Agency. A bond or note issued under statutory authorization by an agency of the federal or a state government that sometimes is guaranteed by the government itself.

Alpha. A measure of the extra return awarded to the investor for taking a risk, instead of accepting the market return. The return on a security or portfolio in excess of what would be predicted by a model like the capital asset pricing model.

Alternative investment. Originally a catch-all term used to describe any social investment that did not fit into the category of a publicly traded security or mutual fund. See community investment. Now used to describe any non-traditional investment vehicle.

Asset. Anything one owns that another would buy; something one owns that has commercial or exchange value.

Asset return. The percentage change in price of the asset over a time-period plus any cash flow, such as a dividend.

Basis point (BP). One one-hundreth of 1 percent. Thus, in bond prices quoted in$1,000 maturity value, a basis point is worth $1. See point.

Benchmark. A standard against which something is measured; a reference point. In social investment, the term has both its conventional referent, i.e. an index, and a unique meaning, a social standard usually expressed in terms of a social screen.

Best of class. An approach to constructing screened portfolios which permits inclusion of companies on the basis of their records as the best in their industries. Its purpose is to gain diversification or to minimize beta in comparison to an unscreened index. This technique necessarily involves inclusion of companies that social investors would otherwise exclude.

Best practice (best management practice). Business strategy or internal work process that has proven to attain exemplary or superior operating performance. In the context of the corporate social responsibility (CSR) movement, best practices serve as models for businesses seeking to improve performance.

Beta. A measure of volatility, or systematic risk, of a security or portfolio in comparison to the market as a whole. In statistics, it is the covariance of the asset’s return with the market return, divided by the volatility (standard deviation) of the market return.

Bond fund. (1) U.S.: A mutual fund that invests exclusively in debt securities. (2) U.K.: A life insurance bond whose underlying vehicle may be a portfolio of securities or a unit trust.

Bond rating. A formal opinion expressed in letter or letter/number values by an outside professional service on the credit worthiness of an issuer and the investment quality of its securities.

Business judgment rule. A legal doctrine that shields management or a board from liability on a transaction relating to institutional assets, so long as the transaction was within the organization's powers and management's authority, and the board or management acted with due care and in good faith.

Bylaws. A rule adopted by a board or, rarely, the shareholders for the internal governance of a corporation.

Capital asset pricing model (CAPM). A model based on the insight that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If the expected return does not meet or exceed the required return, then the investment should not be made. CAPM is the Nobel Prize winning model developed by Bill Sharpe.

Charitable institution. A broad category of nonprofit organizations, including: schools and other educational entities; social service organizations, foundations; churches; arts organizations; and entities organized to relieve the burdens of government.

Charity. An activity for the public good undertaken without expectation of profit that may include improving the economic conditions of the poor, maintaining educational or religious establishments, or other activities for the public good.

Close corporation. A corporation with usually fewer than fifty shareholders.

Closely held corporation. U.S.: Under federal securities regulations, a corporation with fewer than five hundred shareholders whose stock is not otherwise subject to registration with the Securities and Exchange Commission (SEC).

Community development bank. A financial institution regulated by either a state agency or a federal agency whose principal business is the permanent, long-term economic development of low- and moderate-income communities through targeting loan resources to residents of its primary service area.

Community development credit union (CDCU). A credit union chartered specifically to serve low-income communities. Its legal structure is identical to that of other credit unions, except that a 1970 statute allows a CDCU to raise deposits from nonmembers, such as foundations, churches, banks, and corporations. These deposits are insured on the same basis as member deposits. Nonmember depositors do not have a vote in the credit union's affairs, nor may they borrow from it. See credit union.

Community development financial institution (CDFI). See bank, credit union or community development investment.

Community development investment. Direct investments, usually in the form of loans or bank deposits at or somewhat below market rates, in projects or financial institutions that benefit specific localities.

Community development loan fund. A community development financial institution that borrows from individuals and institutions at below-market rates and then makes loans to businesses and developers operating in and for the benefit of poor or rural communities.

Constrained. U.K.: Socially screened; an inaccurate term in its implication that some portfolios are unconstrained.

Control. In a corporation, the ability of a shareholder or a group of shareholders to run its operations.

