Responsible Investment Report 2019/20

wwwwww.ppf.ppf..coco.uk.uk RResponsibesponsible Inle Invvestment Restment Report 2eport 200119/29/200 1 A p p r Contents o As a UN-supported Principles ach for Responsible Investment Part 1: Approach 2 Aim of the Responsible Investment Report 4 (PRI) signatory and formal Executive summary 6 Leadership statements 8 supporter of the Financial Stability The foundations of our RI principles 12 Our RI approach 14 E x e Board Task Force on Climate- c u t ion related Financial Disclosures Part 2: Execution 18 Being active owners 20 (TCFD), we recognise the value in Managing climate change risks and opportunities 30 being clear about our Responsible Investment (RI) strategy and Part 3: Looking forward 38 L o Continuing to drive RI forward 40 ok in g sharing what we are doing. Meet the team 42 f o r w ar d

wwwwww.ppf.ppf..coco.uk.ukRResponsibesponsible Inle Invvestment Restment Report 2eport 200119/29/200 1 A p p r Contents o As a UN-supported Principles ach for Responsible Investment Part 1: Approach 2 Aim of the Responsible Investment Report 4 (PRI) signatory and formal Executive summary 6 Leadership statements 8 supporter of the Financial Stability The foundations of our RI principles 12 Our RI approach 14 E x e Board Task Force on Climate- c u t ion related Financial Disclosures Part 2: Execution 18 Being active owners 20 (TCFD), we recognise the value in Managing climate change risks and opportunities 30 being clear about our Responsible Investment (RI) strategy and Part 3: Looking forward 38 L o Continuing to drive RI forward 40 ok in g sharing what we are doing. Meet the team 42 f o r w ar d

2 www.ppf.co.uk Responsible Investment Report 2019/20 3 A ppr oa c Approach h E x e c u t ion L o o k in g f o r w ar d

2www.ppf.co.ukResponsible Investment Report 2019/20 3 A ppr oa c Approach h E x e c u t ion L o o k in g f o r w ar d

4 www.ppf.co.uk Responsible Investment Report 2019/20 5 Aim of the Responsible Investment Report A ppr oa c h E x e c u t ion 1 2 3 L o o k in g f In part 1 of this report we In part 2, we outline the Part 3 looks forward o r w Responsible investing and the integration outline who we are, why we execution of our key to future developments ar of environmental, social and governance believe being a responsible priorities in being active planned for 2020/21 d Responsible (ESG) factors have been embedded in our investor is important, and owners and managing and beyond. investment is investment process since our inception. how we endeavour to act climate change risks and an important In 2018 we enhanced and formalised responsibly in our day-to-day opportunities. This also commitment in our RI framework. Since then, we have investment activities. covers our commitment to our Strategic Plan. focused on applying the framework across investor collaboration, which is critical to the success I’m delighted to both internally and externally-managed of the wider industry, as introduce our portfolios. together, we are better inaugural RI report, equipped to meet the As a UN-supported Principles for challenges facing us. which sets out our Responsible Investment (PRI) signatory RI strategy and and formal supporter of the Financial progress so far. Stability Board Task Force on Climate- related Financial Disclosures (TCFD), we recognise the value in being clear Oliver Morley, CEO about our RI strategy and sharing what we are doing. 06-17 18-37 38-42

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4www.ppf.co.ukResponsible Investment Report 2019/20 5 Aim of the Responsible Investment Report A ppr oa c h E x e c u t ion 1 2 3 L o o k in g f In part 1 of this report we In part 2, we outline the Part 3 looks forward o r w Responsible investing and the integration outline who we are, why we execution of our key to future developments ar of environmental, social and governance believe being a responsible priorities in being active planned for 2020/21 d Responsible (ESG) factors have been embedded in our investor is important, and owners and managing and beyond. investment is investment process since our inception. how we endeavour to act climate change risks and an important In 2018 we enhanced and formalised responsibly in our day-to-day opportunities. This also commitment in our RI framework. Since then, we have investment activities.covers our commitment to our Strategic Plan. focused on applying the framework across investor collaboration, which is critical to the success I’m delighted to both internally and externally-managed of the wider industry, as introduce our portfolios. together, we are better inaugural RI report, equipped to meet the As a UN-supported Principles for challenges facing us. which sets out our Responsible Investment (PRI) signatory RI strategy and and formal supporter of the Financial progress so far. Stability Board Task Force on Climate- related Financial Disclosures (TCFD), we recognise the value in being clear Oliver Morley, CEO about our RI strategy and sharing what we are doing. 06-17 18-37 38-42

