Active ownership

An asset manager engaging with investee entities and leveraging their influence, sometimes unilaterally, at other times in partnership with other investors and entities, to advocate for positive change. Comprising engagement and (with corporates) voting, active ownership can generate outcomes that benefit clients and in many cases society, the environment and the broader economy.

Adverse impacts

Adverse impacts are the negative environmental and social effects of investment decisions. There is a wide range of factors to consider, from climate-related impacts such as pollution and carbon emissions to potential societal damage from poor human rights practices in investee companies. Various techniques can be used to identify adverse impacts caused by the investment process. These can include quantitative metrics and qualitative assessments.

SFDR mandates disclosure of principal adverse impacts statements from 30th June 2021. This will require asset managers to disclose how the principal adverse impacts of investee companies on sustainability factors are taken into account in the investment process. There will be a range of mandatory indicators ranging from carbon emissions, fossil fuel exposure and waste levels to gender diversity, due diligence on human rights and exposure to controversial weapons. These will be supplemented by additional voluntary indicators. Asset managers will need to disclose principal adverse impacts data at a fund level in 2022 and at an aggregated entity level in 2023.

Article 6, 8 & 9 funds

The EU Sustainable Finance Disclosure Regulation (SFDR) aims to increase transparency in sustainable investment, partly to address the serious issue of greenwashing. The SFDR provides a framework for the disclosure of investment funds' sustainability characteristics and distinguishes between three types of funds, as laid out by Articles 6, 8 and 9 of the SFDR.

Article 6 funds do not integrate any kind of binding sustainability controls into their investment process.

Article 8 funds have binding environmental or social characteristics (i.e. these must be considered as part of the investment process), or a combination of the two. Companies in which investments are made must also follow good governance practices.

Article 9 funds have binding environmental or social characteristics and target a specific sustainability goal.


Best in class

Using positive screening to identify companies or sovereign issuers with relatively strong ESG characteristics against a given peer group. Can be used in passive investment to tilt a portfolio towards better performers from an ESG viewpoint while not deviating from the sector and geographic exposure of a given benchmark. The securities ultimately selected are not necessarily issued by strong performers from a sustainability point of view but compare well against their peers.


The variety of life on earth. Often used interchangeably with `nature'. Biodiversity is crucial to the efficient functioning of ecosystems. `Natural capital' is a wider term that also encompasses water, soil and air.


Carbon capture and storage (CCS)

An as-yet largely unproven technology that prevents the release of carbon dioxide into the atmosphere by removing it before combustion or capturing it afterwards and storing it. Many climate models assume a materially positive impact from CCS, though it is unlikely to make a material contribution for some time.

Carbon footprint

The mass of greenhouse gas (normally consisting principally of CO2) created by an organisation or other entity. Other greenhouse gases such as nitrous oxide and methane are included, measured as the mass of CO2 equivalent. In a portfolio context, the value of shares held over company market cap, multiplied by total carbon emissions for the company to give emissions "owned."

Carbon intensity

In finance, carbon emissions divided by revenues. Carbon intensity has a different meaning in the context of, for example, electricity generation. Used as a metric to compare emissions performance within a sector and at the portfolio level.

Carbon neutral

Achieving parity between emissions created and offsets (see below). Carbon neutrality does not involve a commitment to reduce overall emissions. A business can achieve carbon neutrality even if the emissions it creates are increasing. In contrast, net zero is achieved by reducing the level of emissions a company creates with any residual amounts emitted matched by removal.

Carbon offsetting

Offsetting is used by companies to compensate for their emissions by paying others to reduce emissions or absorb CO2. Offsetting can be either via `emission reduction' e.g. funding the roll-out of clean energy technology or `carbon removal' e.g. planting forests to sequester carbon out of the atmosphere. Most offsets available today are emission reductions, which are necessary but not sufficient to achieve and maintain net zero in the long run. Carbon removals scrub carbon directly from the atmosphere which can counteract ongoing emissions after net zero is achieved, as well as create the possibility of net removal for those actors who choose to remove more carbon than they emit. Companies should first take all possible steps to reduce their own emissions before relying on offsets.

Carbon pricing

Putting a price on emissions of greenhouse gases to "make the polluter pay" for the negative externality of pollution. The two most frequently used approaches are emissions trading schemes and carbon taxes. The former tend to be more impactful than the latter. The first mandatory emissions trading scheme came into being in 2002. The first carbon taxes were implemented in 1990.