Controlling person. U.S.: Under the Securities Act of 1933, a person who can greatly influence decisions of a corporation regardless of the amount of stock in the corporation he or she holds.

Corporate governance. Originally a term referring to the organizational structures and policies applied to corporate boards and management, the term is now best understood as "corporate governing", how boards and senior management run their corporations.

Corporation. A form of business that comes into existence when, upon an application by one or more persons, the secretary of state of a state issues a certificate of incorporation. Ordinarily, state law will limit its owners' liability for its debts to the amount of their investment.

Corporate social responsibility (CSR). The concept that corporations owe a greater duty to their communities and stakeholders than merely making profits legally. It is sometimes - and ideally - implemented by means of a comprehensive set of policies and procedures integrated throughout a company that, on the one hand, address the existing social, moral and legal expectations for the business and, on the other, express the company's aspirations for its relations with its stakeholders and to the environment. More often, it is invoked to describe particular actions a corporation wishes to appear as part of a systematic approach to operations.

Credit risk. In bonds, the probability that an issuer will not repay the principal and interest in a timely fashion or at all. See risk.

Credit union. A nonprofit, federally regulated, cooperative financial institution owned and controlled by its members, the borrowers and savers who use the institution. By law the members must share a "common bond," such as a church affiliation, a profession, or a common employer. Each member has one vote, regardless of the amount of his or her deposit.

Debt. In terms of securities, corporate borrowings evidenced in the form of bonds, debentures, or commercial paper.

Defined benefit pension plan. A pension scheme sponsored by an employer or a union which on retirement or disability pays retiree a set benefit determined by the employee's years of service and wages.

Defined contribution pension plan. A pension scheme to which employees voluntarily contribute; their employer may or may not add funds. The benefits s/he derives depend on how much the employee contributed and his/her decisions about investing the contributions. Defined contribution plans are usually referred to by the section of the Internal Revenue Code that governs them, i.e., 401(k), 403(b), and 457 plans.

Derivative. In terms of securities, a product derived from a type of securities or another financial vehicle.

Development deposits. Market rate bank deposits combining competitive returns with the social dividend or renewing distressed minority neighborhoods.

Diversification. A policy of spreading investments across a spectrum of securities to minimize risk. Successful diversification depends on buying securities with a very low covariance, that is they do not fluctuate in lockstep.

Divestiture. See divestment.

Divestment. The selling of certain types of shares on principle.

Economic risk. In bonds, the probability that economic conditions will deteriorate and thereby affect the safety of the principal and interest payments. See risk.

Economically targeted investing (ETI). An investment of value by a pension fund or foundation intended to achieve a market rate of return and confer a benefit (social or economic) to the public at large. See alternative investment.

Efficient portfolio. See optimal portfolio.

Eleemosynary. Charitable.

Employee stock ownership plan (ESOP). (1) A mechanism by which employees receive shares of the company for which they work. In general, to create an ESOP, a company sets up a trust fund that borrows money to buy company stock. The company makes tax-deductible contributions to the trust, which uses the money to repay the loan. As the loan is repaid, the trust releases shares from a "suspense account" and allocates them to accounts for individual employees, who receive their shares when they leave the company. (2) A trust fund established to implement an ESOP.

Engagement. The use of the franchise (the right to vote) conferred by stock ownership to raise social, environmental or corporate governance issues with securities issuers. The term is of British origin and is more commonly used in the UK and EU than in the US. See shareholder activism.

Environmental management system (EMS). A formal structure managers adopt to shape behavior that will help achieve environmental goals; the part of an entity's management system that sets the rules for assigning responsibility and allocating resources to effect environmental policy objectives.

Equities. Equity securities; ownership interests in a corporation; stock; intangible personal property, ownership of which usually is represented by a share certificate or stock certificate.

Equity. Ownership.

Ethical investment. Canadian and British term for socially responsible investment.

Ethics. Standards of conduct or of moral judgment.

Event risk. In bonds, the probability that an event, such as a leveraged buyout, will affect the security's value. See risk.

Ethical investing. Canadian and British term for socially responsible investing.

Ex-ante. The predicted or expected value of a variable; for example, ex-ante tracking error.