6 www.ppf.co.uk Responsible Investment Report 2019/20 7 Executive summary A ppr oa 2019/20 RI highlights c h General highlights Approach Execution Looking forward to 2020/21 E x e c u t Published first RI report Expanded in-house ESG Expanded ESG data coverage and Develop enhanced stewardship policy, ion dedicated resources commenced climate-related analysis including bespoke voting policy 1st 2020 L o o k in g Reported in line with Enhanced RI strategy Encouraged external managers to Develop further assessments and f o r recommendations from TCFD and framework enhance ESG practices & reporting scenario analysis of climate-related w ar risks & opportunities d TCFD Achieved PRI assessment score A+ Developed climate Over 50% of our objectives were progressed Consider ESG implications of for Strategy & Governance change policy to the next milestone during engagement with COVID-19 and the ‘new normal’ companies in our segregated equity portfolios + A 50% Participated in government-backed Integrated minimum ESG requirements Supported 24 significant shareholder Transitioning our managers towards Pensions Climate Risk Industry Group into external manager arrangements resolutions related to climate change best practice reporting standards at US AGMs during the year on ESG and climate risks 24

6www.ppf.co.ukResponsible Investment Report 2019/20 7 Executive summary A ppr oa 2019/20 RI highlights c h General highlightsApproachExecution Looking forward to 2020/21 E x e c u t Published first RI report Expanded in-house ESG Expanded ESG data coverage and Develop enhanced stewardship policy, ion dedicated resourcescommenced climate-related analysis including bespoke voting policy 1st 2020 L o o k in g Reported in line with Enhanced RI strategy Encouraged external managers to Develop further assessments and f o r recommendations from TCFDand frameworkenhance ESG practices & reporting scenario analysis of climate-related w ar risks & opportunities d TCFD Achieved PRI assessment score A+ Developed climate Over 50% of our objectives were progressed Consider ESG implications of for Strategy & Governance change policyto the next milestone during engagement with COVID-19 and the ‘new normal’ companies in our segregated equity portfolios + A 50% Participated in government-backed Integrated minimum ESG requirements Supported 24 significant shareholder Transitioning our managers towards Pensions Climate Risk Industry Groupinto external manager arrangements resolutions related to climate change best practice reporting standards at US AGMs during the year on ESG and climate risks 24