Carbon removal

The process of removing carbon dioxide from the atmosphere and storing it. Examples include nature-based solutions such as reforestation or capturing and storing carbon generated by an industrial process.

Circular economy

An economic model that aims to supplant the linear economic model by decoupling emissions from economic growth. Recycling, re-using, making better use of resources to keep materials in use rather than throwing them away and eliminating the vast amounts of waste created by the linear economic model are key elements of the approach.

Clean tech

Any technology that reduces or eliminates a pollutant, whether climate related or not. Clean tech related to climate change includes technologies that use sustainable energy sources (such as wind, hydroelectric or solar power) and methods of increasing efficiency in existing systems (such as waste treatment or increasing electric grid efficiency).

Climate change

Changes in average global conditions, such as temperature and rainfall, due to the accumulation of greenhouse gases in the Earth's atmosphere. Whilst natural factors such as solar activity, changes in the Earth's orbit and volcanic activity can influence the climate, human emissions and activities have caused close to 100% of the warming observed since 1950, according to the Intergovernmental Panel on Climate Change's fifth assessment report.

Climate Engagement Escalation Programme

In February 2021 Aviva Investors launched a Climate Engagement Escalation Programme, focused on thirty of the largest carbon emitters globally. We have engaged with companies across the oil and gas, metals and mining and utilities sectors, requesting they establish robust transition roadmaps to net zero scope 3 emissions by 2050. The programme incorporates robust escalation measures (including ultimately divestment) for insufficiently responsive businesses.

Climate transition

The transition to a warmer, low carbon economy. Planning for this includes preparing for social changes resulting from the impact that policy, technology, market and reputational changes will have.

Community investment

Community investment includes cash donations, project costs and donations in kind (such as the cost of volunteering) to charitable organisations in a company's local areas. Aviva's community investment data is assured by PwC and reported annually in the annual report.


Issues of concern for investors across environmental (e.g. oil spill), social (modern day slavery in supply chain), or governance (corruption) areas. As these issues tend not to be reported in official company releases many data providers monitor news outlets and provide controversy ratings for large corporate universes.

CO2e (or CO2-eq)

C02 equivalent. There are a number of greenhouse gases which warm the earth at different intensity levels such as water vapour (H20), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrochlorofluorocarbons (HCFCs), ozone (O3), hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs). Rather than providing metrics for each gas they are converted into C02e for reporting.


The 26th conference of the parties to the UN Framework Convention on Climate Change, which will be held in Glasgow in November 2021. The COP26 summit will bring parties (mainly governments) together to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.

Corporate governance

The systems and processes by which companies are controlled. Good corporate governance creates and maintains processes and controls to enable fair treatment of all key all stakeholders, including employees, shareholders, customers, supply chain and local communities.


Decent work

The International Labour Organisation defines decent work as involving opportunities for work that is productive and delivers a fair income, security in the workplace and social protection for families, better prospects for personal development and social integration, freedom for people to express their concerns, organise and participate in the decisions that affect their lives and equality of opportunity and treatment for all women and men.


Divestment is when shareholders sell a firm's shares. In an ESG context this can be because engagement has failed to influence the firm's behaviour to a satisfactory degree.


Emissions trading scheme (ETS)

The most common form of ETS is a "cap and trade" system. The government running the ETS provides industrial businesses with allowances which enable them to release a certain level of emissions. The EU Emissions Trading Scheme resulted in over 12,000 industrial sites across Europe having their emissions limited in this way. Allowances are tradable and each company must submit allowances equal to its emissions to the government. A less common structure is the "baseline and credit" approach, which sets an emissions limit for each business and awards tradeable credits to those whose emissions over the period in question are lower than their stated limit.



Contact between an asset manager and a current or potential investee entity on matters relating to ESG factors with the aim of improving practice, disclosure or both. For corporates, this can involve discussions with management teams, filing shareholder proposals and voting. For sovereign issuers it can involve discussions with government departments.


The process through which investors can apply increasing levels of pressure on companies. Takes place beyond initial engagement but prior to divestment. Escalation efforts must be credible, being seen as potential precursors to the ultimate sanction of divestment.


Three key aspects of sustainability. Environmental factors concern a company's stewardship of the environment. Social factors encapsulate a company's approach to dealing with employees, customers, companies in its supply chain and local communities. Governance deals with systems and processes by which companies are controlled, including executive compensation, risk management and internal controls.

Ethical investments

Ethical investing refers to the practice of using one's moral principles as the initial filter for the selection of investible securities. Ethical investing gives the individual the power to allocate capital toward companies whose practices and values align with their personal beliefs. Common ethical criteria concern tobacco production and distribution, weapons manufacturing, alcohol production and distribution, gambling and pornography.


