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Glossary

A tool to interpret and understand the language associated with finance, corporate social responsibility and environmental sustainability.

sustainability iconSustainability terminology

Rating   An evaluation of the quality of a company or of its bond issues, based on the company's financial strength and outlook. Such evaluation is performed by specialised agencies.
Real estate (finance)   Structured finance transactions in the real estate sector.
Recycled Paper

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The best way to conserve forests and the environment is to buy recycled paper and to then recycle paper purchased. In this way paper can be reused up to seven times and forest management will automatically become more responsible.
Recycled paper can be of two types
- post consumer: this kind of paper has gone through its entire life and can be recycled (eg old newspapers and magazines, discarded copy paper, and other fibrous wastes). From the environmental point of view, the post-consumer recycled paper turns out to be that with the highest value.
- pre-consumer: in this case it is made by recycling paper products that have never reached the final consumer (eg. envelope cuttings, trimmings, rejected stock, etc.).
To be sure that the recycling process meets all the characteristics of environmental sustainability the paper must be 100% recycled.
Relative value/arbitrage (Funds)   Funds that invest in strategies of a market neutral type and profit from the unaligned price of particular securities or financial contracts, neutralising the underlying market risk.
Renewable Energy Sources

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Renewable energy sources include forms of energy that do not have a limited supply. Renewable energy can be used again and again, and will never run out.
- Wind: generated using the wind to rotate an aerodynamic device (rotor). The mechanical energy thus generated is converted into electricity through a generator. Modern wind turbines are used in so-called wind farms both on land and at sea
- Solar: induced by solar radiation. It can be used to produce electricity thanks to photovoltaic panels or for the production of thermal energy through solar panels. It is the most abundant form of energy naturally on Earth. The ability to effectively exploit the sun to produce energy depends on the intensity of solar radiation and varies according to latitude and morphological characteristics of the place
- Geothermal: heat generated by natural processes within the earth
- Hydropower: the production of electrical power through the use of the gravitational force of falling or flowing water
- Wavepower: electricity produced by using the force of waves
- Tidal power: also called tidal energy, is a form of hydropower that converts the energy of tides into useful forms of power - mainly electricity
- Biomass: energy resource derived from organic matter.
Reputation

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This is one of the most important resources for the long-term success of the company: it lets stakeholders "trust" the company and cooperate with it, so that transactions take place with low control or bargaining.
A company consolidates its position in the market only through reputation and credibility, which are obtained by stating credible commitments, by keeping them and by showing a conduct consistent with the objectives.
Retail   Segment of clientele mainly including housholds, professionals, retailers and artisans.
Risk management   Organisational structure for the determination of methodologies, measurement and management criteria as well as control tools for credit, financial and operating risks in order to guarantee the governance of exposure to such risks.
Road show   Series of meetings with institutional investors taking place in international financial markets.
RoE (Return on Equity)   Profitability ratio used to define the earning capacity of a company or credit institution.
The net income of an organisation expressed as a percentage of its equity capital.
RoI (Return on Investment)   A measure of company 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.
S&P 500 (Standard & Poor's 500)   Index comprising shares of 500 US companies reflecting the general trend in the US stock market
S&P/MIB   Italian equity index. It measures the performance of 40 stocks listed on the Italian Stock Exchange (Borsa Italiana).
Sa8000

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SA8000 (Social Accountability 8000) identifies an international certification standard drafted by CEPAA (Council of Economical Priorities Accreditation Agency) which aims to certify certain aspects of management related to corporate social responsibility. These are:
- respect for human rights,
- respect for the workers’ rights,
- protection against child exploitation,
- guarantees of safety and health at work. The international standard is therefore intended to improve working conditions worldwide and above all grants the possibility to define a standard verifiable by Certification Bodies.
Sarbanes-Oxley Act   United States law passed in July 2002 making further provisions on the financial information of companies offering guarantees to the public. In particular, the new law requires greater accuracy and reliability of the financial statements
Scoring   System of analysis of company clientele, taking the concrete form of an indicator obtained by an examination of information contained in the financial statements, in addition to an evaluation of the forecasts of the performance of the sector, analysed using statistical methods.
Screening

