Climate & Nature Banking Starter Pack: 20 Key Terms You Actually Need to Know

The world of climate and nature-friendly banking is full of jargon. If you have ever tried to read a bank’s sustainability report or ESG policy, you have probably stumbled across terms like “transition risk”, “biodiversity finance” or “green bonds” and wondered what they really mean.

This “starter pack” pulls together 20 key terms that anyone interested in ethical, climate- and nature-positive banking should know. It is designed for customers, campaigners, and curious professionals who want clear, simple explanations without needing a finance degree.

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1. Sustainable finance

Sustainable finance means any kind of finance (loans, investments, insurance, bonds) that intentionally supports environmental or social goals, while still being financially sound. In practice, it covers everything from green bonds for renewable energy projects and alternative protein production to loans that help companies improve labour rights or cut pollution.

Banks and investors use “sustainable finance” as an umbrella term that includes climate finance, green finance, social finance and ESG investing.

2. Climate finance

Climate finance is money that specifically supports climate action, either by cutting greenhouse gas emissions (mitigation) or by helping people and infrastructure cope with climate impacts (adaptation).

Examples include loans for wind farms, investments in home insulation, and sustainable food production or funds to protect coastal communities from flooding.

3. Green finance

Green finance focuses on wider environmental goals, not just climate change. It includes finance for projects that protect forests, transition our food systems, restore wetlands, reduce pollution, save water or improve air quality, as well as climate-related projects.

All climate finance is a type of green finance, but not all green finance is strictly about climate.

4. Biodiversity finance / nature finance

Biodiversity finance (often called nature finance) is finance that contributes to conserving, restoring or avoiding harm to biodiversity and ecosystems.

This might include:

• Investments in restoring peatlands or mangroves

• Loans for nature-based solutions like urban green spaces or agroforestry

• Bonds that fund the protection of threatened habitats

It is a fast-growing part of green finance as banks and investors respond to the biodiversity crisis.

5. ESG (Environmental, Social and Governance)

ESG stands for Environmental, Social and Governance. It is a framework investors and banks use to assess how companies manage:

• Environmental issues (emissions, pollution, biodiversity, deforestation)

• Social issues (workers’ rights, animal welfare, community impacts)

• Governance (board structure, corruption, lobbying, transparency)

ESG is often used to label funds or products, but the quality and ambition of ESG approaches can vary widely between institutions.

6. Climate risk

Climate risk is the risk to banks and companies from climate change. It is usually divided into two main types:

• Physical risk: damage from floods, heatwaves, storms, droughts and other climate-related events

• Transition risk: financial shocks from the shift to a low-carbon economy (for example, changing regulations, new technologies, carbon prices or shifting consumer behaviour)

Regulators increasingly expect banks to understand and manage both forms of climate risk.

7. Physical risk

Physical climate risk covers the direct impacts of climate change on assets, operations and people.

For banks, this can mean:

• Mortgages on homes in flood-prone areas

• Loans to farms hit by droughts or heatwaves

• Insurance losses from more frequent storms or wildfires

These events can reduce borrowers’ ability to repay loans and damage the value of collateral, creating credit and market risks for banks.

8. Transition risk

Transition risk is the risk that arises as the world moves towards a low-carbon economy.

Examples include:

• High-carbon companies facing new carbon taxes or tougher pollution rules

• Meat and dairy producers losing market share to plant-based alternatives

• Fossil fuel or factory farming assets becoming “stranded” as demand falls

Banks exposed to these sectors can face credit losses, market volatility and reputational damage if they do not adapt their portfolios.

9. Nature-related risk

Nature-related risks are the financial risks that come from the degradation of nature, such as biodiversity loss, deforestation, soil erosion, factory farm pollution, water scarcity and the collapse of ecosystem services.

For banks, this can include:

• Loans to agribusinesses dependent on healthy soils and rainfall

• Investments in companies or sectors linked to deforestation, like beef production, or overfishing

• Exposure to sectors heavily reliant on pollination, water regulation or other ecosystem services

These risks are increasingly recognised alongside climate risk as material for the financial system.

10. Net zero

Net zero means that overall, human-caused greenhouse gas emissions are balanced by removals, so the total added to the atmosphere is zero.

For banks, a net zero target usually means:

• Reducing the emissions linked to their loans and investments (their “financed emissions”), e.g by investing in lower carbon energy and food sources

• Using credible, limited removals (like restoring forests) to deal with any remaining emissions

Net zero pledges are only meaningful if they are backed by clear interim targets, sector policies and real-world action.

11. Nature-positive

Nature-positive is the idea that human activity, including finance, should not just reduce harm to nature, but actively help it recover.

