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talks as observers.
Norms-based screening: Negative screening of companies according to their
compliance with international standards and norms such as issued by
OECD, ILO, UN, UNICEF.
Operational risk management (ORM): The oversight of many forms of day-to-
day operational risk including the risk of loss resulting from inadequate or
failed internal processes, people and systems, or from external events.
Operational risk does not include market risk or credit risk.
Perfluorocarbons (PFCs): PFCs are among the six types of greenhouse gases to
be curbed under the Kyoto Protocol. PFCs are synthetic industrial gases gen-
erated as a by-product of aluminium smelting and uranium enrichment. They
also are used as substitutes for CFCs in the manufacture of semiconductors.
There are no natural sources of PFCs. PFCs have atmospheric lifetimes of
thousands to tens of thousands of years and 100-year GWPs thousands of
times that of CO2, depending on the gas.
Performance: The percentage change in a portfolio™s value over a specified period.
Performance indicator: Qualitative or quantitative information about results or
outcomes associated with the organization that is comparable and demon-
strates change over time.
Pioneer screening/Thematic investment propositions: Thematic investment
funds are based on environmental, social and governance (ESG) issues such
as the transition to sustainable development towards a low carbon economy.
Polluter pays principle (PPP): The principle that countries should in some way
compensate others for the effects of pollution that they (or their citizens)
generate or have generated.
Glossary of terms 663



Poor human resources management: Extent to which the company™s HR poli-
cies and practices are found wanting in terms of generating stress, discrimi-
nation, harassment, impact on employee privacy.
ppm or ppb: Abbreviations for ˜parts per million™ and ˜parts per billion,™ respec-
tively “ the units in which concentrations of greenhouse gases are commonly
presented.
Positive feedback: A process that results in an amplification of the response of
a system to an external influence. For example, increased atmospheric water
vapour in response to global warming would be a positive feedback on
warming, because water vapour is a GHG and thus increases in water vapour
in association with increases in greenhouse gases would cause greater warm-
ing than would occur if water vapour remained constant.
Positive screening: Seeking to invest in companies with a commitment to
responsible business practices, or that produce positive products and/or
services. Includes best-in-class and pioneer screening.
Price elasticity: A measure of price sensitivity in the marketplace: the percent-
age change in the quantity of a product divided by the percentage change in
the price.
Price-to-earnings ratio (P/E): The multiple of earnings at which a stock sells,
determined by dividing current stock price by current earnings per share
(adjusted for stock splits).
Proxy: Document intended to provide shareholders with information necessary
to vote in an informed manner on matters to be brought up at a stockholders™
meeting.
Radiative forcing: The term radiative forcing refers to changes in the energy
balance of the earth/atmosphere system in response to a change in factors
such as greenhouse gas emissions, land-use change, or solar radiation.
Ratification: After signing the UNFCCC or the Kyoto Protocol, a country must
ratify it, often with the approval of its parliament or other legislature. In the
case of the Kyoto Protocol, a Party must deposit its instrument of ratification
with the UN Secretary General in New York.
Reforestation: Replanting of forests on lands that have recently been harvested.
Regional groups: The five regional groups meet privately to discuss issues and
nominate bureau members and other officials. They are Africa, Asia, Central
and Eastern Europe (CEE), Latin America and the Caribbean (GRULAC), and
the Western Europe and Others Group (WEOG).
Renewable energy: Energy obtained from sources such as geothermal, wind,
photovoltaic, solar and biomass.
Return on investment (ROI): A measure of a corporation™s profitability, equal to
a fiscal year™s income divided by common stock and preferred stock equity
plus long-term debt. ROI measures how effectively the firm uses its capital to
generate profit.
Risk: (1) The possibility of losing rather than gaining. (2) A measure of price
fluctuation relative to a broad market gauge. (3) The possibility of an adverse
incident due to the presence of hazards or uncertainties.
Glossary of terms
664



