TECHNICAL ISO/TR
REPORT 32220
First edition
Sustainable finance — Basic concepts
and key initiatives
PROOF/ÉPREUVE
Reference number
ISO/TR 32220:2021(E)
ISO 2021
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ISO/TR 32220:2021(E)
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ISO/TR 32220:2021(E)
Contents Page

Foreword ........................................................................................................................................................................................................................................iv

Introduction ..................................................................................................................................................................................................................................v

1 Scope ................................................................................................................................................................................................................................. 1

2 Normative references ...................................................................................................................................................................................... 1

3 Terms and definitions ..................................................................................................................................................................................... 1

4 Basic concepts ......................................................................................................................................................................................................... 1

5 Principles, guidelines and regulation ..........................................................................................................................................10

6 Financial products and services ........................................................................................................................................................20

7 Verification, reporting and disclosure ........................................................................................................................................23

8 International initiatives and organizations ..........................................................................................................................25

Annex A (informative) Related ISO committees and directly related standalone standards .................31

© ISO 2021 – All rights reserved PROOF/ÉPREUVE iii
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ISO/TR 32220:2021(E)
Foreword

ISO (the International Organization for Standardization) is a worldwide federation of national standards

bodies (ISO member bodies). The work of preparing International Standards is normally carried out

through ISO technical committees. Each member body interested in a subject for which a technical

committee has been established has the right to be represented on that committee. International

organizations, governmental and non-governmental, in liaison with ISO, also take part in the work.

ISO collaborates closely with the International Electrotechnical Commission (IEC) on all matters of

electrotechnical standardization.

The procedures used to develop this document and those intended for its further maintenance are

described in the ISO/IEC Directives, Part 1. In particular, the different approval criteria needed for the

different types of ISO documents should be noted. This document was drafted in accordance with the

editorial rules of the ISO/IEC Directives, Part 2 (see www .iso .org/ directives).

Attention is drawn to the possibility that some of the elements of this document may be the subject of

patent rights. ISO shall not be held responsible for identifying any or all such patent rights. Details of

any patent rights identified during the development of the document will be in the Introduction and/or

on the ISO list of patent declarations received (see www .iso .org/ patents).

Any trade name used in this document is information given for the convenience of users and does not

constitute an endorsement.

For an explanation of the voluntary nature of standards, the meaning of ISO specific terms and

expressions related to conformity assessment, as well as information about ISO’s adherence to the

World Trade Organization (WTO) principles in the Technical Barriers to Trade (TBT), see www .iso .org/

iso/ foreword .html.

This document was prepared by Technical Committee ISO/TC 322, Sustainable finance.

Any feedback or questions on this document should be directed to the user’s national standards body. A

complete listing of these bodies can be found at www .iso .org/ members .html.
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ISO/TR 32220:2021(E)
Introduction

The practice of sustainable finance is evolving fast and is being endorsed by an increasing number of

regions, countries and economic entities with different focuses. Given this dynamic, there is a need

to inform users about basic concepts, key initiatives and terms in common use, in order to facilitate

communication among various types of financial market participants and stakeholders across wide

geographic regions.

To compile this document, many information sources were reviewed. These included international,

regional and national policies and frameworks, official websites and publications by multilateral

development financial institutions, international initiatives and organizations which contribute to

promoting, enabling and harmonizing sustainable finance practices worldwide, academic literature

and related International Standards.

Inclusion in this document demonstrates that a term has been widely accepted and used in the global

community of sustainable finance. However, its definition has not been formally endorsed through the

consensus-building process used for developing International Standards.

Each term includes at least one accessible source for its definition. Some terms refer to one or more

reference sources to provide the context for the definition. To improve ease of use, the listed key

sustainable finance concepts, initiatives and terms are grouped into five clauses:

— basic concepts (see Clause 4);
— principles, guidelines and regulation (see Clause 5);
— financial products and services (see Clause 6);
— verification, reporting and disclosure (see Clause 7);
— international initiatives and organizations (see Clause 8).

