris Agreement and received commitment from institutional investors after the COP24 to create decent, inclusive, and quality jobs for people affected by the transition and avoids stranded workers and communities.

Market failure

Market failure is an economic situation resulting from the inefficient distribution of goods and services in a free market. In a market failure, individuals acting in rational self-interest produce a less than optimal or economically inefficient outcome for the group. In a shared-resource system, this leads to the tragedy of the commons, where individual users, acting independently in rational self-interest, cause a result that is contrary to the common good of all users by depleting or spoiling the shared resource. For example, although the continued use of fossil fuels is beneficial to individual corporations or governments, it contributes to climate change, which has adverse effects on the planet as a whole.

Materiality

Materiality refers to the material information that is deemed relevant to a firm’s actions and decision making. In the sustainability context, there are two main types of materiality: financial materiality which identifies the sustainability-related risks and opportunities most likely to affect the financial performance of a company, and environmental materiality which identifies the economic, environmental and social impacts of a company’s operations.

Natural Capital / Non-financial Capital

Natural capital is the economic value that can be derived out of the world’s reserve of natural resources, which include forests, water, fish stocks, minerals, biodiversity and land. While humans derive a variety of benefits from the world’s natural capital, such as the food we consume, climate regulation, and mental health benefits, they are often not accounted for in conventional economic or financial markets Natural capital thus aims to account for and attach an economic value to the benefits provided by nature.

Net-Zero Carbon Emissions, or Carbon Neutrality

Net-zero carbon emissions are achieved when human-induced greenhouse gas emissions over a given period (in general, within one year) is zero. While this is achieved mainly by reducing the amount of human-induced greenhouse gas emissions, most projections indicate that this can only be achieved by the removal of greenhouse gases from the atmosphere. This typically involves carbon removal strategies such as restoring forests or through the development of nascent negative emission technologies, such as direct air capture (DAC), bio-energy with carbon capture and storage (BECCS), or carbon capture, utilisation and storage to balance out any excess greenhouse gas emissions.

Paris Agreement Alignment/Emission Targets/NDC

Alignment to the Paris Agreement is a commitment to achieving its goals on climate mitigation and adaptation. Parties to the agreement and institutions do so by scaling-down activities that do not contribute to these goals and seek to contribute to the changes needed to achieve low-carbon, climate-resilient development. The Paris Agreement requires each Party to set emission reduction targets, and to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve through planned domestic mitigation measures.

Risk Management

Risk management in the banking industry refers to management of an institution’s exposure to losses or risk and to protect the value of its assets. In investment, risk management is the process of identifying potential risks in the investment portfolio, and taking steps to mitigate accordingly to the fund’s investment objectives and risk tolerance. Climate risk management is the process of incorporating knowledge and information about climate-related events, trends, forecasts and projections into decision making to increase or maintain benefits and reduce potential harm or losses. It is a multidisciplinary activity that calls for an integrated consideration of socioeconomic and environmental issues.

Science-based targets

Science-based targets advocate for national or institutional climate targets and pledges to be made in line with what the latest and best available climate science deems necessary to limiting global warming, generally regarded as 2°C or 1.5°C above pre-industrial levels. The term was popularised by the Science-Based Targets Initiative, which calls on companies to align their business activities with the targets of the Paris Agreement.

Scope 1,2,3 Emissions

Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. These three scopes were established by the GHG Protocol to measure and manage emissions in a globally standardised manner across private and public sectors, and are part of the most widely used greenhouse gas accounting standards.

Shareholder Activism

Shareholder activism is a way that shareholders, through exercising their rights as partial owners, are able to influence a publicly-traded company’s behavior. These methods include dialogues with managers, shareholder resolutions - which are voted on by all shareholders at a company's annual general meeting - and offensive tactics such as litigation. Climate activists have increasingly filed shareholder resolutions on climate change at companies, including banks and oil companies, calling for increased transparency on climate risks and transition plans in 2020.

Singapore Green Plan

Singapore’s green plan charts our national commitments under the UN’s 2030 Sustainable Development Agenda and Paris Agreement, and was enacted in 2021. It aims to support climate change mitigation, climate change adaptation, and promoting a circular economy through five pillars: City in Nature, Sustainable Living, Energy Reset, Green Economy and Resilient Future.

Stranded Assets

Stranded assets are assets which suffer from unanticipated and premature devaluations or write downs before the end of their expected economic life. This is usually due to external changes, such as the transition to the low-carbon economy or extreme climate events. Stranded assets typically bring the risk of major social and economic disruption.