Ex-post. The actual or realized value of a variable; for example, ex-post returns.

Exclusionary screen. A social or environmental criterion that, if not satisfied, eliminates companies for consideration for an investment universe. See qualitative screen; screen; social screen.

Fiduciary. A person who assumes the responsibility to act for another's benefit with scrupulous good faith and candor; a trustee.

Fiduciary duty. A legal obligation owed by a person or entity to another whose property it holds or on whose behalf it acts.

Foreign corporation. A corporation incorporated under laws of another state.

For-profit corporation. A private corporation generally engaged in a business.

General social investment guidelines. A policy statement on social investment adopted by a board of trustees. See working social investment guidelines.

Good faith. "Honesty in fact in the conduct or transaction concerned" (Uniform Commercial Code, sec. 1-201[19]).

Governance. See corporate governance.

Index. n. A means of measuring the performance of a financial market or a sector of a particular market through the combined prices of some or all of its constituents. v. To manage assets with the objective of approximating the performance of an index.

Institution. (1) An incorporated or unincorporated entity organized and operated exclusively for educational, religious, charitable, or other eleemosynary purposes. (2) A generic term for any organization - such as a pension fund, mutual fund, bank, or insurance company - whose primary purpose is the acquisition or management of financial assets.

Institutional investor. An investor that is not an individual and may be a foundation, endowment, pension fund, or the like.

Interest rate risk. In bonds, the probability that a bond's price will rise when interest rates fall and will decline when interest rates rise. See risk.

Investment advisor. A person in the business of advising others, either directly or through publications, on the value of securities or on whether to buy, to hold, or sell securities. See registered investment advisors.

Investment policy. A written statement of an institution's objectives for its portfolio.

Investment trust. UK: A company that invests its shareholders' contributions in publicly traded securities. They are closed-end investments traded on exchanges in the same way as equities. Investment trusts are different from unit trusts in that unit holders are not shareholders.

Institutional investor. An investor that is not an individual and may be a foundation, endowment, pension fund, or the like.

Large cap. n. A publicly traded U.S. stock usually among the top 1000 in market capitalization. See microcap, small cap.

Liquidity risk. In bonds, the degree of difficulty in buying and selling that is a function of issue size, credit quality, and quantity for sale. It is measured by the spread between bid and ask quotes. A spread of one-quarter to one-half point represents ample liquidity while a 2 to 3 percent spread suggests less liquidity. See risk.

Listed. Traded on a securities exchange.

Management system. A formal documented structure of rules and resources that managers adopt to organize behavioral routines toward organizational goals. The term is most commonly used with reference to the environment. See environmental management system. However, the term increasingly appears in the contexts of human rights, labor rights, and community relations.

Market capitalization. The total value of a corporation's issued and outstanding common stock calculated by multiplying the total number of shares by the price per share.

Market cycle. The recurring pattern in the securities markets of expansion (bull market) followed by contraction (bear market).

Market return. The return of the market portfolio. In the capital asset pricing model, this portfolio is the market capitalization weighted collection of all possible risky securities. In practice, a reduced opportunity set of assets is often used as a market proxy.

Microcap. A publicly traded U.S. stock usually with a market capitalization of less than $500 million. See large cap, small cap.

Microenterprise. The smallest size of businesses.

Microlending. A type of loan program directed at microenterprises that relies on peer support and pressure.

Mission. An institution's purpose or calling which is often formulated in a mission statement.

Mission-based investing. The incorporation of social considerations relating to an institutional investor's mission in its investment decision-making process.

Mission statement. A brief summary - sometimes aspirational - of why an institution exists and what its objectives are.

Modern portfolio theory (MPT). A theory on how risk-averse investors can construct portfolios in order to optimize market risk for expected returns, based on the assumption that accepting risk is an inherent part of realizing higher returns. According to the theory, it is possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk.

Money manager. Portfolio manager.

Moral investment. A term used by some - usually politically "conservative" - investors to distinguish their incorporation of non-financial criteria in investment decision-making from socially responsible investment.

Mutual fund. U.S.: An entity organized under the Investment Company Act of 1940 whose purpose is to raise and manage money. Shares in a mutual fund are, themselves, securities.