8 www.ppf.co.uk Responsible Investment Report 2019/20 9 Leadership statements A ppr Chair’s foreword oa c h On behalf of the Board, I am We take all our responsibilities UK pensions sector, as one of the E x e pleased to reaffirm our commitment seriously and, despite our continued world’s largest investor groups c u t RI has always been to RI at the PPF. We have been success, we will never permit representing £1.6 trillion of assets, ion responsible stewards since the PPF ourselves to become complacent. should be a leader on this. The UK’s at the core of how was established 15 years ago, and Recognising these responsibilities, enhanced regulations provide a we do things and I signatories to the PRI since 2007. we look to emulate best practice significant opportunity to strengthen We pride ourselves on being a stable in governance and regulation. We how its pensions industry is taking am delighted that, organisation with strong principles fully support the guidance of the ESG factors into account and and values, and we are committed to TCFD, and our response to the reporting on them, particularly for with a lot of work continuing to protect our members recommendations is reflected in climate-related issues. Over the past done behind the for many years to come. the 2019/20 Annual Report and year, we have enjoyed working with Accounts. the DWP and The Pensions Regulator As a long-term investor, we look to be (TPR), among other participants, as a L scenes, we are now o vigilant and remain agile to all market We also believe in strong peer member of the Pensions Climate Risk o k publishing our dynamics and evolving global trends – collaboration across the industry, Industry Group. Its objective is to in g f including climate change – to identify both with other asset owners support UK schemes on this journey, o r inaugural RI report. risks and opportunities. In order to and our external managers. We and we hope that the new Pension w ar serve our members, and provide for welcomed the recent regulatory Schemes Bill will also be a driver for d our levy payers and other stakeholders, amendments by the Department continuing progress. we take a strong and informed stand for Work and Pensions (DWP) that on responsible investing. It is a priority, clarified the requirements for UK We have no doubt that the as set out in our Strategic Plan. With Occupational Pension Schemes. importance of being a responsible regular updates from the Investment These included incorporating asset owner will only grow. This report Team and its dedicated ESG specialists, financially material environmental, presents our progress so far and our the Board is well informed and able social and governance (ESG) commitment to continue evolving. to provide oversight and steer on considerations into their approach, the evolution of our RI framework and we acknowledge the long- Our RI journey so far and activities. term benefits they will deliver. The Arnold Wagner, OBE 2005–2020 April 6 – February 16 – Became signatory to the RI criteria formally Board adopted Statement of ESG research Became member First RI report We opened became signatory to the Carbon Disclosure Project embedded in Stewardship principles and Standard provider appointed of IIGCC and formal published; TCFD our doors UN-supported PRI and (CDP); RI ratings process manager selection of Diligence; RI Manager chaired the supporter of TCFD and aligned reporting used principles as base for developed process; became PRI’s Fixed Income workstream and Climate Action 100+ defining our core RI beliefs member of UKSIF led collaboration of UK pension funds to standardise expectations for ESG disclosures from listed equity managers 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 20 005 006 0 0 009 010 01 01 01 0 01 01 01 01 01 07 08 1 2 3 14 5 6 7 8 9 20 Voting & Engagement RI principles enhanced within RI clauses formally RI minimum standards policy RI enhanced framework overlay service acquired Statement of Investment included in investment approved; responded to DWP and new climate change Principles; responded to management agreements, consultation on changes policy approved; became the FRC’s consultation on a based on best practice to Investment Regulations, formal supporter of new UK Stewardship Code defined by International following the Law Commission Transition Pathway and issued statement of Corporate Governance report on Fiduciary Duty Initiative; joined Pensions compliance in Sep 2010 Network (ICGN) Climate Risk Industry Group