Screened portfolio investing: The application of social criteria to conventional
investments, such as stocks, bonds and mutual funds.
Second Assessment Report (SAR): The Second Assessment Report, prepared
by the Intergovernmental Panel on Climate Change, reviewed the existing
scientific literature on climate change.
Secretariat of the UN Framework Convention on Climate Change: The United
Nations staff assigned the responsibility of conducting the affairs of the
UNFCCC. In 1996 the Secretariat moved from Geneva, Switzerland, to Bonn,
Germany.
Sell side analyst: A financial analyst who works for a brokerage firm and whose
recommendations are passed on to the brokerage firm™s customers.
Sequestration: Opportunities to remove atmospheric CO2, either through bio-
logical processes (e.g. plants and trees), or geological processes through stor-
age of CO2 in underground reservoirs.
Shareholder resolution: A recommendation or requirement, proposed by a
shareholder, that a company and/or its board of directors take action pre-
sented for a vote at the company™s general shareholders™ meeting.
Sinks: Any process, activity or mechanism that results in the net removal of green-
house gases, aerosols, or precursors of greenhouse gases from the atmosphere.
Socially responsible investing (SRI): The incorporation of an investor™s social,
ethical, or religious criteria into the investment decision-making process.
Source: Any process or activity that results in the net release of greenhouse
gases, aerosols, or precursors of greenhouse gases into the atmosphere.
Stakeholder: Any party that has an interest, financial or otherwise, in a firm “
stockholders, creditors, bondholders, employees, customers, management,
the community and the government. Stakeholders are defined broadly by the
Global Reporting Initiative as those groups or individuals: (a) that can rea-
sonably be expected to be significantly affected by the organisation™s activi-
ties, products, and/or services; or (b) whose actions can reasonably be
expected to affect the ability of the organisation to successfully implement
its strategies and achieve its objectives.
The term ˜stakeholder™ includes stockholders, other owners, workers
and their representatives, as well as any other individual or group that is
affected by the activities of the organisation. The term ˜stakeholder™ includes
indirect stakeholders when their interests are or will be substantially
affected by the activities of the organisation, such as: consumer groups, cus-
tomers, governments, neighbouring communities, indigenous peoples and
communities, non-governmental organisations, public and private lending
institutions, suppliers, trade associations and others.
Stratosphere: The region of the earth™s atmosphere 10“50 km above the surface
of the planet.
Substitution: The economic process of trading off inputs and consumption due
to changes in prices arising from a constraint on greenhouse gas emissions.
How the extremely flexible US economy adapts to available substitutes
and/or finds new methods of production under a greenhouse gas constraint
will be critical in minimising overall costs of reducing emissions.
Glossary of terms 665



Sulphate aerosols: Sulphur-based particles derived from emissions of sulphur
dioxide (SO2) from the burning of fossil fuels (particularly coal). Sulphate
aerosols reflect incoming light from the sun, shading and cooling the earth™s
surface (see ˜Radiative forcing™) and thus offset some of the warming histori-
cally caused by greenhouse gases.
Sulphur hexafluoride (SF6): SF6 is among the six types of greenhouse gases to
be curbed under the Kyoto Protocol. SF6 is a synthetic industrial gas largely
used in heavy industry to insulate high-voltage equipment and to assist in
the manufacturing of cable-cooling systems. There are no natural sources of
SF6. SF6 has an atmospheric lifetime of 3200 years. Its 100-year GWP is cur-
rently estimated to be 22 200 times that of CO2.
Supplementarity: The Protocol does not allow Annex I Parties to meet their
emission targets entirely through use of emissions trading and the other
Kyoto mechanisms; use of the mechanisms must be supplemental to domes-
tic actions to limit or reduce their emissions.
Supply chain: A sequence of suppliers and customers that add value in the
form of materials, components, or services, ultimately resulting in a final
product.
Sustainable Mobility: World Business Council on Sustainable Development
defines Sustainable Mobility as ˜the ability to meet the needs of society to
move freely, gain access, communicate, trade and establish relationships
without sacrificing other essential human or ecological values today and in
the future™.
Sustainability: Conditions or characteristics supportive of sustainable develop-
ment, encompassing the environmental, social and economic aspects of a
corporation.
Sustainability report: Sustainability reporting is the practice of measuring, dis-
closing and being accountable for organisational performance while working
towards the goal of sustainable development. A sustainability report pro-
vides a balanced and reasonable representation of the sustainability per-
formance of the reporting organisation, including both positive and negative
contributions.
Tangible asset: An asset, whose value depends on particular physical proper-
ties, including reproducible assets such as buildings and non-reproducible
assets such as land.
Targets and timetables: Targets refer to the emission levels or emission rates set
as goals for countries, sectors, companies, or facilities. When these goals are
to be reached by specified years, the years at which goals are to be met are
referred to as the timetables.
Technological change: How much technological change will be additionally
induced by climate policies is a crucial, but not well-quantified, factor in
assessing the costs of long-term mitigation of greenhouse gas emissions.
Thermal expansion: Expansion of a substance as a result of the addition of
heat. In the context of climate change, thermal expansion of the world™s
oceans in response to global warming is considered the predominant driver
of current and future sea-level rise.
Glossary of terms
666