Removing securities from a fund's investible universe due to their failing to meet certain criteria. To exclude a company in this way means engagement to try and improve features of concern has already been or is likely to be unsuccessful due to the very nature of the company's business being at odds with basic principles of sustainability. Exclusion lists often comprise companies that produce controversial weapons, firearms and tobacco.


Fossil free

The fossil fuel economy does not only involve fossil fuel companies such as coal, oil and gas extractors. It includes companies that help sell and transport these fuels, as well as users of the fuel, either in its initial form or in the form of electricity generated with it. Fossil fuel free funds vary in their definitions, but generally have some way of screening out companies in key sectors. Exclusions might include thermal coal, unconventional oil and gas, arctic oil and gas, conventional oil and gas, oil-fired electricity generation, gas-fired electricity generation, as well as elements of the distribution chain including retail, equipment & services, petrochemicals, pipelines & transportation, refining and trading.


Global Warming Potential

From a climate science perspective global warming potential (GWP) was developed to enable a comparison of the warming impacts of different greenhouse gases. For example, CO2 has a GWP of 1, whereas methane's GWP is 24x (depending on timescales). At the asset manager level GWP has been adapted to align a company's historical and future emission trajectory (based on disclosed targets) to an implied temperature outcome. This can be aggregated up to the portfolio level to give the GWP of the portfolio.

Green bonds

Bonds where the proceeds are exclusively used to finance / re-finance green projects, as defined by the Green Bond Principles (GBP). Green bonds may be standard "use of proceeds" in nature, which gives bondholders recourse to the issuer's business and cashflows, or revenue / project bonds, which provide bondholders with recourse only to specific cash flows.

Green finance

Any financial instrument or investment - including equity, debt or derivatives - used to finance projects and activities that deliver environmental benefits.

Greenhouse gases (GHG)

Gases including carbon dioxide, water and methane that trap some of the heat the earth radiates back out into space, leading to the earth being warmer than it otherwise would be - hence the term the "greenhouse effect."


Falsely claiming or exaggerating sustainable characteristics or environmental benefits provided by a fund, business practice or company. Regulation such as SFDR in Europe aims, in part, to combat greenwashing by promoting greater standardisation within ESG investing. "Rainbowwashing" is the same idea, with regards to use of the Sustainable Development Goals.


Human rights

Human rights are a way to frame people-related issues, as defined by the UN global frameworks, starting with the Universal Declaration of Human Rights, adopted by the UN General Assembly in 1948. This is split into two international covenants: one on civil and political rights, ratified by 172 countries, and the other on economic, social, and cultural rights, ratified by 160 countries.

Human rights due diligence

Human rights due diligence is a way for organisations to proactively manage potential and actual adverse human rights impacts with which they are involved. The prevention of adverse impacts on people is the main purpose of human rights due diligence. As defined by the UN, it concerns risks to people, not risks to business.


Impact investing

Definitions of impact investing vary but in essence an impact investment or impact fund needs to meet three key criteria. Firstly, showing intentionality to have a positive impact. Secondly, identifying additionality to ensure the investment is adding a positive impact that wasn't there in the first place. Thirdly, measuring the impact both quantitatively and / or qualitatively. Historically impact investing has been predominantly done as philanthropic or early stage investment (venture capital or private equity) but impact investing is now growing into public markets. According to the Impact Management Project, a global network advocating for impact investing, any investment has an impact - positive or negative - and therefore impact investment analysis should be done across all portfolios.

Intergovernmental Panel on Climate Change (IPCC)

A UN body consisting of hundreds of the world's top climate scientists and related experts. The IPCC's work has in the past been approved by governments accounting for the majority of the Earth's population.

International Platform for Climate Finance (IPCF)

Aviva Investors' key current climate market reform initiative is to advocate for the creation of an International Platform for Climate Finance (IPCF). The international community lacks a comprehensive strategy to transition finance to support the Paris Agreement and ensure that markets amplify - rather than undermine - global climate goals. This is something the IPCF would provide. This idea is backed by a coalition of over a hundred partners and these ideas are being put forward to key stakeholders in the UK and globally ahead of the G20 and C0P26 summits.


Just transition

A `just transition' for workers and communities as the world's economy responds to the threat of climate change was included as part of the 2015 Paris Agreement. While the shift to a low carbon economy will likely boost prosperity and create jobs, there will be transitional challenges. Environmental, social and governance (ESG) dimensions of responsible investment must be front of mind for investors for a fast and fair transition to take place.