Additionally, the liaison ISO committees of ISO/TC 322 and standalone standards directly related to

sustainable finance are listed in Annex A.
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TECHNICAL REPORT ISO/TR 32220:2021(E)
Sustainable finance — Basic concepts and key initiatives
1 Scope

This document provides a non-exhaustive list of relevant basic concepts, key initiatives and terms

that are in common use in the global community of sustainable finance, and have been identified by

ISO/TC 322 as helpful to facilitate a greater understanding of the topics suggested by sustainable

finance practitioners, including but not limited to: financial regulators, development and commercial

banks, asset managers, investors, international initiatives and researchers.
The terms included in this document have been selected because they are:
— widely accepted and used in financial markets;

— sourced from supranational organization(s) or initiative(s), or national regulatory authorities;

NOTE With priority given to the source with the larger geographic coverage.

— likely to be used in documents from ISO/TC 322 and other related International Standards;

— of international prevalence and interest.
2 Normative references
There are no normative references in this document.
3 Terms and definitions
No terms and definitions are listed in this document.

ISO and IEC maintain terminological databases for use in standardization at the following addresses:

— ISO Online browsing platform: available at https:// www .iso .org/ obp
— IEC Electropedia: available at http:// www .electropedia .org/
4 Basic concepts

This clause outlines the basic concepts related to sustainable finance. In some instances, one source has

been cited, but in others several sources have been identified as appropriate, e.g. the term “sustainable

finance” has been used in many ways and this document identifies the four most appropriate

descriptions.
sustainable finance

Financing as well as related institutional and market arrangements that contribute to the achievements of

strong, sustainable, balanced and inclusive growth, through supporting directly and indirectly the framework

of the United Nations (UN) Sustainable Development Goals (SDGs).
[SOURCE: G20 Sustainable Finance Synthesis Report, Introduction, July 2018]

The process of taking due account of environmental and social considerations when making investment

decisions, leading to increased investment in longer-term and sustainable activities.

[SOURCE: European Commission website. Available from [last accessed 2021-03]: https:// ec .europa .eu/ info/

business -economy -euro/ banking -and -finance/ sustainable -finance/ overview -sustainable -finance _en

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ISO/TR 32220:2021(E)
sustainable finance
application of financial services to achieve the goal of sustainability

[SOURCE: PAS 7340:2020, Framework for embedding the principles of sustainable finance in financial services

organizations. Guide, 2.26]

incorporation of environmental, social, and governance (ESG) principles into business decisions, economic

development, and investment strategies

[SOURCE: International Monetary Fund. Global Financial Stability Report: Lower for Longer, Chapter 6:

Sustainable Finance, October 2019. Available from: https:// www .elibrary .imf .org/ view/ books/ 082/ 26206

-9781498324021 -en/ 26206 -9781498324021 -en -book .xml ?language = en & redirect = true #references]

sustainability

state of the global system, including environmental, social and economic aspects, in which the needs of the

present are met without compromising the ability of future generations to meet their own needs

[SOURCE: ISO 20400:2017, Sustainable procurement — Guidance, 3.33]
Further detail:

— The environmental, social and economic aspects interact, are interdependent and are often referred to as

the “three dimensions of sustainability”.
— Sustainability is the goal of sustainable development.
Sustainable Development Goals (SDGs)

The blueprint to achieve a better and more sustainable future for all. They address the global challenges we

face, including those related to poverty, inequality, climate change, environmental degradation, peace and

justice.
Further detail:

— The 17 goals are all interconnected and, in order to leave no one behind, it is important that all of them are

achieved by 2030.

