Sustainable Lending Glossary

Biodiversity The variety of life on Earth, in all its forms, from genes and bacteria to entire ecosystems such as forests or coral reefs.1

Blue finance Investments dedicated to financing or refinancing activities that contribute to ocean protection and/or improved water management. This may be achieved through loans aligned with the Green Loan Principles, and for which proceeds are exclusively dedicated to such activities.2

Carbon lock-in This occurs when ‘fossil fuel infrastructure or assets (existing or new) continue to be used, despite the possibility of substituting them with low-emission alternatives, delaying or preventing the transition to near-zero or zero-emission.’3

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.4

Certification For information on certification, please see the ‘External Review Guidance for Green, Social, and Sustainability-Linked Loans’.5

Circular economy A circular economy is a system which maintains the value of products, materials and resources in the economy for as long as possible, and which minimises the generation of waste. In a circular economy, products are reused, repaired, remanufactured or recycled.6

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).7

Climate change mitigation Climate change mitigation refers to actions that reduce greenhouse gas emissions or lower the concentration of GHGs in the atmosphere.8

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.9

Corporate Sustainability Reporting Directive (CSRD) This EU law requires all large companies and all listed companies (except listed micro-enterprises) to disclose information on the risks and opportunities arising from social and environmental issues, and the impact of their activities on people and the environment.10

Double materiality This is a concept that has been incorporated into the EU’s Corporate Sustainability Reporting Directive (CSRD) legislation.11 Under the CSRD, companies are required to report not only on the company’s own impacts on people and the environment (impact materiality), but also how sustainability issues might create financial risks for the company (financial materiality).12

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.13

ESG integration The process of assessing, reviewing and considering ESG factors in investment analysis practices to better manage risks and improve returns. It is often used in combination with screening and thematic investing, and functions alongside, or in combination with, stewardship.14

ESG Ratings Regulation The EU 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.15

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.16

External review For information on external reviews of green, social and sustainability-linked loans, associated frameworks and reporting measures, please see the ‘External Review Guidance for Green, Social, and Sustainability-Linked Loans’.17

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.18

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.19

FCA Sustainability Disclosure Requirements (SDR) The aim of the UK’s SDR regime is to build transparency and trust in the market for sustainable investment products by combating greenwashing and enabling consumers to make more informed choices.20

Gender lens investing The integration of gender into 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, as well as in products or services that substantially improve the lives of women and girls.21

Global Reporting Initiative (GRI) GRI is an international independent standards organization, and provides the world's most widely used sustainability reporting standards.22

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.23

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.24

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.25

Green Projects This term is used within the GLP. Whilst no universal definition of a “Green Project Exists”, they are understood to be projects which provide clear environmental benefits, for example by contributing to climate change mitigation. A non-exhaustive list of categories eligible for Green Project status is included in Section 1 (Use of Proceeds) in the GLP.26

Greenhushing This refers to the practice where companies underreport or deliberately withhold information about their sustainability efforts and achievements to avoid public criticism, scrutiny, or legal liability.27

Greenwashing Greenwashing refers to the practice of making false or misleading statements about the environmental or sustainability performance or impact of a business, product or service.28

ICMA International Capital Market Association.29

IFRS Sustainability Disclosure Standards In June 2023, the International Sustainability Standards Board (ISSB) 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. These standards are increasingly being translated into national laws across the world.30

Impact Investing Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. This usually encompasses intentionality, additionality, and measurability.31

Integrated Disclosure Project (IDP) This project set out to advance sustainability information in the credit markets by offering a streamlined, proportionate approach to reporting on key sustainability indicators for borrowers in private credit and syndicated loan transactions.32