A nature-positive bank would aim to:

• Stop financing activities that drive biodiversity loss and ecosystem damage, like factory farming and fossil fuels

• Increase finance for activities that conserve, restore or regenerate nature

• Align its strategy with global biodiversity goals

12. Greenwashing

Greenwashing is when a bank or company markets itself as environmentally friendly or sustainable, but its actual practices do not match the claims.

Examples:

• Promoting a “green” fund that still invests heavily in factory farming or fossil fuels

• Publishing glossy sustainability reports while continuing to finance destructive activities at scale

Greenwashing undermines trust and makes it harder for consumers to identify genuinely ethical options.

13. Green bond

A green bond is a bond where the money raised is earmarked for environmentally beneficial projects, such as renewable energy, energy efficiency, sustainable food production, clean transport or biodiversity conservation.

Green bonds are typically expected to follow recognised principles that set expectations around:

• Use of proceeds

• Project selection

• Management of funds

• Impact reporting

14. Sustainability-linked loan / bond

A sustainability-linked loan (SLL) or sustainability-linked bond (SLB) is different from a green bond:

• The money raised can be used for general corporate purposes or to transition high-emitting sectors like industrial animal agriculture

• The interest rate or coupon is linked to the borrower meeting specific sustainability targets (for example, reducing emissions or deforestation footprint)

If the borrower fails to meet these targets, they may pay a higher rate; if they succeed, they may get a discount.

15. Transition finance

Transition finance is finance that helps high-emitting companies move onto credible pathways aligned with climate goals, for example in steel, cement, shipping, or agriculture.

Rather than being “green” today, transition finance supports:

• Time-bound, science-based decarbonisation plans

• Measurable reductions in emissions and other impacts

• Governance structures to hold companies accountable

The credibility of transition finance is often judged by its ability to support sectors fully transition to ‘green production’. For example, shifting from fossil fuels to renewable energy or factory farming to plant-based alternatives.

Used well, it can help shift high-impact sectors towards genuinely sustainable models.

16. Double materiality

Double materiality is the idea that banks should consider two things:

• How climate and nature affect the bank’s financial performance (traditional “financial materiality”)

• How the bank’s activities affect climate, nature and society (“impact materiality”)

This concept sits at the heart of many new sustainability reporting rules and is increasingly influencing how banks assess risk and responsibility.

17. Exclusion policy

An exclusion policy is when a bank or investor decides not to finance certain companies, sectors or activities because they are too harmful or risky.

Common exclusions include:

• Coal mining and coal power

• Arctic oil and gas

• Certain weapons, like cluster munitions

In a nature and food-systems context, strong exclusion policies can also cover:

• Deforestation-linked companies

• Factory farming/industrial animal agriculture

The details matter: policies can be narrow and full of loopholes, or broad and genuinely protective.

18. Stewardship / active ownership

Stewardship (or active ownership) is when investors and banks use their influence over companies to push for better behaviour on climate, nature and social issues.

This can involve:

• Voting at shareholder meetings

• Engaging with company management

• Filing or supporting shareholder resolutions

Done well, stewardship can drive change from the inside - for example transitioning meat companies to increase production of plant-based alternatives. Done weakly, it can become another form of greenwashing.

19. Just transition

A just transition means transforming the economy to be low-carbon and nature-positive in a way that is fair to workers and communities.

For banks, this can include:

• Supporting workers and regions that depend on high-carbon or nature-harming industries

• Ensuring new green investments create decent jobs and do not deepen inequality

• Avoiding abrupt shifts that leave communities behind

Climate and nature action that ignores justice risks losing public support and causing new forms of harm.

20. Taxonomy

A taxonomy in sustainable finance is a classification system that defines which economic activities can be labelled as environmentally sustainable.

One widely known example is the EU Taxonomy, which sets criteria for activities that make a substantial contribution to climate or environmental objectives and do no significant harm to others.

A robust taxonomy helps:

• Reduce greenwashing

• Guide banks and investors towards genuinely sustainable activities

• Support clearer standards for products like green bonds and loans

How to use this glossary

You can use this starter pack to:

• Decode your bank’s sustainability reports and climate or biodiversity disclosures

• Ask sharper questions when choosing an ethical or nature-friendly bank

• Support campaigning, research, or advocacy around climate and nature in finance

As climate and nature regulation evolves, more terms will appear. For now, these 20 give you a strong foundation to understand the conversation and to hold banks to account.

If you want to see how these concepts play out in practice, explore Bank for Nature’s rankings and bank profiles to compare how retail banks stack up on climate, nature, and factory farming exposure.