This is a growing glossary of the technical terms we refer to in our articles.  


Finance for climate-related projects that have a linkage to an NDC or other national low-carbon development strategy, but may come from any source including concessional and commercial


Finance undertaken by companies or project developers in line with their own carbon- or pollution-reduction strategies or product development programmes, principally privately financed and having no concrete link to national strategies.

– A –

Assets under management (or AUM) is the amount of money or other financial assets that an institution manages the investment of, either on its own behalf or for others

The GCF works through Accredited Entities that it approves as partners for its finance.  These are to date mainly governments / government agencies, development finance institutions and multinational agencies

– C –

Concessional finance comes from sources which do not seek either a full market return or any return at all.  Such sources can include philanthropy, official development assistance (aid) and development finance institutions

Cap and trade is an approach to controlling greenhouse gas emissions.The “cap”, usually determined by a national or local government, sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere.The “trade” creates a market for carbon allowances, helping companies innovate in order to meet, or come in under, their allocated limit. The less they emit, the less they pay, so it is in their economic incentive to pollute less

Carbon credit is a generic term for any tradable certificate or permit representing the right to emit a set unit of carbon dioxide or other greenhouse gas. Credits can be created under an official scheme or by voluntary arrangements and can be bought by organisations in order to offset their GHG emissions

Cost of capital:  The cost of the interest or other return an investor will seek for making an investment in a company, fund or project. This cost will usually be higher the higher the risk the investor is taking

Covenants are promises in a debt agreement that certain activities will or will not be carried out. They are put in place by lenders to protect themselves from borrowers defaulting on their obligations due to financial actions detrimental to themselves or the business and are generally expressed as financial ratios.  “Green covenants” are a new concept that seek to ensure that undertaking such as the clean use of proceeds are adhered to

Credit Enhancement: The more highly rated an entity or project is, the lower its costs to attract investment. So a company (or country or person) attempts to improve its creditworthiness by offering additional Collateral, credit insurance, or a third party guarantee to a potential lender to increase creditworthiness and so lower its Cost of Capital.

Currency hedging refers to taking insurance against one currency moving adversely  against another.  This is a major risk in emerging market economies

– D –

Default:  Default occurs when someone who owes money (a debtor) is unable to meet the legal obligation of the debt repayment.  It is usually measured in terms of the length of time the payment is overdue: 30, 60, or 90 days

Diversification:  Investors diversify risk by investing in different assets to avoid a concentration in one risk only.  Concentration could mean that if that part of the economy in which that asset belonged had a slump, then the investor would lose a lot of money.  If they are diversified into many different assets, then they would experience a loss of money in only a portion of their investments

Due diligence is the investigation by investors of the business plans, financial forecasts and legal arrangements of potential investees

– E –

Environmental, Social and Governance (ESG): Minimum  standards that many investments are now screened for to ensure that they are not being made in activities such as arms or tobacco, that workers’ rights and relevant environmental standards are respected etc

– F –

Fiduciary duty is a duty imposed on the trustees (for example of pension funds) to take decisions in the best long term interest of the fund.  This duty has typically been interpreted very narrowly, to mean just the financial interest of the fund, but this interpretation is increasingly being challenged as it becomes clear that climate (and similar non-financial) risks affect performance on the downside, while attention to sustainability goals is increasingly being shown to improve it

Financial Stability Board is a grouping of the central banks of the world’s largest economies, with a number of international financial institutions and standards setting bodies.  Formed after the 2009 crash, it is charged with promoting global financial stability by coordinating the development of regulatory, supervisory and other financial sector policies.  Its Task Force on Climate-Related Financial Disclosures (TFCD) The FSB Task Force on Climate-related Financial Disclosures (TCFD) is developing voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The TFCD is due to report in December 2016

