The Millennial’s Guide to the Sustainable Investing Galaxy
By Nicole Schlichting
If you’re anything like me, there’s a good chance you also struggle with the complicated jargon of the investment world — sometimes it feels like the language of the entire industry boils down to a dozen or so strikingly similar acronyms. Combine those terms with the equally diverse lingo of the eco-socio-movement, and you’ve got the wonderfully confusing language of sustainable investing. We at Grow figured it was high time to come up with a little glossary — with some of the most commonly confused terms in the industry — to make your lives easier (and, honestly, to solidify these terms in our own minds).
Let’s start from the very beginning, a very good place to start….
Portfolio
It might seem obvious to those of you who are well-versed in investing, but a portfolio is the collection of investments held by an individual or an organization. Basically the group of companies / securities that you are investing in.
Holdings: The actual contents of your investment portfolio (think: securities, property, other financial assets). The distribution of your holdings determines how diversified your portfolio is, and their relative performances determine how well your portfolio does overall.
Security: A security represents that you ‘own’ part of a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option.
Asset Classes: A group of securities that 1) has similar characteristics, 2) behaves similarly in the marketplace, and 3) is subject to the same laws and regulations. The three main ones are:
- Fixed Income: Bond investments. A set rate of interest is paid over a given period, then the investor’s principal is returned.
- Stock (Domestic/Foreign): Let’s cover all of our bases here. A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
Ticker: A ticker is the symbol (usually made up of a collection of letters) used to identify a given company in the investment realm. You’ll certainly see these if you ever flip to financial news coverage.
For example: AAPL (Apple), TWTR (Twitter), GOOGL (Google). You get the jist.
ETF: Exchange Traded Funds are traded just like common stock; you can think of them like stocks made up of many different stocks. Investing in an ETF is a very powerful investment tactic (actually used in Grow Invest app) because they are representative of diversified companies across a particular industry, a type of commodity, or an asset class.
Let’s say you’re interested in the technology industry and wanted to own stock in Amazon, Apple, and Tesla. You can purchase an ETF ‘stock’ that actually includes those companies, while reducing the risk of losing a big chunk of your investment if 1 of the 3 companies happens to hit a really big pothole.
“Diversify your investments.” — John Templeton
Mutual Funds: A mutual fund is an investment program that seeks to invest in diversified holdings (similar to an ETF). However, mutual funds are funded by a pool of shareholders (actively managed by a portfolio manager), and they do not trade like common stock. To word it over-simply, you and a group of other investors are basically buying shares of somebody else’s professionally managed portfolio. See below for more clarification:
And now, time for even more acronyms:
What did the Sustainability Expert say to the Finance Guy?
ESG:
If you didn’t read our recently published article about ESG investing, you might not know that ESG stands for the environmental, social, and corporate governance policies of a given company. Companies receive an ‘ESG score’ based on these policies — which is what Grow Analytics does — and conscientious investors choose to take that into consideration when building their portfolios.
- Corporate Governance: The environmental and social branches of ESG are fairly straight-forward, but the final branch is not — governance refers to the ethics of the corporate structure of a given company, like the policies on executive pay, management structure, employee/employer relations, tax strategy, board structure and diversity, and political lobbying/donations. You can read up on this more in our Principles of Corporate Governance article.
VBI, SRI, and TBL:
These three types of investing are all closely related to one another. The differentiations between the three still aren’t perfectly clear, but we’ve done our best to give you the jist of it:
VBI: Stands for Values Based Investing. VBI is very similar to ESG investing (and uses the same criteria to assess companies), but is intended to align your holdings with your personal values as an investor (basically, the emphasis is on your values rather than society’s values).
SRI: Stands for Socially Responsible Investing. This approach is usually used to weed out companies with bad ESG policies (or companies that produce/sell harmful products like tobacco, guns, etc.) rather than seek out the ones with good policies.
- Impact Investing: A subset of SRI that focuses specifically on investing with the intention to reach physical social/environmental impact goals. Check out this recent interview with someone deep in the world of impact investing!
TBL: Stands for Triple Bottom Line. TBL is an accounting framework that allows companies to measure/report their social, environmental, and financial performance. Investors can use this information to determine a given company’s impact on the world in terms of the Three P’s: People (Social), Planet (Environmental), and Profit (Financial).
B Corp:
B Corporations are for-profit companies that have been certified by B-Lab to meet strict ESG criteria, as well as accountability and transparency standards. The goal of these B-Lab certified companies is to “redefine success in business” and improve the overall impact of business on the world (Hint: this is a sneak peak into another article COMING SOON *oooh, so mystery, much anticipate*)
‘So, What’s a Fintech?’
Fintech — The Industry Grow Calls Home
As in ‘a fintech company.’ It stands for Financial Technology, the economic industry designed to make financial services more efficient through the use of technology. This curious word didn’t spring up until recently, as tremendous software innovations made it possible to securely do your banking, make your payments, and invest over your mobile devices.
Hopefully this glossary has helped you mentally organize the cluttered linguistic jumble that is sustainable investing! Is there any other term you would like to see in this glossary? Reach out to us at team@growapp.us with your suggestion!
Interested in learning more? Check out Grow’s website for more information.