Living wage

The Ethical Trading Initiative defines the living wage as a wage that is enough to meet basic needs and to provide some discretionary income. Over the last ten years many retailers and brands have made progress in getting their suppliers to pay their workers the prevailing minimum wage plus any other benefits they are entitled to. However, in many countries, government-set minimum wages fall far short of what many consider to be a living wage. In the UK There are over 7,000 Living Wage Employers, including 40 of the FTSE.


Macro stewardship

Engaging with governments, regulators and supranational organisations such as the UN with the aim of correcting market failures and mitigating systemic risks to put markets on a more sustainable footing.

Micro stewardship

See definition for active ownership. 


Natural capital

The world's stock of natural assets, including all living things, soil, air, water and geological assets. It is from this natural capital that humans derive a wide range of services (often called ecosystem services) which make human life possible (World Forum on Natural Capital).

Net Zero Asset Owner Alliance

A United Nations convened group of 42 institutional investors who have committed to transitioning their investment portfolios to Net Zero GHG emissions by 2050..

Net Zero Asset Managers Initiative

A group of 128 asset managers, with USD43 trn in AU M, that is committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. This is in line with global efforts to limit warming to 1.5 degrees Celsius and to supporting investing aligned with net zero emissions by 2050 or sooner.

Net Zero target

Net zero is achieved by reducing the level of emissions a company or country creates with any residual amounts emitted matched by removal. An entity commits to make net zero carbon emissions by a specific date (often 2050), at which point having reduced emissions as much as possible, any carbon dioxide which continues to be released into the atmosphere is balanced by an at least equivalent amount being removed.

Norms-based exclusions

Excluding securities from an investment universe due to a lack of compliance with established international standards, such as those comprising the UN Global Compact.

Negative emissions technologies

Technologies that enable carbon to be removed from the atmosphere e.g. machines that capture carbon dioxide from the air and sequester it.


Paris Agreement

A breakthrough international treaty on climate change adopted at COP21 in Paris in 2015. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. The Paris Agreement was successful where other international accords failed partly due to adopting a system of voluntary pledges to reduce emissions. These Nationally Determined Contributions (NDCs) were a departure from the legally binding commitments of earlier treaties. Current NDCs put the world on a path to around 3 degrees above pre-industrial levels. However, key to the Paris Agreement is the "ratchet" mechanism, which calls for revised pledges every five years with the expectation that these will be increasingly ambitious. The first global stocktake will take place in 2023. Such "name and shame" approaches have been successfully used in international policy in the past.


Science-Based Targets Initiative (SBTi)

The Science Based Targets initiative is a collaboration between the United Nations Global Compact, CDP (a global disclosure system), the World Resources Institute and the World-Wide Fund for Nature. The initiative is highly respected and defines and promotes best practice in science-based target pathway setting. Offering a range of target-setting resources and guidance to set science aligned targets for operations, supply chain and more recently investments, the SBTi independently assesses and approves companies' targets in line with its strict criteria. If a company's target is a `SBT', it means it meets credible standards for being a meaningful target in line with the Paris Agreement.

Scope 1, 2 and 3 emissions

Greenhouse gas emissions are categorised into three groups or `Scopes'. Scope 1 covers direct emissions e.g. burning of natural gas and company-owned vehicle emissions. Scope 2 covers indirect emissions from the generation of purchased electricity, steam and heating. Scope 3 includes 15 other categories of indirect emissions in a company's value chain, including use of a company's products by customers (highly relevant for fossil fuel producers), as well as emissions in the supply chain (highly relevant for food manufacturers). Scope 3 emissions are key for asset managers as this is where the impact of investments is accounted for.


Screening entails using filters to decide which securities are eligible (positive screening) or ineligible (negative screening) for inclusion in a fund.

Social bonds

Bonds where the proceeds are exclusively used to finance / re-finance social projects, as defined by the Social Bond Principles.

Social infrastructure

The construction and maintenance of facilities that support social services such as healthcare, education and transportation.

Social taxonomy

A scheme of classification that establishes a list of socially sustainable economic activities. The European Commission formed a working group to explore building a Social Taxonomy, which has released a draft report.


The UK Stewardship Code 2020 defines stewardship as "the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society."

