This article briefly introduces the current common concepts of green finance and ESG to help readers understand the relevant contents of ESG regulatory policies, research statistics, knowledge and financial products in this website. Readers can find relevant content in the search box of the website to understand how these concepts are applied.
Common Terms of Green Finance and ESG
Climate finance: a financial activity that supports climate transformation. It promotes the gradual adaptation of economy and society to climate change and has a positive impact on climate by reducing greenhouse gas emissions and mitigating climate warming.
Green finance: financial activities aimed at environmental protection and sustainable development, such as natural resources protection, biodiversity protection, waste disposal, climate change transformation, etc.
Green classification: the method of classifying business activities and financial activities. When these activities meet the characteristics of green or sustainable, they can be considered as activities in line with the green classification.
Green bonds: bonds directly related to financing activities and green financial projects need to meet the green bond principles issued by the Green Bond and Social Bond Committee of the International Capital Market Association. Some regulators require that green bonds be subject to external review during the certification process.
Green loans: loans directly related to financing activities and green financial projects need to meet the four core criteria for green loans issued by the Global Loan Market Association. Some regulators require that green loans be subject to external review during the certification process.
External review: in the issuance of green financial products (such as green loans and green bonds), the assessment of whether the products meet the green sustainability standards by a third-party certification agency. The list of external review agencies is usually confirmed by the regulatory authorities to ensure the standardization and effectiveness of the review.
Responsible investment: also known as ESG investment, ESG factors are included in the analysis and decision-making process of investment, to achieve the balance of risk and income. Responsible investment pursues not only financial returns, but also environmental and social impacts.
Physical risk: direct or indirect financial losses caused by climate change and related events. For example, the impact of climate events on physical assets, the deterioration of resource conditions on the increase of production costs.
Transition risk: direct or indirect financial loss in the process of moving towards sustainable development. For example, regulatory policies restrict the company’s operation, increase technical investment, and reduce short-term financial stability.
Social bonds: bonds related to financing activities and the promotion of social welfare need to meet the principles of social bonds issued by the Green Bond and Social Bond Committee of the International Capital Market Association. Some regulators require social bonds to be subject to external review during the certification process.
Sustainable bonds: bonds whose financing activities will affect the environment and society need to meet the principles of green bonds and social bonds issued by the Green Bond and Social Bond Committee of the International Capital Market Association.
Sustainable linked bonds: meet the principle of sustainable linked bonds of the International Capital Market Association and encourage the bond issuer to achieve the pre-set sustainable goals by setting key performance indicators (for example, achieving the sustainable goals can reduce the coupon rate of bonds, and increasing the coupon rate if the goal is not achieved).
Sustainable Development Goal: SDG for short. The 17 main goals and 169 specific goals mentioned by the United Nations in the 2030 Sustainable Development Plan.
Taskforce on Climate – related Financial Disclosures: TCFD, established by the Financial Stability Board in 2015, aims to develop standardized financial disclosure standards for climate risk for use by companies, investors, and other stakeholders.