Trace gas: A term used to refer to gases found in the earth™s atmosphere other
than nitrogen, oxygen, argon and water vapour. When this terminology is
used, carbon dioxide, methane and nitrous oxide are classified as trace gases.
Transnational corporation (TNC): The term refers to an economic entity operat-
ing in more than one country or a cluster of economic entities operating in
two or more countries “ whatever their legal form, whether in their home
country or country of activity, and whether taken individually or collectively.
Transparency: Openness of an organisation with regard to sharing information
about how it operates. Transparency is enhanced by using a process of two-
way, responsive dialogue.
Triple bottom line: A framework for sustainable development that defines three
fundamental aspects of corporate performance “ economic, environmental
and social.
Troposphere: The region of the earth™s atmosphere 0“10 km above the planet™s
surface.
Uncertainty: Uncertainty is a prominent feature of the benefits and costs of cli-
mate change. Decision makers need to compare risk of premature or unnec-
essary actions with risk of failing to take actions that subsequently prove to
be warranted. This is complicated by potential irreversibilities in climate
impacts and long-term investments.
United Nations Framework Convention on Climate Change (UNFCCC): A treaty
signed at the 1992 Earth Summit in Rio de Janeiro that calls for the ˜stabilisa-
tion of greenhouse gas concentrations in the atmosphere at a level that would
prevent dangerous anthropogenic interference with the climate system™.
Upstream: The term ˜upstream™ relates to a production chain activity that
extends from the extraction of raw materials to the use of a good or service
by an end-user. ˜Upstream™ refers to those organisations that play a role in the
supply chain of the reporting organisation or, more generally, play a role in
an earlier step in the production chain than the organisation itself.
Urban heat island (UHI): The tendency for urban areas to have warmer air tem-
peratures than the surrounding rural landscape, due to the low albedo of
streets, pavements, car parks and buildings.
Value creation: Activities that generate shareholder value for a company, e.g.
value-based management.
Vector-borne disease: Disease that results from an infection transmitted to
humans and other animals by blood-feeding arthropods, such as mosquitoes,
ticks and fleas. Examples include Dengue fever, viral encephalitis, Lyme dis-
ease and malaria.
Water vapour (H2O): Water vapour is the primary gas responsible for the green-
house effect. It is believed that increases in temperature caused by anthro-
pogenic emissions of greenhouse gases will increase the amount of water
vapour in the atmosphere, resulting in additional warming (see ˜Positive
feedback™).
Weather: The short-term (i.e. hourly and daily) state of the atmosphere.
Weather is not the same as climate.
APPENDIX
A


About SERM
A About SERM



The Safety and Environmental Risk Management (SERM) project began in 1993
with support from the London insurance industry, the United Nations (UNEP)
and European Community (ESF Funds).
SERM became an independent UK-based rating agency in 1996. It spe-
cialises in identifying well-managed companies through measuring their extra-
financial risks, also known as corporate social responsibility risk.
Over the past 10 years SERM has conducted extensive research and devel-
opment and has established a unique algorithm to allow the risks to be meas-
ured and comparisons to be drawn between companies and sectors. An advisory
panel of experts oversees this work.
The input data from SERM™s in-house research is combined with SERM™s
rating algorithm, which takes into consideration the total cost (both tangible and
intangible) of any potential incident and the likely effectiveness of risk manage-
ment in avoiding or mitigating any such incident. The key rating outputs are a
˜net risk to capital™ figure “ based on market value “ and a point on a 31-point
scale from AAA to E.
Our customers can access a unique set of reports, rating social, health and
safety and environmental risks for a rapidly increasing range of companies,
including all trading companies in the FTSE 350 and the Eurotop 100 indices.
These will shortly be available to access online for downloading.
The reports include:
The SERM risk rating, quantifying inherent and residual risk to market capi-
tal along 25 different social and environmental risk factors;
Comparison of an individual company™s risk profile with its sector, or a
defined peer group; and
A portfolio tool to calculate the risk to capital both overall and by factor for
any variety of stocks.
Contact details:
Post: Trafalgar House, 11 Waterloo Place, London, SW1Y 4AU
Telephone: 44 (0) 20 7863 8850
Direct Line: 44 (0) 1206 768430
Internet: www.serm.co.uk
Email: adamrose@serm.co.uk
APPENDIX
B

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