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This is the process of selecting investments that provides for the exclusion (negative screening) or inclusion (positive screening) of securities from financial portfolios, based on environmental, social or ethical criteria.
SEC (Securities & Exchange Commission)   Federal agency that regulates the U.S. financial markets.
Secondary market   A market in which existing securities are traded after they are initially offered in the primary market.
Securitisation   Replacement of credits and other non-marketable financial assets provided by financial intermediaries with negotiable securities issued in the public capital market.
Sell   A recommendation by an analyst or advisor that a given security should be sold.
Senior/super senior   In a securitisation transaction, this is the preferred tranche in terms of priority in the matter of remuneration and redemption.
Sensitivity   It refers to the degree of sensitivity with which certain assets/liabilities react to changes in rates or other pertinent indicators.
Servicer   In securitisation transactions, this figure - on the basis of a special servicing contract - continues to manage the securitised credits or assets after they have been transferred to the vehicle company responsible for the issue of the securities.
Share   Certificate representing one unit of ownership in a company.
Shared Value

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Companies' ability to create economic value in ways that simultaneously generate value for the company, for its stakeholders and for the local areas in which it operates (Michael Porter and Mark Kramer, 2010).
Shareholders' equity   Capital invested by the shareholders into the company, increased by reserves.
Social Enterprise

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Organization devoted to the production of goods and services of social value. It is part of the broader category of the Third Sector (see glossary entry).
Social Report

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The Social Report is the result of a process focusing on the dialogue with the most important stakeholders. The aim of this report is to give account of the capacity to operate consistently in keeping with company’s values by responding to the expectations of all the people it deal with.
As well as being a means of communication, it is a management tool for monitoring progress and planning targets.
The main international standard for the preparation of the Social Reports are the guidelines of GRI -Global Reporting Initiative (see glossary entry). In Italy, guidelines for the preparation of the Social Report in the banking sector were published by ABI in collaboration with EconomEtica ("The Report to Stakeholders. A Guide for Banks" - 2006).
Socially Responsible Investments (Sri)

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This practice requires that consideration of an environmental, social or ethical kind enter into the process of selecting and maintaining a certain type of investment, as well as of exercising the rights connected to the ownership of securities. The choice of security depends on negative criteria (exclusion), which can derive from the sector they belong to or on certain types of behaviour of single companies, or on positive criteria (inclusion), which favour companies for behaviours or products that stand out in terms of social responsibility. SRI combines investors’ financial objectives with the commitment to social themes such as justice, economic development, peace or environmental equilibrium.
Solvency   The ability of a company to meet its financial (?) obligations.
SPE/SPV   Special Purpose Entities or Special Purpose Vehicles are companies specially created by one or more entities in order to perform a specific transaction. Generally, SPE/SPVs have no operating and managerial structures of their own, instead availing themselves of those of the different players involved in the transaction.
Speculative grade   Term used to identify issuers with a low rating (e.g., below BBB on Standard & Poor's index).
Spin-off   A form of cession resulting in a subsidiary or division becoming an independent company. Ordinarily, shares in the new company are distributed to the parent company's shareholders on a pro rata basis.
Spread   This term usually indicates the difference between two interest rates, the difference between the bidding and asking price in trading securities or the price an issuer of stocks and bonds pays above a benchmark rate.
SpreadVar   Value that indicates the maximum possible loss on a trading portfolio due to the market performance of the credit spreads of the credit default swaps or bond spreads, with a certain degree of probability and assuming that the positions require a certain amount of time for their disinvestment.
SRI (Socially Responsible Investment   Asset management activity carried out according to environmental and social criteria. There are usually three different approaches: portfolio selection (securities are included or excluded depending on the environmental or social responsibility profile adopted by the issuing companies); active shareholding (the exercise of rights such as the right to vote at meetings, resulting from the ownership of shares to influence the company social responsibility policies); community investment (the investment of capital in marginal economies with the objective of local development).
Stakeholder

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Strictly speaking, stakeholders are those subjects on whom the company depends for its survival (called primary stakeholders): shareholders, employees, customers and regulators.
In a broader sense a stakeholder is any person who may influence or be influenced by the effects of the organization in terms of products, policies and processes (local communities, suppliers, government agencies, trade associations, competitors, protest groups, unions, media, etc.).
Stakeholder Engagement