[SOURCE: UN SDGs website. Available from [last accessed 2021-03]: https:// www .un .org/ sus tainablede

velopment/ sustainable -development -goals/ ]
sustainability taxonomy

classification system identifying activities, assets and revenue segments that deliver on key sustainability

goals based on the eligibility conditions set out by the taxonomy

[SOURCE: PAS 7340:2020, Framework for embedding the principles of sustainable finance in financial services

organizations. Guide, 2.24]
Further detail:

— Designed as a framework onto which existing (and future) definitions that are used in a variety of contexts

can be mapped, enabling comparability of different standards and products.

— A taxonomy is a framework that can be applied to a variety of financial instruments.

— The classification system is an evolving tool that requires continuous review and updating.

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ISO/TR 32220:2021(E)
green finance

financing of investments that provide environmental benefits in the broader context of environmentally

sustainable development

[SOURCE: G20 Green Finance Study Group. G20 Green Finance Synthesis Report, Summary, July 2016. Available

from: http:// www .g20 .utoronto .ca/ 2016/ green -finance -synthesis .pdf]

financial services provided for economic activities that are supportive of environment improvement, climate

change mitigation and more efficient resource utilization

[SOURCE: The People’s Bank of China et al. Guidelines for Establishing the Green Financial System (Yinfa 2016

Doc No. 228), 2016. Available from: http:// www .pbc .gov .cn/ english/ 130721/ 3133045/ index .html]

Further detail:

— These economic activities include the financing, operation and risk management for projects in areas such

as environmental protection, energy savings, clean energy, green transportation and green buildings.

climate finance

local, national or transnational financing—drawn from public, private and alternative sources of financing—

that seeks to support mitigation and adaptation actions that will address climate change

[SOURCE: UNFCCC Website. Available from [last accessed 2021-03]: https:// unfccc .int/ topics/ climate -finance/

the -big -picture/ introduction -to -climate -finance]
social finance

financing that supports actions mitigating or addressing a specific social issue and/or seeking to achieve

positive social outcomes especially but not exclusively for a target population(s)

[Adapted from source: ICMA. Sustainable Finance High-level definitions, May 2020. Available from: https:// www

.icmagroup .org/ assets/ documents/ Regulatory/ Green -Bonds/ Sustainable -Finance -High -Level -Definitions -May

-2020 -110520v4 .pdf]
microfinance

Loans, savings, insurance, transfer services and other financial products targeted at low-income clients.

[SOURCE: Wegner L. Microfinance: How Bankers Could Buy Back Their Soul. OECD Development Centre Policy

Insights, No. 31. OECD Publishing, Paris, 2006. Available from: https:// doi .org/ 10 .1787/ 244828638578]

blended finance

the strategic use of development finance for the mobilisation of additional finance towards sustainable

development in developing countries

[SOURCE: OECD website. Available from [last accessed 2020-08]: http:// www .oecd .org/ development/ financing

-sustainable -development/ blended -financeprinciples/ ]
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ISO/TR 32220:2021(E)
official development assistance (ODA)

government aid that promotes and specifically targets the economic development and welfare of developing

countries

[SOURCE: OECD website. Available from [last accessed 2021-03]: https:// www .oecd .org/ dac/ financing

-sustainable -development/ development -finance -standards/ official -development -assistance .htm]

Further detail:

— ODA is flows to countries and territories on the DAC List of ODA Recipients and to multilateral

development institutions that are: a) provided by official agencies, including state and local governments,

or by their executive agencies; and b) concessional (i.e. grants and soft loans) and administered with the

promotion of the economic development and welfare of developing countries as the main objective.

— DAC List of ODA Recipients: https:// www .oecd .org/ dac/ financing -sustainable -development/ development

-finance -standards/ daclist .htm
ESG investing (responsible investing)

strategies and practices that incorporate material ESG factors in investment decisions and active ownership

with a view to minimize risks and maximize returns

[SOURCE: ICMA. Sustainable Finance High-level definitions, May 2020. Available from: https:// www .icmagroup

.org/ assets/ documents/ Regulatory/ Green -Bonds/ Sustainable -Finance -High -Level -Definitions -May -2020

-110520v4 .pdf]
Further detail:
— ESG stands for “environmental, social and governance”.