Stress-testing

Stress testing (or scenario testing) considers potential and plausible macroeconomic and geopolitical events in varying degrees of likelihood and severity. Stress tests gauge how a particular actor would behave under the various scenarios. Stress testing generally assesses solvency (i.e. whether financial institutions have enough capital to absorb losses) and liquidity (whether financial institutions can meet their financial obligations by using their liquid assets). Stress tests also help identify the vulnerability of various business units and enable the adoption of appropriate mitigating actions.

Sustainability Index

A sustainability index tracks the stock performance of a section of the stock market. Stocks of companies are selected for inclusion in the index through a rating system that scores companies based on criteria assessing each company’s practices in relation to ESG / sustainability issues - top rated stocks are then included in an index. Sustainability indices are often used by institutional and retail investors as a source of information on companies’ ESG management on top of traditional financial performance. Investors who integrate ESG/sustainability considerations into their portfolios also use these indices as benchmarks and as a tool to describe the market and to compare the return on specific investments. The value of a sustainability index is computed using the prices of the stocks it includes.

Sustainability Linked Loans

Sustainability linked loans are a form of debt which incentivises the borrower’s commitment to and achievement of predetermined sustainability performance objectives by tying these performance targets to loan terms such as lowered interest rates. As opposed to green bonds that specifically finance sustainable projects, funds from sustainability-linked loans can be used for any general corporate purpose.

Tragedy of the commons

The tragedy of the horizon refers to a situation where the rational actions made by each individual over a finite resource leads to the over extraction or overuse of that resource, leading to suboptimal outcomes for the community.

Tragedy of the horizon

The tragedy of the horizon refers to the phenomenon that, in spite of the mounting evidence of climate change, existing actors are unable to take action as they tend to prioritize short-term costs and benefits over long-term risks. The phrase was coined in 2015 by Mark Carney, then-Governor of the Bank of England, who argued that financial systems incentivise actors to make decisions based on timeframes no longer than 2-3 years. By only focusing on short-term risks, they risk ignoring the threat climate change poses to financial stability until it is too late to solve.

Transition Finance

Transition finance relates to the broad variety of financing programes deployed in the time period of transition to a low carbon economy in line with goals of the Paris Agreement. Transition finance is particularly relevant and required by industries with high greenhouse gas emissions which face the most complex climate-related transition challenges. Notably, transition financing is typically used for activities that are not necessarily low carbon but would still abate emissions compared to existing carbon intensive technologies.

Transition Pathways

Transition pathways refer to the strategies and processes that companies have in place to align their business or portfolios with the goals of the Paris Agreement in preparation for the transition to a low carbon economy.

Brown↓

The label ‘Brown’ is commonly attached to terms or concepts to denote that they are environmentally unsustainable, have a high carbon intensity, or contribute to climate change.

Capital Requirements↓

Capital requirements are regulations in place for banks and other depository institutions that determine how much liquid capital (that is, easily sold securities and cash) must be held in proportion to the amount they lend to borrowers. Capital requirements are set in order to ensure that banks can sufficiently cushion their losses in the event that a borrower defaults on its loan. Higher capital requirements make it harder for banks to extend loans to borrowers. Capital requirements have been proposed as a regulatory tool to promote sustainable finance. This can be done by increasing capital requirements for brown assets or by reducing capital requirements for green assets.

Carbon Accounting↓

Carbon accounting is a means of quantifying the direct and indirect emissions of carbon dioxide and its equivalent greenhouse gases produced from industrial processes. It is typically expressed using the metric carbon dioxide equivalents (CO2e).

Carbon Budget ↓

Global warming is caused by the absolute concentration of greenhouse gases in the atmosphere, which is made up of the cumulative emission of greenhouse gases over time. Therefore there is a limit to the cumulative amount of greenhouse gas emissions that can be emitted before global warming targets are breached. A carbon budget is an estimate of that remaining amount of greenhouse gases that can be emitted. Various carbon budgets have been calculated and published by different institutions in the energy and climate change sector, chief amongst which is the IPCC Special Report on Global Warming of 1.5ºC (2018).

Carbon Tax ↓

A carbon tax imposes a tax on each unit of greenhouse gas emissions, increasing the costs involved in the production of goods or services. This gives firms and individuals an incentive to switch to less carbon-intensive production and consumption whenever doing so would cost less than paying the tax. As such, the quantity of pollution reduced depends on the chosen level of the tax. An optimal tax rate is generally set by assessing the total social costs - including external costs, not borne by the producer or consumer - associated with each unit of pollution and the costs associated with controlling that pollution.

