2022: Sustainable investing and related terminology

Beneficiary: A beneficiary is the targeted recipient of a service/product who will benefit from the intended impact and will show measurable results that can be verified and form the basis of the outcome payment.

Source: Investing in Social Outcomes: Development Impact Bonds by the Center for Global Development

The beneficiaries of a corporate's CSR initiatives could be rural population, underprivileged women and children who the corporate could empower through educational facilities, skill training, clean drinking water and sanitation facilities, etc.

Blended finance: Blended finance is the strategic use of development finance to mobilise additional finance towards sustainable development in developing countries.

Source: Blended Finance: A Brief Overview by International Development Finance Club (IDFC)

The Utkrisht Development Impact Bond (Utkrisht DIB) is an example of blended finance transaction. It seeks to reduce maternal and new born deaths using a pay-for-success model where a private investor fronts the cost of an intervention. The USB Optimus Foundation provides initial working capital to Population Services International and Hindustan Latex Family Planning Promotion Trust, who are the service providers. The two organisations, in turn, work with private healthcare facilities in Rajasthan. After this, the results of the intervention are measured by clear, predetermined metrics (i.e., reduction in maternal and new born deaths). If the intervention achieves pre-agreed outcomes, an outcome funder—in this case USAID and MSD for Mothers—repays the investor and provides a return on the investment. If outcomes are not achieved, the investor generally stands to lose not only the potential returns but also the principal. From the outcome funder’s perspective, money is disbursed only against documented results

Carbon footprint: Carbon footprint is a measure of the total greenhouse gas emissions, expressed in tonnes of carbon dioxide. It is a way to assess the potential impact of climate change on a portfolio. It will measure at least one of the following:

• Scope 1 emissions: Direct emissions from owned or controlled sources
• Scope 2 emissions: Indirect emissions from the generation of purchased energy
• Scope 3 emissions: All indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions

In 2010, Ford set a public goal to cut its carbon emissions by 30% in 15 years, but with aggressive initiatives it reached that goal in half the time.

McDonald’s switched to energy-efficient appliances at its restaurants, which cut energy waste by 25%; it also plans to source all of its packaging from recycled materials by 2025.

Development Impact Bonds (DIBs): DIBs are results-based contracts in which private investors provide pre-financing for social programmes and public sector agencies pay back investors their principal plus a return only if these programmes succeed in delivering social outcomes. DIBs involve donor agencies either as full or joint funders of outcomes.

Source: Investing in Social Outcomes: Development Impact Bonds by the Center for Global Development

The Educate Girls DIB in India encourages private investors to fund development projects that are 100% focused on the outcomes achieved. The DIB aims to improve education for 18,000 children, of which 50% are girls, in 166 schools in Rajasthan, India.

Read more here.

Green bond: Green bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects.

Source: The Green Bond Principles by ICMA

In 2015, Export-Import Bank of India successfully launched a five-year green bond issue of US$ 500 million. It was the first USD-dominated green bond offering out of India and has helped the Bank connect with socially responsible investors.

Mission Related Investments (MRIs): MRIs are typically risk-adjusted or ‘prudent’, market-rate investments made from the foundation's endowment — or what some affectionately call the other 95% — to advance a foundation's mission across asset class and issue area.

Source: Mission Investors Exchange

In 2017, the Ford Foundation announced a commitment of up to US$1 billion over 10 years to MRIs to further its mission of advancing social justice and reducing inequality in all its forms.

Randomized Control Trial (RCT): RCT is an experimental form of impact evaluation in which the population receiving the programme or policy intervention is chosen at random from the eligible population, and a control group is also chosen at random from the same eligible population. It tests the extent to which specific, planned impacts are being achieved.

Source: UNICEF

In a simple RCT conducted by the Abdul Latif Jameel Poverty Action Lab (J-PAL), a large Indian microfinance institution, Spandana, identified 104 low-income neighbourhoods in Hyderabad, India, which were potential locations to open a branch office.

Prior to opening the branch offices, 52 neighbourhoods were randomly selected to have an office open in 2005 – this became the treatment group. The remaining 52 neighbourhoods remained 'control' (receiving an office in the ensuing years). Households were then interviewed 15-18 months after the introduction of microfinance in the treatment areas.

Science-based targets: Science-based targets show companies how much and how quickly they need to reduce their greenhouse gas emissions to prevent the worst effects of climate change. The SBTi (Science-based Targets Initiative) is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). It is on a mission to fight climate change.

Source: Science-based targets

Mahindra Sanyo is a world-leading manufacturer of carbon, alloy and stainless steel for a variety of sectors. It aims to integrate sustainability into every facet of its business. To reduce its Scope 1 and 2 emissions, the Company has invested in energy-efficient processes such as revamping furnaces; reducing cycle times for ladle furnaces; implementing more efficient electric-arc and oxyfuel technologies in furnaces; improving pumps; installing a 6 MW waste heat recovery boiler and new burners for preheating ladles; and switching from oil to natural gas in all furnaces by 2020. The Company has made energy efficiency improvements in its buildings by installing low-carbon lighting and motion sensors. Between 2018 to 2019, Mahindra Sanyo successfully reduced its scope 1 and scope 2 emissions by 6%.

Sustainable Development Goals (SDGs): The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. The 17 SDGs are integrated—they recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability.

Source: United Nations Development Programme

LEGO, a popular toy production company, provide their famous bricks and promote play in the classroom and other education partnerships and projects worldwide, which in turn supports SDG 4: Ensuring quality education and lifelong learning for all.

Triple bottom line (TBL): The triple bottom line is a business concept that posits firms should commit to measuring their social and environmental impact—in addition to their financial performance—rather than solely focusing on generating profit, or the standard ‘bottom line’. It can be broken down into ‘three Ps’: profit, people, and the planet.

Source: Harvard Business School

Nike has set global benchmarks in improving its triple bottom line:

• To minimise waste in 2015, Nike used 54 million pounds of factory scrap and transformed it into premium material. Additionally, the company reduced water use per unit in footwear by 43%.
• In September 2017, Nike announced the launch of Nike Flyleather, a new super material made with ~50% recyclable leather fibers, using 90% less water, and an 80% lower carbon footprint.
• In 2014, Nike introduced a water-free dyeing facility in Taiwan. The factory features high-tech equipment designed to eliminate the use of water and process chemicals from fabric dyeing. Nike has named the innovation 'ColorDry'.