Has investing jargon got your head spinning? Here’s our much-needed glossary breaking down some of the key terms in our free ethical investing course.
You’ll need to understand the basics if you want to decipher and navigate the ethical investing industry (trust me, it’s hard enough for professionals to cut through the ethical marketing).
Environmental, Social & Governance (ESG)
These are probably the most important three letters that you — the responsible investor — need to remember and understand.
I explain this in more detail throughout the ethical investing course, but for now what you need to know is companies can be analysed and, in some cases, ranked according to its policy and impact on the environment, the workplace and community (social), and its management team, culture and leadership principles (governance).
Socially Responsible Investing
This is a broad term that is loosely the same thing as ‘responsible investing’, ‘green investing’, or ‘sustainable investing’. This type of investing aligns your portfolio with society’s expectations, and focuses on avoiding bad actors (“sin stocks”) and investing more in companies that score highly for ESG factors (see above).
Ethical investing
Ethical investing is about investing your money according to your personal beliefs, principles and morals. It’s different from sustainable or socially responsible investing (see above).
Impact investing
This type of investing is arguably the strongest form of ethical and responsible investing. Typically, an impact investor deliberately invests in shares or a managed fund with the purpose of having an impact on a company or companies. While a good return on investment is important, it’s not always ‘the’ most important factor to impact investors (in the short run, at least).
“Sin stocks”
Sin Stocks are shares of companies involved in the most controversial industries (tobacco, pornography, gambling, armaments, etc.). Companies in these industries are often involved in producing services or products that enable addictions (e.g. gambling) or vices (e.g. excessive consumerism).
Corporate Social Responsibility (CSR)
This is similar to ESG and often used interchangeably to mean ‘the company’s policy and stance in accordance with societal principles’. A company’s stance on gender equality and carbon emissions are considerations that fall under CSR.
Accounting standards
Accounting standards tell companies how to report their financial performance from one quarter or a year to the next. Increasingly, the two big accounting standards, IFRS and US GAAP, are including better ways for reporting on ESG factors. I encourage you to take our various valuation courses to learn about the numbers of investing and business. Having a basic appreciation of the numbers and financial reports is important if you want to invest the way I do — that is, investing in both ETFs and individual stocks/companies.
Negative ethical screening
This happens when an investment is excluded or avoided based on rules, such as specific industries or ESG factors.
Positive ethical screening
This happens when an investment is favoured due to its focus on particular products, services, or ESG factors.
The Responsible Investment Association of Australasia (RIAA)
The RIAA is one of the leading bodies for providing ratings or reviews on ethical/responsible/sustainable investing in our region. It’s great to have these resources available, but our surveys of investors suggest it’s vital to avoid taking a stamp of approval from a third-party ethics board or organisation as your single source of truth.
BCorps
A ‘B Corp’ or Certified Corporation is a type of certification for companies/businesses to prove that they consider more than shareholder value. A BCorp will pay a fee and undergo an analysis of its policies, impact, and accountability for social, environmental, and governance factors.
Revenue
Revenue is the money that a business/company ‘brings in’ from selling goods or services. This is the money before costs are taken out. If an airline company sells 10 tickets for $90 that’s ($90 x 10) $900 in revenue. Some companies are excluded from ethical investing portfolios if, for example, ‘20% of the company’s revenue comes from gambling, pornography or weapons production’.
Profit
This is the money that’s left over after costs and taxes are paid. For example, an airline must pay its workers, buy planes and pay for fuel.
