Sustainable Lending Glossary

Adaptation Adjustments in ecological, social or economic systems in response to actual or expected climatic stimuli and their effects. It refers to changes in processes, practices and structures to moderate potential damages or to benefit from opportunities associated with climate change.1 Biodiversity The variety of life on Earth, in all its forms, from genes and bacteria to entire ecosystems such as forests or coral reefs.2 Blue economy The blue economy refers to the sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystems and water resources.3 Blue finance This term refers to investments dedicated to finance or refinance activities that contribute to oceans protection and/or improved water management.4 Blue loan A blue loan refers to a loan that is aligned to the Green Loan Principles and where the proceeds are exclusively dedicated to finance or refinance activities that contribute to oceans protection and/or improved water management.5 Blue impact This term refers to the measurable variation in a physical, chemical, or biological variable of oceans ecosystems or water related systems as expressed by a quantitative indicator.6 Carbon markets These are trading systems in which carbon credits are sold and bought. Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions.7 Certification For information on certification, please see the ‘External Review Guidance for Green, Social, and Sustainability-Linked Loans’.8 Circular economy In a circular economy, things are made and consumed in a way that minimizes our use of the world’s resources, cuts waste and reduces carbon emissions. Products are kept in use for as long as possible, through repairing, recycling and redesign – so they can be used again and again.9 Climate change adaptation Climate change adaptation involves adjusting to the actual or expected future climate. The goal is to reduce society’s vulnerability to the harmful effects of climate change (like sea-level encroachment, more intense extreme weather events or food insecurity). Adaptation also encompasses making the most of any potential beneficial opportunities associated with climate change (for example, longer growing seasons or increased yields in some regions).10 Climate change mitigation The goal of climate change mitigation is to avoid significant human interference with the climate system, and to stabilise greenhouse gas levels in a timeframe sufficient to allow ecosystems to adapt naturally to climate change, ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.11 Climate finance Climate finance refers to local, national or transnational financing – drawn from public, private and alternative sources of financing – that seeks to support mitigation and adaptation actions that will address climate change.12 Corporate Sustainability Due Diligence Directive (CSDDD/CS3D) The aim of this Directive is to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance.13 Corporate Sustainability Reporting Directive (CSRD) The EU law requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on what they see as the risks and opportunities arising from social and environmental issues, and on the impact of their activities on people and the environment.14 Double materiality This is a legislative concept that has been incorporated into the Corporate Sustainability Reporting Directive (CSRD).15 Under the CSRD, companies are required to report not only on how sustainability issues might create financial risks for the company (financial materiality), but also on the company’s own impacts on people and the environment (impact materiality).16 Equator Principles (EPs) The EPs are intended to serve as a common baseline and risk management framework for financial institutions to identify, assess and manage environmental and social risks when financing projects. The EPs are intended to provide a minimum standard for due diligence and monitoring to support responsible risk decision-making. The EPs apply globally, to all industry sectors and to five financial products, namely (i) project finance advisory services, (ii) project finance, (iii) project-related corporate loans, (iv) bridge loans and (v) project-related refinance, and project-related acquisition finance.17 ESG incorporation This term refers to the process of assessing, reviewing and considering ESG factors in existing investment practices through a combination of three approaches integration, screening and thematic investing. ESG incorporation generally functions alongside, or in combination with, stewardship.18 ESG Integrated Disclosure Project This project set out to advance ESG information in the credit markets by offering a streamlined, proportionate approach to ESG reporting for private companies.19 ESG integration The process of including ESG factors in investment analysis and decisions to better manage risks and improve returns. It is often used in combination with screening and thematic investing.20 ESG Ratings Regulation The rules aim to strengthen the reliability and comparability of ESG ratings by improving the transparency and integrity of the operations of ESG ratings providers and preventing potential conflicts of interests.21 European Banking Authority (EBA) The EBA is an independent EU Authority. The EBA plays