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Stakeholder engagement is a strategic element in the management of the Group's activities: the quality of relation influence the alignment between the company commitment and the stakeholders expectations, the actions taken and their perceptions. The misalignment of these elements has an economic impact: directly because it causes inefficiency and ineffectiveness in the delivery of services but also indirectly, since it affects the company.
Stakeholders   Subjects who, acting in different capacities, interact with the firm's activity, sharing the profits, influencing its performance/services, and evaluating its economic, social and environmental impact.
Stakeholders   All parties that have an interest, financial or otherwise, in a firm. These include shareholders, creditors, bondholders, employees, customers, management, suppliers, the local community, and the government.
Stock exchange   An organised marketplace in which securities are bought and sold, prices being controlled by supply and demand.
Stock Exchange Indexes   These measure the changes in market prices on the basis of a selection of stocks. In Italy the S&P/MIB, representing a group of 40 leading stocks, is the most well-known.
Stock option   Option allocation whose underlying asset is the common stock of a company, giving the holder the right to buy its stock, at a specified price and by a specific date. They are offered to employees in order to motivate them and foster loyalty.
Stress test   A simulating procedure designed to assess the impact of extreme market scenarios on the Bank's overall exposure to risk.
Strike price   The price at which the owner of an option may buy or sell the underlying security.
Structured export finance   Transactions involving structured finance in the export of goods and services sector.
Sustainability Indexes

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The search for ethically correct companies suitable for carrying out various forms of socially responsible investment has enhanced the need to acquire reliable assessments on the correctness of company behaviour.
Over the years performance indexes of companies considered socially responsible have been drawn up. The most authoritative are: Dow Jones Sustainability Indexes (see glossary entry), FTSE4Good (see glossary entry), the result of a joint venture between the London Stock Exchange and the Financial Times, the ESI Index (Ethibel Sustainable Index) by Ethibel and the Ethical Euro Index by E.Capital Partners.
Sustainability Rating Agencies

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They assess social responsibility in companies to decide on their admission in Sustainability Indexes. They provide Socially Responsible Investors (SRI) performance benchmarks in areas such as: environment, relationship with the community, human resources management, business ethics and conduct, stakeholder engagement, human rights, supply chain control.
The main agencies are: SAM (Sustainable Asset Management), for admission in Dow Jones Sustainability Index (DJSI – see glossary entry) and EIRIS (Ethical Investment Research Service) for admission in FTSE4Good Index (see glossary entry).
Sustainable development   Development meeting contemporary needs without jeopardizing those of future generations (Brundtland Report - WCED World Commission for Economic Development - 1987).
Sustainable Development

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The "official" definition of sustainable development is that of the United Nations Brundtland Commission (1987), that is that sustainable development "meets the needs of the present generation without compromising the ability of future generations to meet their own needs".
Sustainable development, taking into account the resources limitation and the balance of ecosystems, refers to three components (economic, social and environmental), which should ensure progress, the preservation of nature and a fair distribution of resources.
According to another definition, proposed by the Forum for the Future, sustainable development is a dynamic process that makes people able to achieve their potential and to improve the quality of life in a way that will protect and strengthen the mechanisms of the planet to support life itself.
All definitions of sustainable development that have been given indicate the need to reconcile three equally important dimensions: economic, environmental and social (Triple Bottom Line - see glossary entry).
Sustainable Supply Chain

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The sustainable supply chain is a supply system which integrates the assessment of competitiveness with a social and environmental analysis on how the product or service has been made, the provenance and nature of raw materials and its global impact during the whole life cycle.
Swaps   Transactions normally consisting of an exchange of financial flows between operators under various contractual arrangements. In the case of a swap of interest rates, the opposite parties exchange flows of payment which may be indexed or unindexed to interest rates, calculated on a notional capital of reference (e.g., one party may pay a flow on a fixed-rate basis, while the opposite party may pay on a variable-rate basis). In the case of a swap of currencies, the opposite parties exchange specific amounts of two different currencies, repaying the same over time according to predefined arrangements that may regard both the notional capital and the indexed flows pertaining to the interest rates.
Syndicate   A group of banks that acts jointly, on a temporary basis, to loan money in a bank credit (syndicated credit) or to underwrite a new issue of bonds.
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