Carbon Trading ↓

A carbon trading (also known as a cap-and-trade) system sets a maximum level of pollution (‘cap’) in a country or region and distributes emissions permits among firms that produce emissions. Companies must obtain a permit to cover each unit of pollution they produce. These permits are obtained either through an initial allocation or auction, or through trading with other firms. Since firms face varying costs in reducing pollution, trading takes place. Whilst the total allowable emissions is set in advance, the trading price of permits fluctuates depending on the relative demand and supply. A price on pollution is therefore created as a result of setting a ceiling on the overall quantity of emissions.

Climate Governance ↓

Climate governance in the context of companies refers to the strategy, structure of rules and processes a company uses or incorporates into their business models in response to the financial risks and opportunities presented by climate change. Climate governance is also used to refer to diplomatic or legal instruments employed in multilateral and inter-governmental efforts to tackle climate change.

Climate Resilience (of a financial system) ↓

Climate resilience is the ability of a financial system to prepare, plan for, recover from, and successfully adapt to adverse effects of climate-related risks

Climate Risk ↓

Climate-related risks are risks posed by climate change. They are broadly classified into physical risk, transition risk and liability risk. Physical risk comprises impacts resulting directly from climate and weather-related events, such as damage to property or reduced productivity, or those that may arise indirectly through subsequent events, such as the disruption of global supply chains. Transition risk is financial risk resulting from the process of adjustment towards a low-carbon economy. This can be prompted by changes in climate policy or technological changes. Liability risk is associated with emerging legal cases related to climate change.

Cost-benefit Analysis ↓

The systematic cataloguing of impacts as pros (benefits) and cons (costs), valuing in monetary terms, then determining the net benefits of the proposal relative to the status quo. (net benefits minus net costs). Cost-benefit analyses are often performed before embarking on any major investment or project.

Degrowth↓

Degrowth refers to the redirection of economies away from the pursuit of growth. For economies beyond the limits of their ecosystems, this includes a planned and controlled contraction to get back in line with planetary boundaries, with the eventual creation of a steady-state economic system which can keep with Earth’s limits. Degrowth does not necessarily entail economic decline, but entails an abandonment of faith in ‘growth’ as a driver of development.

Decarbonisation (in the financial sector - low carbon, no carbon) ↓

Decarbonisation refers to the process of removing, reducing or transitioning away from the carbon-intensive sectors of a country’s economy, thereby decreasing the amount of greenhouse gases emitted. This typically involves shifting away from economic activity heavily reliant on fossil fuels, and shifting towards cleaner sources such as renewable energy. When applied to the financial sector, decarbonisation refers to the systematic reallocation of capital from high-carbon to low-carbon investments in order to achieve a low-carbon or decarbonised economy, which is an economy based on sources that result in minimal to zero greenhouse gas emissions.

ESG ↓

The term ESG generally refers to environmental, social and corporate governance performance evaluation criteria. Such criteria form the basis for the measurement of sustainability, risk and impact of businesses, projects and investments. Prominent ESG frameworks include those by the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).

Externalities ↓

Externalities are cost or benefit caused by a producer that is not financially incurred or received by that producer. Instead, they are borne by third parties, including those not directly related to the transaction and who did not agree to incur that cost or benefit. The inability to account for these externalities is seen as a form of market failure. Climate change is often seen as a form of market failure, as harm to the environment caused from highly polluting economic activities are not borne directly by producers, leading to an excess of environmentally harmful economic behaviour.

Financial Institutions/Sectors ↓

The Monetary Authority of Singapore (MAS) categorises financial institutions into four sectors for regulatory purposes: banking, capital markets, insurance and payments. Banking consists of deposit-taking institutions, including full banks, wholesale banks, merchant banks and finance companies. Capital market entities include fund managers, REIT managers, corporate finance advisers, trustees, dealers, credit rating agencies and financial advisers. Insurance includes insurance companies and insurance brokers. Payments comprises payment service providers and payment systems.

Green ↓

The label ‘Green’ is commonly attached to terms or concepts to denote that they are environmentally sustainable or deliver on environmental objectives.

Green Bonds ↓

Green bonds are a type of financial debt instrument whereby proceeds of the bonds issued will be exclusively applied to finance or refinance projects with environmentally sustainable benefits.

Green Financial Instruments ↓

Green financial instruments are financial products that have been recognised as an effective means of directing investment capital towards climate change mitigation as well as climate change resilience and adaptation projects. Types of green financial instruments include green bonds and green loans.