— There has not been a standardized approach to evaluate ESG performance of investment portfolios,

although ESG ratings, benchmarks and indices are used by investors.

— Some ESG investing methodology includes “best in class/positive screening”, “negative screening/

exclusionary screening”, “sustainable thematic investing”, etc., see: https:// www .sustainablefinance .ch/

en/ glossary - _content - - -1 - -3077 .html
ESG integration

explicit and systematic inclusion of ESG issues in investment analysis and investment decisions

[SOURCE: PRI website. Available from [last accessed 2021-03]: https:// www .unpri .org/ fixed -income/ what -is

-esg -integration/ 3052 .article]
socially responsible investment (SRI)

investing with the aim of achieving financial returns while respecting specific ethical, environmental and/or

social criteria

[SOURCE: ICMA. Sustainable Finance High-level definitions, May 2020. Available from: https:// www .icmagroup

.org/ assets/ documents/ Regulatory/ Green -Bonds/ Sustainable -Finance -High -Level -Definitions -May -2020

-110520v4 .pdf]
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ISO/TR 32220:2021(E)
impact investment

investment made with the intention to generate positive, measurable social and environmental impact

alongside a financial return

[Adapted from source: GIIN website. Available from [last accessed 2021-03]: https:// thegiin .org/ impact

-investing/ need -to -know/ #what -is -impact -investing]
green technology (environmental technology)

technology that has the potential to significantly improve environmental performance relative to other

technology

[SOURCE: UN ESCAP. Low Carbon Green Growth Roadmap for Asia and the Pacific: Fact Sheet – Green Technology,

January 2012. Available from: https:// www .unescap .org/ sites/ default/ files/ 34 . %20FS -Green -Technology .pdf]

greenwashing

the practice of gaining an unfair competitive advantage by marketing a financial product as environmentally

friendly, when in fact it does not meet basic environmental standards

[SOURCE: Technical expert group on sustainable finance (TEG). Proposal for a Regulation of the European

Parliament and of the Council on the establishment of a framework to facilitate sustainable investment –

Approval of the final compromise text, December 2019. Available from: https:// data .consilium .europa .eu/ doc/

document/ ST -14970 -2019 -ADD -1/ en/ pdf]
sustainable supply chain

supply chain where purchasers and their suppliers can reduce operational risks, maintain profitability, and

meet the growing demand for organic, certified and sustainably produced goods by explicitly factoring social,

environmental, and governance criteria upstream, where raw materials are processed, and downstream to the

consumer

[SOURCE: IFC. Sustainable Finance Opportunities: Sustainable Supply Chain Finance, 2006. Available from:

https:// www .ifc .org/ wps/ wcm/ connect/ eea816de -4b76 -4d5b -b607 -665bfe5e6ac8/ FMS -EO -SupplyChain .pdf

?MOD = AJPERES & CVID = jkCUlzt]
sustainable infrastructure

infrastructure projects that are planned, designed, constructed, operated, and decommissioned in a manner to

ensure economic and financial, social, environmental (including climate resilience), and institutional

sustainability over the entire life cycle of the project

[SOURCE: UNEP Inquiry. Global Infrastructure Basel (GIB). Sustainable Infrastructure and Finance: How to

Contribute to a Sustainable Future, June 2016. Available from: http:// unepinquiry .org/ wp -content/ uploads/

2016/ 06/ Sustainable _Infrastructure _and _Finance .pdf]
environmental costs

costs connected with the actual or potential deterioration of natural assets due to economic activities

[SOURCE: OECD Statistics Portal website. Available from [last accessed 2021-03]: https:// stats .oecd .org/

glossary/ ]
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ISO/TR 32220:2021(E)
greenhouse gas emission reduction (GHG emission reduction)

quantified decrease in GHG emissions between a baseline scenario and the GHG project

[SOURCE: ISO 14064-2:2019, Greenhouse gases — Part 2: Specification with guidance at the project level for

quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements, 3.1.7]

Further detail:

— Greenhouse gas (GHG): gaseous constituent of the atmosphere, both natural and anthropogenic, that

absorbs and emits radiation at specific wavelengths within the spectrum of infrared radiation emitted by

the Earth’s surface, the atmosphere and clouds.