Stranded assets

A stranded asset is anything, e.g. a piece of equipment or a resource, that once had value or produced income but no longer does. This is usually due to some external change, including developments in technology, markets or societal habits. This is an issue of particular concern as regards climate change given that changing government regulations, increasing carbon prices, emerging clean technologies scaling up and becoming profitable without subsidies, litigation and evolving business and social norms can all lead to assets becoming stranded. Coal mines are a typical example of a stranded asset.


All activity that can be considered as taking account of profit, people and the planet (also known as the `triple bottom line' accounting). A more formal definition from the UN is "meeting the needs of the present without compromising the ability of future generations to meet their needs."

Sustainability bonds

Bonds where the proceeds will be exclusively used to finance or re-finance a combination of green and social projects. These instruments are aligned with both the Green Bond Principles and the Social Bond Principles.

Sustainable Development Goals (SDGs)

17 global goals designed to be a "blueprint to achieve a better and more sustainable future for all." They were set in 2015 by the United Nations, cover mainly environmental and social issues and are meant to be achieved by 2030. Many firms use them to orient their initiatives on issues relating to sustainability.

Sustainable Finance Disclosure Regulation (SFDR)

A set of European Union rules that came into effect on March 10, 2021, with the goal of making the sustainability profile of funds more comparable and easier for investors to understand. They categorise products into specific types and include metrics for assessing the ESG impacts of funds' investment processes.

As the name suggests, this regulation will place much more emphasis on disclosure. SFDR is part of the EU's wider Sustainable Finance Framework, which is backed by a broad set of new and enhanced regulations that will apply across the region. The framework includes the Sustainable Finance Action Plan, which aims to promote sustainable investment across the EU, and a new Taxonomy to categorise economic activity through a sustainability lens and help create a level playing field across the region.

Many of the new measures are a response to the landmark Paris Agreement on climate change in December 2015, and the United Nations 2030 Agenda for Sustainable Development published earlier the same year, which set out the 17 Sustainable Development Goals. SFDR and other regulations are also aligned with the European Green Deal, which aims for the EU to be 'climate neutral' by 2050.

The most visible and impactful aspect of SFDR is the classification of funds and mandates into three categories, as laid out by Articles 6, 8 and 9.

Sustainable Taxonomy

A scheme of classification that establishes a list of sustainable economic activities. The EU is developing such a Taxonomy starting with climate and other key environmental issues and its Climate Delegated Act aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU's environmental objectives.


Tar sands

A type of unconventional fossil fuel, sometimes (more accurately) referred to as oil sands. Consisting of sand, bitumen (dense crude oil), clay, minerals and water, it is heavy and frequently requires significant amounts of water and energy to extract and refine. Greenpeace (May 2021) estimates that the amount of greenhouse gases emitted per barrel of tar sands oil can be 30% higher than conventional oil.


The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial decision-making information. Governments are encouraging firms to make disclosures aligned to the TCFD framework to enable investors to compare them and allocate capital accordingly. The UK Government is making TCFD reporting mandatory for all listed companies and large asset owners in 2022.

Thermal coal

More commonly referred to as just "coal." Currently the heat source for around 40% of electricity generation (www.carbonbrief.org). Distinct from coking / metallurgical coal, which has a higher energy content and is used to make iron and steel. Both have high emissions, but most investor action to date has been targeting thermal coal given the lack of viable alternatives for metallurgical coal.


Unconventional fossil fuels

Typically refers to oil / tar sands, shale oil & gas, deepwater oil and Arctic oil.

UN Global Compact (UNGC)

A corporate sustainability initiative that calls on businesses to align with universal principles on corruption, human rights, labour and environmental issues and to take strategic action to advance broader societal goals, such as the UN Sustainable Development Goals. A collaboration between a growing number (currently c.13,000) of companies. Investors can use the UNGC for investment by determining whether companies are following them or in breach. Data providers will provide data and analysis that can be used for this purpose and investors should do additional due dilligence to determine if firm behaviours are in line with the principles.

UN Guiding Principles on Business and Human Rights (UNGP)

The UN Guiding Principles on Business and Human Rights are a set of guidelines for States and companies to prevent, address and remedy human rights abuses committed in business operations. They are also called the Ruggie Principles and were created to encourage the practical implementation of the Universal Delaration of Human Rights and its related conventions by countries and companies. Investors can use these principles for investment by determining whether companies are following them or in breach and data providers will provide data and analysis that can be used for this purpose. However, investors should do additional due dilligence to determine if firm behavious are in line with the principles. They were endorsed by the UN Human Rights Council in 2011. They are split into three sections, covering: 1) The state duty to protect human rights; 2) The corporate responsibility to respect human rights; and 3) Access to remedy.