Green New Deal ↓

The Green New Deal refers to a comprehensive set of policies that combines decarbonisation with widespread economic transformation with decarbonisation and social justice. The term, which invokes the “New Deal” social and economic reforms undertaken in America in the 1930s, was first used by journalist Thomas Friedman in January 2007 in a New York Times column. The Green New Deal calls for a transitioning away from fossil fuels and undertaking a massive industrial project to scale up green energy. The term has gained political momentum in recent years in America, In particular after it was introduced by Representative Alexandria Ocasio-Cortez of New York and Senator Edward J. Markey of Massachusetts, both Democrats, and was part of the campaign of Democratic Presidential Candidate Bernie Sanders. While the term originates in the US, it has also been pitched in other parts of the world, such as South Korea and Europe. Green New Deal-type environmental policies typically differ from the more finance-oriented policies by focusing on state-directed infrastructural and industrial transformation to facilitate decarbonisation and meet the targets of the Paris Agreement.

Green Taxonomy ↓

A taxonomy is a system for naming and organising things into groups that share similar qualities. In climate finance, a green taxonomy is a common language and a clear definition for what economic activities and assets can be considered sustainable. Green taxonomies can be developed by policymakers as a regulatory tool, or can be developed by private actors as a private governance practice for their financial activities.

Greenwashing ↓

Greenwashing is the act of making false or misleading claims about the environmental benefits of a product or service, or the environmental performance of a company. This might be done to improve a brand’s image or public relations, or deflect attention away from negative public scrutiny. This may occur in the form of environmental claims that are false or inconsequential, obtaining undeserved certifications, or emphasising environmental benefits or performance that are inherently destructive for the environment.

Impact Investing ↓

Impact investments are investments which aim to generate a positive, measurable social or environmental impact alongside a financial return. This can involve a range of financial instruments.

Impact Statement / Report, Impact Reporting ↓

An impact statement or report discloses the economic, environmental and/or social impact of an organisation or a project. Such reports provide a picture of material topics, their related impacts, and how they are managed by the organisation or for the project. Impact reporting is generally used as a public communication strategy and can include monetary quantification of a company’s impact to its external environment.

Just transition ↓

A just transition describes a transition to a low carbon economy that minimises negative impact to vulnerable or marginalised groups while tackling climate change. Recognised in the Paris Agreement, the concept is recognised in the Paris Agreement and received commitment from institutional investors after the COP24 to create decent, inclusive, and quality jobs for people affected by the transition and avoids stranded workers and communities.

Market failure ↓

Market failure is an economic situation resulting from the inefficient distribution of goods and services in a free market. In a market failure, individuals acting in rational self-interest produce a less than optimal or economically inefficient outcome for the group. In a shared-resource system, this leads to the tragedy of the commons, where individual users, acting independently in rational self-interest, cause a result that is contrary to the common good of all users by depleting or spoiling the shared resource. For example, although the continued use of fossil fuels is beneficial to individual corporations or governments, it contributes to climate change, which has adverse effects on the planet as a whole.

Materiality ↓

Materiality refers to the material information that is deemed relevant to a firm’s actions and decision making. In the sustainability context, there are two main types of materiality: financial materiality which identifies the sustainability-related risks and opportunities most likely to affect the financial performance of a company, and environmental materiality which identifies the economic, environmental and social impacts of a company’s operations.

Natural Capital / Non-financial Capital ↓

Natural capital is the economic value that can be derived out of the world’s reserve of natural resources, which include forests, water, fish stocks, minerals, biodiversity and land. While humans derive a variety of benefits from the world’s natural capital, such as the food we consume, climate regulation, and mental health benefits, they are often not accounted for in conventional economic or financial markets Natural capital thus aims to account for and attach an economic value to the benefits provided by nature.

Net-Zero Carbon Emissions, or Carbon Neutrality ↓

Net-zero carbon emissions are achieved when human-induced greenhouse gas emissions over a given period (in general, within one year) is zero. While this is achieved mainly by reducing the amount of human-induced greenhouse gas emissions, most projections indicate that this can only be achieved by the removal of greenhouse gases from the atmosphere. This typically involves carbon removal strategies such as restoring forests or through the development of nascent negative emission technologies, such as direct air capture (DAC), bio-energy with carbon capture and storage (BECCS), or carbon capture, utilisation and storage to balance out any excess greenhouse gas emissions.

Paris Agreement Alignment/Emission Targets/NDC ↓

Alignment to the Paris Agreement is a commitment to achieving its goals on climate mitigation and adaptation. Parties to the agreement and institutions do so by scaling-down activities that do not contribute to these goals and seek to contribute to the changes needed to achieve low-carbon, climate-resilient development. The Paris Agreement requires each Party to set emission reduction targets, and to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve through planned domestic mitigation measures.