— Baseline scenario: hypothetical reference case that best represents the conditions most likely to occur in

the absence of a proposed GHG project.

— GHG project: activity or activities that alter the conditions of a GHG baseline and which cause GHG

emission reductions or GHG removal enhancements.
carbon pricing

to put a price on carbon pollution as a means of bringing down emissions and drive investment into cleaner

options

[SOURCE: World Bank Website. Available from [last accessed 2021-03]: https:// www .worldbank .org/ en/

programs/ pricing -carbon #CarbonPricing]
Further detail:

— There are two main types of carbon pricing: emissions trading systems (ETS) and carbon taxes.

carbon credit

tradable certificate or permit that represents the right to emit a specified amount of greenhouse gases

[SOURCE: ISO 6707-3:2017, Buildings and civil engineering works – Vocabulary – Part 3: Sustainability terms,

3.6.20]
Further detail:

— The unit of one carbon credit is equal to one tonne of carbon dioxide emissions.

— Allows an organization to benefit financially from an emission reduction.
carbon offsetting

mechanism for compensating for all or for a part of the carbon footprint of a product or the partial carbon

footprint of a product through the prevention of the release of, reduction in, or removal of an amount of

greenhouse gas emissions in a process outside the product system under study
[SOURCE: ISO 14050:2020, Environmental management – Vocabulary, 3.11.5]
Further detail:

— Carbon footprint is the net amount of GHG emissions and GHG removals, expressed in CO equivalents.

system whereby the government imposes a limit (cap) on the total emissions in one or more sectors of the

economy, and it issues a number of tradable allowances not exceeding the level of the cap

[SOURCE: World Bank website. Available from [last accessed 2020-08]: https:// www .worldbank .org/ en/

programs/ pricing -carbon]
Further detail:

— The advantage of an emissions trading system is that it permits compliance flexibility, allowing each

source to make a tailored choice in order to meet the target limit for emissions.

— There are two main types of trading systems: a) cap-and-trade systems, and b) baseline-and-credit

systems. In a cap-and-trade system, an upper limit on emissions is fixed, and emission permits are either

auctioned out or distributed for free according specific criteria. Under a baseline-and-credit system, there

is no fixed limit on emissions, but polluters that reduce their emissions more than they otherwise are

obliged to can earn “credits” that they sell to others who need them in order to comply with regulations

they are subject to.
social responsibility

responsibility of an organization for the impacts of its decisions and activities on society and the environment,

through transparent and ethical behaviour that

— contributes to sustainable development, including health and the welfare of society;

— takes into account the expectations of stakeholders;

— is in compliance with applicable law and consistent with international norms of behaviour; and

— is integrated throughout the organization and practised in its relationships.
[SOURCE: ISO 26000:2010, Guidance on Social Responsibility, 2.18]
Further detail:
— Activities include products, services and processes.

— Relationships refer to an organization’s activities within its sphere of influence.