Negative screen. An exclusionary screen. Rarely applied by social investors, the phrase is used by SRI critics to imply that product screens - such as ones on tobacco products -- are inferior, simplistic or otherwise flawed.

Non-governmental organization. A business organization, usually a charitable or non-profit corporation, that has as its mission either public functions usually associated with government or the monitoring of government; a very broad, much -encompassing term, though it most commonly is used to refer to organizations with a social justice or humanitarian focus.

Nonprofit. An organization whose purpose is other than making profits; a corporation so chartered under the laws of its state of incorporation.

Nonprofit corporation. A corporation not organized to make profits; a corporation often but not always organized for a charitable purpose.

Over-the-counter (OTC) security. A security usually not listed on a major exchange that trades by means of a computer network linking brokerages across the country.

Passive investment. An investment designed to mirror the performance of an index and, hence, a market.

Performance. The percentage change in a portfolio's value over a specified period. In order to be meaningful, that number must be compared to a benchmark designed to gauge performance of similar types of portfolios.

Plan sponsor. A corporation, union, government unit, or other entity that sets up and maintains a pension plan.

Point. One percent; in bond prices a point is worth $10, since bond prices are quoted as percentages of $1,000 maturity value. See basis point.

Poison pill. A type of shareholder rights plan incorporated in the company's bylaws that is intended to ward off hostile takeovers and that, upon some triggering event, such as the acquisition by a tender offer or of a certain percentage of a corporation common stock, entitles the remaining shareholders to receive additional shares of common stock [or other securities] at bargain prices.

Political risk. In bonds, the probability that an issue will lose its tax-exempt status. See risk.

Portfolio. A metaphor for an owner's investments.

Portfolio management. The management of financial assets for the benefit of another.

Portfolio manager. A person or firm who, for a fee, assumes responsibility for managing part or all of a client's portfolio; a money manager.

Portfolio risk. The expected (ex-ante) or actual (ex-post) volatility of a portfolio's returns.

Principal. (1) An amount invested exclusive of earnings. (2) The property a grantor places in trust. (3) A person who employs an agent.

Privately held corporation. A corporation whose stock is not publicly traded.

Professional corporation. A corporation whose shareholders have joined together to offer legal, medical, architectural, or other professional services.

Program-related investment. (1) Community development investment. (2) A loan or another type of investment (as opposed to a grant) made by a foundation, endowment or non-governmental organization for a purpose related to its charitable mission.

Proxy. 1. A person authorized to vote another's shares. In the case of a publicly traded corporation, that person is usually designated by the corporation. 2. A power of attorney that authorizes another to vote one's shares.

Proxy statement. A document, usually a pamphlet, that accompanies a proxy which states the issues -- and provides some explanation of them - on which shareholders will vote at a corporation's annual meeting. The corporation prepares the proxy statement, though it must include explanatory text supplied by proponents of shareholder resolutions.

Prudent person rule. A trustee is under a duty to a trust's beneficiaries to invest and manage the funds of the trust as a prudent investor would, in light of the purposes, terms, distribution requirements, and other circumstances of the trust. A trustee must exercise reasonable care, skill, and caution. This caution must be applied to investments not in isolation but in the context of the trust portfolio and as a part of an overall investment strategy, which should incorporate risk and return objectives reasonably suitable to the trust

Public corporation. A corporation created by a specific act of Congress or of a state legislature.

Publicly traded corporation. A corporation whose stock or debt or both can be bought and sold on an exchange.

Publicly traded security. A security commonly bought and sold on a defined market.

Qualitative screen. A social or environmental criterion that takes into account both positive and negative factors relating to a corporation's responses to the demands of today's society. Generally, these are complex screens in areas such as the environment and labor relations. See exclusionary screen; screen; social screen.

Quant. A quantitative money manager; a person who uses money-management techniques relying primarily or solely on mathematical techniques.

Rating criterion. In KLD's evaluations of companies, a factor used in determining whether a company would be included in the portfolio of a mainstream social investor. The term is roughly synonymous with social screen, but in practice it is more likely to be an element of a screen.

Reasonable person. A judicial fiction who always acts prudently and does the right thing; an expression of the conduct society demands.