Risk Management ↓

Risk management in the banking industry refers to management of an institution’s exposure to losses or risk and to protect the value of its assets. In investment, risk management is the process of identifying potential risks in the investment portfolio, and taking steps to mitigate accordingly to the fund’s investment objectives and risk tolerance. Climate risk management is the process of incorporating knowledge and information about climate-related events, trends, forecasts and projections into decision making to increase or maintain benefits and reduce potential harm or losses. It is a multidisciplinary activity that calls for an integrated consideration of socioeconomic and environmental issues.

Science-based targets ↓

Science-based targets advocate for national or institutional climate targets and pledges to be made in line with what the latest and best available climate science deems necessary to limiting global warming, generally regarded as 2°C or 1.5°C above pre-industrial levels. The term was popularised by the Science-Based Targets Initiative, which calls on companies to align their business activities with the targets of the Paris Agreement.

Scope 1,2,3 Emissions ↓

Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. These three scopes were established by the GHG Protocol to measure and manage emissions in a globally standardised manner across private and public sectors, and are part of the most widely used greenhouse gas accounting standards.

Shareholder Activism ↓

Shareholder activism is a way that shareholders, through exercising their rights as partial owners, are able to influence a publicly-traded company’s behavior. These methods include dialogues with managers, shareholder resolutions - which are voted on by all shareholders at a company's annual general meeting - and offensive tactics such as litigation. Climate activists have increasingly filed shareholder resolutions on climate change at companies, including banks and oil companies, calling for increased transparency on climate risks and transition plans in 2020.

Singapore Green Plan ↓

Singapore’s green plan charts our national commitments under the UN’s 2030 Sustainable Development Agenda and Paris Agreement, and was enacted in 2021. It aims to support climate change mitigation, climate change adaptation, and promoting a circular economy through five pillars: City in Nature, Sustainable Living, Energy Reset, Green Economy and Resilient Future.

Stranded Assets ↓

Stranded assets are assets which suffer from unanticipated and premature devaluations or write downs before the end of their expected economic life. This is usually due to external changes, such as the transition to the low-carbon economy or extreme climate events. Stranded assets typically bring the risk of major social and economic disruption.

Stress-testing ↓

Stress testing (or scenario testing) considers potential and plausible macroeconomic and geopolitical events in varying degrees of likelihood and severity. Stress tests gauge how a particular actor would behave under the various scenarios. Stress testing generally assesses solvency (i.e. whether financial institutions have enough capital to absorb losses) and liquidity (whether financial institutions can meet their financial obligations by using their liquid assets). Stress tests also help identify the vulnerability of various business units and enable the adoption of appropriate mitigating actions.

Sustainability Index ↓

A sustainability index tracks the stock performance of a section of the stock market. Stocks of companies are selected for inclusion in the index through a rating system that scores companies based on criteria assessing each company’s practices in relation to ESG / sustainability issues - top rated stocks are then included in an index. Sustainability indices are often used by institutional and retail investors as a source of information on companies’ ESG management on top of traditional financial performance. Investors who integrate ESG/sustainability considerations into their portfolios also use these indices as benchmarks and as a tool to describe the market and to compare the return on specific investments. The value of a sustainability index is computed using the prices of the stocks it includes.

Sustainability Linked Loans ↓

Sustainability linked loans are a form of debt which incentivises the borrower’s commitment to and achievement of predetermined sustainability performance objectives by tying these performance targets to loan terms such as lowered interest rates. As opposed to green bonds that specifically finance sustainable projects, funds from sustainability-linked loans can be used for any general corporate purpose.

Tragedy of the commons ↓

The tragedy of the horizon refers to a situation where the rational actions made by each individual over a finite resource leads to the over extraction or overuse of that resource, leading to suboptimal outcomes for the community.

Tragedy of the horizon ↓

The tragedy of the horizon refers to the phenomenon that, in spite of the mounting evidence of climate change, existing actors are unable to take action as they tend to prioritize short-term costs and benefits over long-term risks. The phrase was coined in 2015 by Mark Carney, then-Governor of the Bank of England, who argued that financial systems incentivise actors to make decisions based on timeframes no longer than 2-3 years. By only focusing on short-term risks, they risk ignoring the threat climate change poses to financial stability until it is too late to solve.

Transition Finance ↓

Transition finance relates to the broad variety of financing programes deployed in the time period of transition to a low carbon economy in line with goals of the Paris Agreement. Transition finance is particularly relevant and required by industries with high greenhouse gas emissions which face the most complex climate-related transition challenges. Notably, transition financing is typically used for activities that are not necessarily low carbon but would still abate emissions compared to existing carbon intensive technologies.

Transition Pathways ↓

Transition pathways refer to the strategies and processes that companies have in place to align their business or portfolios with the goals of the Paris Agreement in preparation for the transition to a low carbon economy.