CSR (corporate social responsibility)

a management concept whereby companies integrate social and environmental concerns in their business

operations and interactions with their stakeholders

[SOURCE: UNIDO Website. Available from [last accessed 2021-03]: https:// www .unido .org/ our -focus/

advancing -economic -competitiveness/ competitive -trade -capacities -and -corporate -responsibility/ corporate

-social -responsibility -market -integration/ what -csr]
disaster resilience

the capacity of a system, community or society potentially exposed to hazards to adapt, by resisting or

changing in order to reach and maintain an acceptable level of functioning and structure

[SOURCE: UNISDR. Hyogo Framework, 2005. Available from: https:// www .unisdr .org/ 2005/ wcdr/ intergover/

official -doc/ L -docs/ Hyogo -framework -for -action -english .pdf]
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ISO/TR 32220:2021(E)
climate resilience

the ability to anticipate, prepare for, and respond to hazardous events, trends, or disturbances related to

climate

[SOURCE: C2ES website. Available from [last accessed 2021-03]: https:// www .c2es .org/ content/ climate

-resilience -overview/ ]
Further detail:

— Governments and businesses are obtaining capital to invest in resilience projects through innovative

finance mechanisms such as green bonds and climate funds.
environmental-related risks

risks posed by the exposure of financial firms and/or the financial sector to activities that may potentially

cause or be affected by environmental degradation

[SOURCE: Network for Greening the Financial System (NGFS). First Comprehensive Report: A Call for Action-

Climate Change as a source of financial risk, April 2019. Available from: https:// www .ngfs .net/ sites/ default/

files/ medias/ documents/ ngfs _first _comprehensive _report _ - _17042019 _0 .pdf]

Further detail:

— Environmental degradation includes but is not limited to: air pollution, ware pollution and scarcity of

fresh water, land contamination, reduced biodiversity and deforestation.
climate-related risks

risks posed by the exposure of financial firms and/or the financial sector to physical or transition risks caused

by or related to climate change

[SOURCE: NGFS. First Comprehensive Report: A Call for Action-Climate Change as a source of financial risk, April

2019. Available from: https:// www .ngfs .net/ sites/ default/ files/ medias/ documents/ ngfs _first _comprehensive

_report _ - _17042019 _0 .pdf]
Further detail:

— Climate-related risks include transition and physical risks that can impact revenues, expenditures and

liabilities of financial institutions and non-financial groups.

— Description of transition and physical risks: https:// assets .bbhub .io/ company/ sites/ 60/ 2020/ 10/ FINAL

-2017 -TCFD -Report -11052018 .pdf
environmental risk assessment (ERA)

methods and modelling techniques used to size the financial impact of climate and environment-related risks

to micro-prudential objectives

[SOURCE: NGFS. First Progress Report, October 2018. Available from: https:// www .ngfs .net/ en/ first -progress

an approach to quantify the environmental risk probably facing financial institutions by making use of the

stress testing methodology

[SOURCE: Research Bureau of the People’s Bank of China and the Green Finance Committee of China Society for

Finance and Banking. Green Finance Terminology Handbook, 2018]
Further detail:

— The process is as follows: determine the stress taker and stress indicators; select the stress factors and

indicators, build the stress conduction model; analyse the stress test results; and bring forward the

policies and suggestions, see: https:// www .trucost .com/ publication/ internalization -of -environmental

-costs -for -investment -stress -testing/
stranded asset

asset that has suffered from unanticipated or premature write-downs, devaluations, or conversion to

liabilities

[SOURCE: Caldecott B., Howarth N., McSharry P. Stranded Assets in Agriculture: Protecting Value from Envi-

ronment-Related Risks. Smith School of Enterprise and the Environment, University of Oxford, 2013. Available

from: https:// www .smithschool .ox .ac .uk/ publications/ reports/ stranded -assets -agriculture -report -final .pdf]

Further detail:

— Inter-American Development Bank (IDB) adopted the definition in its report Stranded Assets: A Climate

Risk Challenge, 2016.
green financial system

the institutional arrangement that utilizes financial instruments such as green credit, green bonds, green

stock indices and related products, green development funds, green
...

ISO/PRF TR 32220

Sustainable finance -- Basic concepts and key initiatives

Sustainable finance -- Basic concepts and key initiatives

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Sustainable finance -- Basic concepts and key initiatives

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