Reconstitution. An annual process of rebuilding KLD's indexes so that they reflect changes in the market which if, not adjusted for, would lead to style, capitalization or sector/industry weight drift. The reconstitution takes effect after the close on June 30 of each year.

Redlining. The practice of removing poor or minority communities from a bank's lending area.

Registered investment advisor (RIA). U.S.: An investment advisor registered under the Securities Exchange Act of 1934 with the Securities Exchange Commission.

Restricted list. A list of issues supplied by a client to a manager whose securities are not to be bought for its portfolio.

Risk. n. 1. The possibility of losing rather than winning. 2. The input required to generate a return on an investment. 3. A measure of price fluctuation relative to a broad market gauge. 4. The chance that the actual (ex-post) return of an investment will differ from its expected (ex-ante) return. A measure of a portfolio's variance, which is often expressed in terms of the annualized standard deviation.

Screen. To look for securities that meet defined criteria. n. A criterion or a group of criteria that affect the selection of securities in the investment decision-making process. Cf.: social screen.

Screened portfolio investing. The application of social criteria to conventional investments, such as stocks, bonds, and mutual funds.

Securities. A security is an instrument, issued in bearer or registered form, that is of a type commonly dealt in upon securities exchanges or markets or dealt in as a medium for investment. It is either one of a class or series or by its terms is divisible into a class of series of instruments, and evidences a share, participation, or other interest in property or in an enterprise or evidences an obligation of the issuer (UCC, 5, 80102[1][a]).

Securities & Exchange Commission (SEC). An administrative agency of the U.S. government that regulates publicly traded securities and securities markets.

Share. A unit of ownership in a corporation, mutual fund, or money market mutual fund; stock.

Shareholder action. A concerted effort by shareholders to affect a corporate practice and public opinion about it. This can involve the filing of a resolution to be voted on at the company's annual meeting.

Shareholder activism. U.S.: The use of the franchise (the right to vote) conferred by stock ownership to raise social, environmental or corporate governance issues with securities issuers. See engagement.

Small cap. A publicly traded U.S. stock whose market capitalization is greater than $500 million but less than companies in the top 1000 of market capitalization. See large cap, micro cap.

Social investment policy. A general statement on social investment adopted by a board of trustees.

Social screen. An ethical, social or environmental criterion applied in the investment decision-making process. See exclusionary screen; qualitative screen; rating criterion; screen.

Social screening. The application of ethical, social or environmental criteria in the investment decision-making process. See screen.

Socially responsible investing (SRI). The incorporation of an investor's social, ethical, or religious criteria in the investment decision-making process.

Stakeholder. A person or organization whom the activities of a corporation impact directly or indirectly and who therefore has an interest in the corporation's future. The term is not a synonym for "shareholder" but a shareholder is a class of stakeholder.

Stock. An ownership share in a corporation. See share.

Sustainable. Investment decisions based on the alignment of a company's social, environmental and financial performance. Sustainability implies respecting the limits of the natural environment, providing for basic human needs, and maintaining economic institutions that protect the ability of future generations to meet their needs and aspirations.

Systematic risk. Risk that is common to all securities in a broad class and cannot be eliminated by diversification. See beta; risk; unsystematic risk.

Tracking error. A measure of the expected (ex-ante) or actual (ex-post) deviation of a portfolio from its benchmark. In statistics, tracking error is the standard deviation of the active (benchmark relative) returns.

Trust. (1) A fiduciary relationship created by one person (the creator) in which a second person (the trustee) holds title for the benefit of a third (the beneficiary). (2) The assured reliance on another's integrity.

Trust instrument. A document creating a trust.

Unsystematic risk. Risk that is specific to a security; the weighted sum of the stock-specific variances of each stock in a portfolio. See alpha; risk; systematic risk.

Unit trust. UK: An organization operating under a trust deed that takes money from investors and invests it in a range of stocks, thereby spreading the risk.

Volatility. The relative rate at which the price of a security moves up and down. Volatility is calculated as the annualized standard deviation of the daily change in price. A measure of the relative volatility of a stock (or portfolio) to the market is its beta.

Working social investment guidelines. The implementation strategy, usually formulated by an investment committee, of a board's social investment policy. See general social investment guidelines.

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