32 www.ppf.co.uk Responsible Investment Report 2019/20 33 Managing climate change risks and opportunities – continued A p Scenario analysis and risk Physical risks targets, conducting climate- risks and opportunities of the low- actions from management such as p r o management Physical risks can manifest in the risk stress tests, and increased carbon transition. They wrote to strategic alignment with the goals ach We have started to consider methods short, medium and long term, and disclosures which included TCFD 63 companies were 63 companies to advise them on of the Paris Agreement, or building for evaluating the future resilience of both chronic and acute risks will have reporting. We have also asked some engaged with ahead these guidelines and requested resilience to climate change. In the our portfolios, by reviewing a range different implications across asset companies to link executive pay to further engagement ahead of each calendar year of 2019, across our of different scenarios where climate classes. We are in the early stages of climate change outcomes, to ensure of AGMs on our company’s annual shareholder segregated and pooled equities, issues may be material. building our understanding of these that their lobbying activities with meeting. Through engagement, a few we supported 24 high-profile risks across the portfolio, focusing policymakers or regulators do not TPI-informed voting. companies disclosed further details resolutions at US companies that undermine the achievement of the of their climate change strategies called for better climate change Transition risks on: coastal flooding; extreme Paris Agreement goals. and emissions, leading to improved disclosure, adoption of greenhouse A large portion of the scenario snowfall; extreme cold; extreme scores in TPI analysis. gas emissions reduction targets, wind; extreme heat; tropical cyclone; Alongside engagement, we will vote and reporting on lobbying and E analysis tools available focus on and precipitation. for resolutions that reinforce our As participants in investor political activities. We also voted for xe transition risk, which include varying c u own stewardship principles, and initiatives such as Climate Action shareholder resolutions outside t assumptions about the likely timing io of policy changes, technology Climate change stewardship in especially those that are consistent 100+, we are also constructive of of the US, including a resolution n adaptation, changes in energy risk management with our climate change policy and certain shareholder resolutions on lobbying reporting at a large mix, and so on. The International Active stewardship and engagement the goals of the Paris Agreement. that encourage appropriate diversified mining company, and Energy Agency (IEA) scenarios are are key tools in the management Our external provider applies the improvements in company a resolution calling for strategic the most commonly used, which of climate risks, and we believe in TPI methodology to guide votes on management and the disclosure of alignment to the Paris Agreement project forward-looking pathways of engagement over divestment as a climate-related issues, and would material climate-related financial at a large UK ‘oil major’ – another the activities required in practice to fundamental enabler to a low-carbon consider voting against the chair risks. Some significant shareholder resolution to be supported by the remain within certain temperature transition. In 2019/20, conversations of the board of a company ranked Supported 24 US resolutions resolutions were filed during 2019, company’s management. warming scenarios (e.g. 1.5°C, 2°C, held with issuers on our behalf low by TPI, unless a credible plan related to climate change mostly in the US, which requested is provided to address the climate L Business as Usual, etc.). focused on setting science-based o o k in g f o r Initial assessments from our data providers or open-source In action w ar tools include: For example, our external d • Extractive companies – potential ‘stranded’ assets for extractive provider acts as lead or co- companies with significant fossil fuel reserves, where some reserves lead engager for 27 companies may remain unexploited due to their unrealised embedded emissions. included in Climate Action 100+. We saw encouraging progress from a major oil company in • Power generation companies – the respective share of fossil 2019, where the company’s fuel and renewable power in the generation mix indicates power management also supported companies’ preparedness for operating in a world where temperature the shareholder resolution warming is kept below 2-degrees, and the scale of transitioning that developed by our external needs to occur towards low carbon technologies. provider – calling on the company to set a strategy consistent • Companies’ carbon earnings-at-risk – certain sectors or with the Paris Agreement goals. jurisdictions are more vulnerable to increased carbon prices resulting This had co-filing support from from legislation around carbon taxes or cap-and-trade schemes. investors owning almost 10 per cent of the company – the largest ever secured for a • Companies’ climate value-at-risk and ‘warming potential’ climate change shareholder – can also be aggregated to the portfolio level. Incorporates both resolution, which passed with the transition and physical risks, and provides an understanding of the support of over 99 per cent of portfolios’ potential warming temperature in aggregate (based on the shareholders at the 2019 AGM. Intergovernmental Panel on Climate Change (IPCC) Representative Similarly, we saw progress after Concentration Pathways that result in a range of warming outcomes). a long-term dialogue with a UK utility company, resulting in their • Open-source analysis – including the Transition Pathway Initiative ambition to support emissions (TPI) and the Paris Agreement Capital Transition Assessment (PACTA) reduction from their customers tools (both supported by the PRI), and the PRI’s Inevitable Policy of 25 per cent by 2030, and to Response (IPR) forecast for policy scenarios by 2025. develop a path to net zero by 2050.