First loss:  Certain financing structures create different layers of risk designed to be attractive to the ‘risk appetite’ of different kinds of investor.  A ‘first loss’ layer will be the most risky in such a structure, being the first to be affected by financial losses.  For this reason, this layer will typically receive the highest return, although donor funds have sometimes been used in this position

– I –

Investment grade: Credit rating agencies which assess the creditworthiness of companies and governments assign scores which investors use as guidelines. Many institutional investors can only invest when the score is above a certain benchmark, the ‘investment grade’ mark.  Many emerging countries do not meet this grade

– L –

Leverage: The effect of structuring investments (see below) to create a leverage effect, where several $$ of senior money is attracted into the investment for every $1 of junior money

Liquidity: Investments are described as “liquid” if they can be immediately traded or encashed.

– M –

MDBs:  Multilateral Development Banks, which have multiple shareholders that provide their capital, typically national governments.  The World Bank and its private finance arm, the IFC, are global, which each region also has one or more MDBs, such as the Asian Development Bank (ADB) or the InterAmerican Development Bank (IDB)

– P –

Pipeline – Another term borrowed by financiers which means a steady supply of a thing.  In financial terms, it typically means a steady supply of projects, funds or companies in which investors might invest

Public/Private Partnerships (also known as PPPs):  Projects in which both public and private entities invest, with the public participation typically providing some risk mitigation for the private investors, for example via a long-term purchase agreement or price floor.  The public participation will also typically make the cost of funds to develop the project lower and thus more viable

– R –

Rating Agencies: Specialist agencies such as Moodys and Fitch give ratings to the debts carried by funds and companies.  These  credit ratings score the likelihood that the company or fund might default on the debt.  Many investors can only invest in rated  investments or ones that are higher rated (so-called ‘investment grade’)

Recoveries (of debt): Sometimes loans default, that is, stop paying their legal obligations of interest and principal.  Then the lender may do one of two things; either take action to get the money back by say selling the assets of the borrower, or selling that debt at a discount to a third party who will then attempt to recover the payment(s) due

REDD+:  REDD stands for  Reducing Emissions from Deforestation and forest Degradation.  The + stands for efforts towards conservation, sustainable management of forests, and enhancement of forest carbon stocks

– S –

Securitisation: Bundling together a lot of loans – such as mortgages, car loans, or loans for similar projects – into one aggregated portfolio. “Securities” (usually bonds) are then issued, often by a Special Purpose Vehicle or SPV, with the Collateral of this portfolio behind them

Sovereigns:  Sovereign debt refers to the amount of money a country owes to the holders of its government bonds or other government securities.

Structured Finance: Investments which are structured so as to have different risk layers. Typically there will be a lower or junior layer (or ‘tranche’), which will absorb losses before the upper or senior layer is affected.  The junior tranche will provide a higher return and will generally be taken by specialist investors or those with a higher risk appetite, thus de-risking the senior tranche for more mainstream investors, who will receive a lower return

Sukuk:  Sharia-compliant bonds defined by the official authority as “securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets.”  Fixed-income, interest-bearing bonds are not permissible in Sharia or Islamic law, so Sukuk securities are structured to comply by not paying interest but instead typically featuring an equitable interest in a tangible asset

“Super” funds: Superannuation (pension) funds

– T –

Transition Risk(s): Risks inherent in the transition (by companies or economies) to low-carbon pathways  – or the failure to make this transition in whole or part

 – W –

Warehousing: A term borrowed by finance from the business of trade.  Just as many farmers would warehouse their, say, corn crops to sell them in bulk, so do financiers.  They “warehouse” many loans in one financial facility so as to sell them in bulk,  often using Securitisation.

– Y –

A Yieldco is a company that is formed to own operating assets that produce a predictable cash flow, primarily through long term contracts. Separating risky / volatile activities (e.g. development, R&D, construction) from the more stable cash flows of operating assets can lower the overall cost of capital. Yieldcos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of ongoing income for investors

Yields:  The income return on an investment, such as the interest or dividends received measured as a percentage of the amount invested.


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