a key role in safeguarding the integrity and robustness of the EU banking sector to support financial stability in the EU.22 EU Taxonomy A classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate.23 External review For information on external review, please see the ‘External Review Guidance for Green, Social, and Sustainability-Linked Loans’.24 FCA Anti Greenwashing Rule The anti-greenwashing rule applies to all FCA-authorised firms who make sustainability-related claims about products and services. The rule states that firms need to ensure their sustainability references are fair, clear and not misleading and proportionate to the sustainability profile of the product and service.25 FCA Sustainability Disclosure Requirements (SDR) On 28 November 2023 the FCA published its final policy statement setting out its rules for the Sustainability Disclosure Requirements (SDR) regime, including a set of consumer-friendly investment labels. These rules are intended to ensure that investment products fulfil their description in order to increase trust and the ease of decision making for consumers.26 Financial Conduct Authority (FCA) The FCA regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers.27 Gender lens investing This refers to the deliberate integration of gender analysis, investment analysis and decision making, where investments are made in more women- owned or led enterprises and/or investments are made in enterprises that promote gender equality at the workplace, as well as in products or services that substantially improve the lives of women and girls, building strong, resilient economies of the future.28 Global Reporting Initiative (GRI) ‘GRI is the independent, international organization that helps businesses and other organizations to take responsibility for their impacts by providing them with the global common language to communicate those impacts.’29 Green Asset Ratio (GAR) The Green Asset Ratio is based on the EU taxonomy and is a Paris aligned ratio that can be used to identify whether banks are financing sustainable activities, such as those consistent with the Paris agreement goals. The GAR shows the proportion of assets that are environmentally sustainable and contribute substantially to the objectives of climate change mitigation or climate change adaptation or that enable other activities to contribute substantially to those objectives.30 Green loan The GLP (defined below) define green loans as any type of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) made available exclusively to finance, re-finance or guarantee, in whole or in part, new and/or existing eligible Green Projects and which are aligned to the four core components of the GLP.31 Green Loan Principles (GLP) A high-level framework of market standards and guidelines, published by the LMA together with the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA) (and with the support of ICMA), providing a consistent methodology for use across the green loan market.32 Green mortgages Under a green mortgage, a bank or mortgage lender offers a house buyer preferential terms if they can demonstrate that the property for which they are borrowing meets certain environmental standards. This could perhaps be a new build home with an existing sustainability rating, or where the borrower will commit to invest in renovating an existing building to improve its environmental performance.33 Green Projects This term is used within the GLP. There is no universal definition of a “Green Project”. However, a non-exhaustive, indicative list of the categories of eligibility for Green Projects under the GLP can be found in Section 1 (Use of Proceeds) of the GLP.34 Green tagging Green tagging refers to a systematic process where banks identify the environmental attributes of their loans and underlying asset collateral as a tool for scaling up sustainable finance. The green tagging of bank assets allows for easier access to green bond markets, better tracking of green loan performance and provides greater transparency of climate risks and portfolio resilience.35 Green hushing This refers to the act of not making genuine sustainability claims in case they may be associated with providers pursuing misconduct.36 Greenwashing Greenwashing has no single definition but may be used to refer to the practice of gaining an unfair competitive advantage by marketing a financial product as environmentally friendly, when in fact basic environmental standards have not been met.37 Global Reporting Initiative Biodiversity Standards The ‘GRI 101: Biodiversity 2024’ standards set out reporting requirements on the topic of biodiversity. This Standard can be used by an organization of any size, type, sector or geographic location that wants to report on its impacts related to this topic.38 ICMA International Capital Market Association.39 IFRS Sustainability Disclosure Standards In June 2023, the International Sustainability Standards Board issued its first two IFRS® Sustainability Disclosure Standards IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures.40 Impact Investing Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.41 Impact washing This refers to the act of overstating or falsely claiming an investment’s positive impact on the environment or society.42