8www.ppf.co.ukResponsible Investment Report 2019/20 9 Leadership statements A ppr Chair’s foreword oa c h On behalf of the Board, I am We take all our responsibilities UK pensions sector, as one of the E x e pleased to reaffirm our commitment seriously and, despite our continued world’s largest investor groups c u t RI has always been to RI at the PPF. We have been success, we will never permit representing £1.6 trillion of assets, ion responsible stewards since the PPF ourselves to become complacent. should be a leader on this. The UK’s at the core of how was established 15 years ago, and Recognising these responsibilities, enhanced regulations provide a we do things and I signatories to the PRI since 2007. we look to emulate best practice significant opportunity to strengthen We pride ourselves on being a stable in governance and regulation. We how its pensions industry is taking am delighted that, organisation with strong principles fully support the guidance of the ESG factors into account and and values, and we are committed to TCFD, and our response to the reporting on them, particularly for with a lot of work continuing to protect our members recommendations is reflected in climate-related issues. Over the past done behind the for many years to come. the 2019/20 Annual Report and year, we have enjoyed working with Accounts. the DWP and The Pensions Regulator As a long-term investor, we look to be (TPR), among other participants, as a L scenes, we are now o vigilant and remain agile to all market We also believe in strong peer member of the Pensions Climate Risk o k publishing our dynamics and evolving global trends – collaboration across the industry, Industry Group. Its objective is to in g f including climate change – to identify both with other asset owners support UK schemes on this journey, o r inaugural RI report. risks and opportunities. In order to and our external managers. We and we hope that the new Pension w ar serve our members, and provide for welcomed the recent regulatory Schemes Bill will also be a driver for d our levy payers and other stakeholders, amendments by the Department continuing progress. we take a strong and informed stand for Work and Pensions (DWP) that on responsible investing. It is a priority, clarified the requirements for UK We have no doubt that the as set out in our Strategic Plan. With Occupational Pension Schemes. importance of being a responsible regular updates from the Investment These included incorporating asset owner will only grow. This report Team and its dedicated ESG specialists, financially material environmental, presents our progress so far and our the Board is well informed and able social and governance (ESG) commitment to continue evolving. to provide oversight and steer on considerations into their approach, the evolution of our RI framework and we acknowledge the long- Our RI journey so farand activities. term benefits they will deliver. The Arnold Wagner, OBE 2005–2020 April 6 – February 16 – Became signatory to the RI criteria formally Board adopted Statement of ESG research Became member First RI report We opened became signatory to the Carbon Disclosure Project embedded in Stewardship principles and Standard provider appointedof IIGCC and formal published; TCFD our doorsUN-supported PRI and (CDP); RI ratings process manager selection of Diligence; RI Manager chaired the supporter of TCFD and aligned reporting used principles as base for developedprocess; became PRI’s Fixed Income workstream and Climate Action 100+ defining our core RI beliefsmember of UKSIFled collaboration of UK pension funds to standardise expectations for ESG disclosures from listed equity managers 22222222 2 2 2 2 2 2 2 20 005006000090100101 01 0 01 01 01 01 01 070812 3 14 5 6 7 8 9 20 Voting & Engagement RI principles enhanced within RI clauses formally RI minimum standards policy RI enhanced framework overlay service acquiredStatement of Investment included in investment approved; responded to DWP and new climate change Principles; responded to management agreements, consultation on changes policy approved; became the FRC’s consultation on a based on best practice to Investment Regulations, formal supporter of new UK Stewardship Code defined by International following the Law Commission Transition Pathway and issued statement of Corporate Governance report on Fiduciary Duty Initiative; joined Pensions compliance in Sep 2010Network (ICGN) Climate Risk Industry Group

10 www.ppf.co.uk Responsible Investment Report 2019/20 11 Leadership statements – continued A ppr Chief Investment Officer’s Overview of the PPF oa c h statement E Our duty is to protect the millions x e c of people who belong to UK defined u t We believe it is vital that we demonstrate a benefit (DB) pension schemes. When ion robust and effective approach to RI, and we these schemes fail, we’re here to see the integration of material ESG issues as support their members. an essential part of the investment process When an employer becomes insolvent and its pension at the PPF. scheme cannot afford to pay its promised pensions, we compensate scheme members for the pensions they have lost. We take over responsibility for payments once we have assessed that a scheme L cannot afford to buy benefits from an insurance o o company which are equal to, or more than, the PPF k Our unique investment strategy Best practice around ESG One area that we are pushing in would pay. Currently around 277,000 people are g f has always been rooted in prudent implementation in some asset strongly is increased disclosure and o members of the PPF. Before the PPF, these people r risk-taking with a focus on generating classes and investment strategies reporting. At present, the level of w could have faced significant financial uncertainty and ar sustainable long-term returns, and is still developing, so we work in fund-specific ESG reporting provided hardship. We protect more than 10 million members d RI is a core component of this partnership with our external by many external managers is of more than 5,000 DB pension schemes. strategy. managers and incentivise them limited, and we will not be able to to evolve their processes. Due to fully deliver on our own reporting I am pleased that our ESG our size, we have the opportunity requirements without underlying How we are funded capabilities have grown in the to encourage improvements in transparency from our external past year, with an additional ESG ESG integration across the globe, managers. In the meantime, to We raise the money we need to pay PPF benefits specialist joining the Investment and we see this as an area where obtain a thorough oversight of and the cost of running the PPF in four ways: Team to support our Head of we can have the most influence. our portfolios in relation to ESG 11% ESG. We have also expanded We have also established a set of risks and opportunities, we are our access to available ESG data, minimum requirements around ESG investing significantly in expertise to insights and analytics, which allow integration and stewardship, and monitor these portfolios ourselves. Split of funding sources us to better track, monitor and will ensure that our expectations Whilst challenging, we recognise Assets from pension schemes ultimately report on various risks are met in order to continue that a tailored approach is often transferred to us and opportunities. Applying the relationships with our external necessary as different schemes The return we make on our TCFD’s recommendations has been managers. will have different characteristics 22.5% 40.5% a key area of focus, as we continue and expectations. The momentum investments to integrate climate-related risk around ESG integration has built The levy we charge on eligible assessment and management. in recent years, yet we are still in pension schemes the early stages of the journey, and Recovered assets we secure recognise that all partners must from insolvent employers work together to deliver on this successfully. We have £32 billion in our investment portfolio Barry Kenneth (31 March 2019) which is continually growing, and is 26% currently managed both internally and externally. Source: The PPF

