30 www.ppf.co.uk Responsible Investment Report 2019/20 31 Managing climate change risks and opportunities A p Our commitment Strategy and identification of Phase 1, covering just under 20 Portfolio assessment phases by asset class p r Examples of potential o to the TCFD climate-related risks risks and opportunities per cent of the Fund, incorporates allocation (%): ach We are focusing our strategy and risk identified carbon footprinting, quantifying Liquids management of climate-related risks high carbon intensity and reserves 18% on the Scope 3 downstream ‘financed • Transition – risks that may ownership metrics to measure Since formally expressing our emissions’ related to our investments, impact company earnings in our liquid portfolio’s current and 1 support for the TCFD in 2018, defined by the Greenhouse Gas the shorter term (e.g. policy embedded exposure to corporate we have been assessing how to Protocol (https://ghgprotocol.org/ risks arising from carbon greenhouse gas emissions. We apply the recommendations to scope-3-technical-calculation- pricing or taxes) have also conducted preliminary our investments, and our first guidance), as this is where the majority analysis on emissions associated disclosure in line with the guidance of our material exposure to climate- • Technology – risks and with sovereign holdings in emerging is presented in our 2019/20 Annual market debt portfolios; however, E related risks exists. opportunities as companies the data availability is challenging LDI 3 xe Report and Accounts. As an asset & Cash Alternatives c develop (or do not adopt) 2 u for government and supranational t owner, the TCFD’s recommendations We started applying our climate superior technology to build 46% 13% io guide us to consider appropriate strategy in 2019/20. Identifying industry-based solutions issuers, especially in emerging market n governance and identify, assess our exposure and determining countries, and the results can be and manage climate-related risks appropriate management of climate- • Physical – risks in the medium characteristic of other factors, such as within our investments, including our related risks in our investments is to long term that, for example, international trade flows. We accept 2 external managers’ application of the a strategic priority for the PPF, may impact infrastructure and that there are inherent limitations recommendations. and a specific milestone within the property in certain locations with the current data and analysis 3 3 Hybrid 2019/20 Business Plan. Progress techniques, but we feel that they are assets Governance of against these milestones is reported • Opportunities – within some appropriate as a starting point for 13% climate-related risks to our Executive Committee on asset classes (e.g. sustainable assessing climate-related risks. Other Other Liquids Alternatives L Our governance and oversight of a quarterly basis. forestry assets that offer a o 5% 5% o climate-related risks follow the k viable nature-based solution in same governance structure as part g We started the process by identifying to carbon mitigation) f o of our overall ESG governance and Phase 1 Commenced 2019 r the types of climate-related risks w accountability. See page 14 for and opportunities that could impact ar further information. our investments, seeing that certain Phase 2 Planned 2020 d risks have different likelihoods or Phase 3 Planned 2020-2021 magnitude of impact, depending on the asset class: Focus areas in 2020/21 and beyond Roadmap: assessing our climate exposure We will extend carbon footprinting across some Having identified the main types of of our Alternatives and Hybrid assets, in particular potential risks, our next step was to real assets. Asset classes such as Private Equity and start assessing where the Fund could Alternative Credit have limited disclosures available be most exposed to these risks. at present, so we will revisit these as data availability We are taking a phased approach, and methodologies develop. For our Liability- prioritising through a combination Driven Investing (LDI) and Cash allocations, the of likely materiality of impact and level of impact is generally considered to be lower. availability of data tools for each We will continue to review climate risk modelling asset class. Due to the diversified developments to help us improve our understanding nature of our investments, we use and further refine our use of metrics. specific assessment methods most The UK Government’s Green Finance Strategy, appropriate to each asset class. launched in 2019, set an ambition for all UK-listed companies and large asset owners to report to the TCFD guidelines by 2022. We are striving to meet this ambition across the Fund within this time frame, to the best standards available. Our external managers are also being advised of our requirements for climate-risk assessment reporting on our mandates from them within the next fiscal year.