Over five e-mail newsletters, The Globe is exploring the idea of green investing: what it is, whether or not you should put money into climate-conscious funds, and how the energy transition is reshaping the sector (and what it might mean for your money). Here, we go deeper on some of the common concepts and widely used acronyms used.
An asset manager is a professional whose job is to ensure maximum returns for investments over time while maintaining an acceptable level of risk for investors. Managers have a responsibility to clients to ensure they are making good faith decisions for clients.
When the price of something – houses, stocks, financial assets, or even entire sectors – rapidly increases and exceeds the actual, real-world value of that entity by a lot. A bubble is largely driven by speculation, and sometimes FOMO. Think: The dot-com bubble of the early 2000s.
A bond is a loan to the bond issuers. You’re buying debt from governments or corporations who are agreeing to pay you interest against the value of the bond, and who agree to repay the bond on a specific date in the future (when the bond reaches maturity). Like stocks, there are many kinds of bonds, including those issued by corporations, governments and other agencies.
- Bond mutual funds: This is a mutual fund (see: mutual fund) that only invests in bonds.
- Green bonds: A green bond works in the same way a traditional bond would work – but the financing is reserved for projects focused on the climate or the environment. (Bonds exist for similar, more targeted themes: Blue bonds for projects focusing on ocean efforts, and climate bonds exist specifically for reducing carbon emissions.)
- Transition bonds: Bonds that exist to finance a company’s efforts toward more sustainable business activities.
Technology exists to capture carbon dioxide before it is released into the atmosphere – or even sucking carbon that’s already in the air (also known as “direct air capture”). Once captured, it can either be stored underground or made into a carbon-containing product.
The term corporate greenwashing was coined by an environmentalist, Jay Westerveld, in 1986. It’s the practice of sending a false message about the sustainability of a product or process to capitalize on eco-consciousness among consumers.
This is an investment strategy that aims to lower the risk of your portfolio and net stable long-term returns (a return is the money made or lost from an investment over time). This means investing across a broad range of financial instruments (stocks, bonds, etc.) and industries (finance, retail, telecom, etc.). The goal is getting the good, missing out on the extraordinary, but preventing the tragic. Basically: Don’t put all your eggs in one financial basket.
As countries move to reduce their carbon emissions and hit other targets to avoid the worst consequences of climate change, many use the “transition” as a catch-all term for the move to a new energy system. That’s everything from how we power our homes, cars and cities, to the entire electrical grid.
Share(s) of a security, or more broadly the concept of ownership of a company. “Private equity” refers to a capital investment made in companies that are not publicly traded.
Environmental, social, and governance is a general framework for measuring a company’s position on issues like climate, human rights, or social justice. It’s important to note that there is no universal standard for ESG, and no central body that metes out a report card.
An exchange-traded fund is a type of security that allows you to buy a basket of stocks or bonds in one purchase. While similar to a mutual fund, ETFs are traded throughout the day, and have lower fees associated with them as they aren’t generally actively managed by a human.
An asset or assets that can be traded. Referred to collectively as a “financial product.”
Fossil fuel-emitting energy sources
Oil, coal, natural gas: These are energy sources that come from fossil fuels (formed by the carbon-rich remains of plants and animals). As a result, when burned, they emit carbon.
Green investing is the idea that investors should put their money into entities that limit environmental destruction or even nudge things in the right direction. That could mean avoiding fossil fuel companies, or investing in companies producing wind or solar energy.
GHG is an abbreviation for greenhouse gas, a term used to describe gases that trap heat in the atmosphere. There are three main greenhouse gases: carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O).
- The greenhouse effect refers to the trapping of heat in earth’s atmosphere, which leads to warming of the planet.
An index is a standardized way of measuring the performance of a group of assets (things containing economic value/benefit). Because it is standardized, an index is often used as the benchmark to compare the success or failure of the performance of a specific investment.
Impact investing is more directly activist than ESG or SRI. The emphasis is on companies with the intention to generate positive, measurable social and environmental impact alongside a financial return.
Institutional vs. retail investors
Remember when GameStop was the hottest stock in town, and every news story led by talking about “retail investors” from Reddit? Those “retail” investors aren’t trading out of a shopping mall storefront. The phrase simply refers to non-professional individual investors who buy and sell securities. Unlike institutional investors – who are not risking their own money – retail investors are investing for themselves. Institutional investors are the major players: Their investments are larger and they account for the majority of trades.
Understanding risk is very important when making decisions about where to put your money. It refers to the likelihood the expected outcome (getting a positive return) will actually happen. Climate risk refers to the likelihood that the adverse consequences of climate change will negatively affect your investment.
International Energy Agency
This is an organization whose stated mission is to help countries “shape energy policies for a secure and sustainable future.” The International Energy Agency is an intergovernmental organization that was created in 1974 to respond to that era’s oil crisis.
Net-zero means not adding new emissions. Emissions may continue, but will be offset by absorbing an equal amount from the atmosphere.
A pool of money from multiple public investors to invest in securities that is managed by professionals. A mutual fund manager will invest according to the fund’s portfolio to create the most profit, but charges a fee. The portfolio can be structured to meet a certain objective, such as sector funds, which invest in one type of industry or sector.
A stock-picker is a professional whose job it is to analyze the merits of an individual stock to assess, in a systematic way, whether or not it is likely to succeed as an investment.
Energy sources that are not finite. There are only so many fossil fuels to be extracted, while sources like wind and solar are limitless – in other words, renewable.
S&P/TSX Composite Index
The S&P/TSX Composite is a benchmark index that tracks about 250 of Canada’s largest companies, representing about 70 per cent of the total market capitalization on the Toronto Stock Exchange.
Socially responsible investing is an investment strategy that tries to avoid putting money into companies that are perceived as doing harm, instead focusing on those making positive change.
A stock (or equity) is a security that represents ownership of a fraction of a company. For companies, issuing stocks is a way of raising money. For investors, it’s a partial stake in a company that entitles you to certain benefits (such as voting rights in annual shareholders meetings, dividends, or capital appreciation). There are two main types of stock (common and preferred) and different classes.
Supermajor is a term used to describe the world’s largest oil and gas companies that are not owned by a state. The term is used interchangeably with Big Oil, and supermajors include BP, Chevron, Eni, Exxon Mobil, Royal Dutch Shell and TotalEnergies.
Put simply, a security is a type of investment with monetary value. It’s also known as a catchall term for mutual funds, stocks, bonds, ETFs and any other investment you can buy and sell.
Volatility is a measure of risk in a security. If a security’s price increases and decreases at a high rate and range, it is considered highly volatile and by extension, higher risk.
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