10www.ppf.co.ukResponsible Investment Report 2019/20 11 Leadership statements – continued A ppr Chief Investment Officer’s Overview of the PPF oa c h statement E Our duty is to protect the millions x e c of people who belong to UK defined u t We believe it is vital that we demonstrate a benefit (DB) pension schemes. When ion robust and effective approach to RI, and we these schemes fail, we’re here to see the integration of material ESG issues as support their members. an essential part of the investment process When an employer becomes insolvent and its pension at the PPF.scheme cannot afford to pay its promised pensions, we compensate scheme members for the pensions they have lost. We take over responsibility for payments once we have assessed that a scheme L cannot afford to buy benefits from an insurance o o company which are equal to, or more than, the PPF k Our unique investment strategy Best practice around ESG One area that we are pushing in would pay. Currently around 277,000 people are g f has always been rooted in prudent implementation in some asset strongly is increased disclosure and o members of the PPF. Before the PPF, these people r risk-taking with a focus on generating classes and investment strategies reporting. At present, the level of w could have faced significant financial uncertainty and ar sustainable long-term returns, and is still developing, so we work in fund-specific ESG reporting provided hardship. We protect more than 10 million members d RI is a core component of this partnership with our external by many external managers is of more than 5,000 DB pension schemes. strategy.managers and incentivise them limited, and we will not be able to to evolve their processes. Due to fully deliver on our own reporting I am pleased that our ESG our size, we have the opportunity requirements without underlying How we are funded capabilities have grown in the to encourage improvements in transparency from our external past year, with an additional ESG ESG integration across the globe, managers. In the meantime, to We raise the money we need to pay PPF benefits specialist joining the Investment and we see this as an area where obtain a thorough oversight of and the cost of running the PPF in four ways: Team to support our Head of we can have the most influence. our portfolios in relation to ESG 11% ESG. We have also expanded We have also established a set of risks and opportunities, we are our access to available ESG data, minimum requirements around ESG investing significantly in expertise to insights and analytics, which allow integration and stewardship, and monitor these portfolios ourselves. Split of funding sources us to better track, monitor and will ensure that our expectations Whilst challenging, we recognise Assets from pension schemes ultimately report on various risks are met in order to continue that a tailored approach is often transferred to us and opportunities. Applying the relationships with our external necessary as different schemes The return we make on our TCFD’s recommendations has been managers. will have different characteristics 22.5% 40.5% a key area of focus, as we continue and expectations. The momentum investments to integrate climate-related risk around ESG integration has built The levy we charge on eligible assessment and management. in recent years, yet we are still in pension schemes the early stages of the journey, and Recovered assets we secure recognise that all partners must from insolvent employers work together to deliver on this successfully. We have £32 billion in our investment portfolio Barry Kenneth(31 March 2019) which is continually growing, and is 26% currently managed both internally and externally. Source: The PPF

12 www.ppf.co.uk Responsible Investment Report 2019/20 13 The foundations of our RI principles A Embedding our core focus on risk management. It covers ppr our processes and procedures, PRI’s six Principles Our climate change policy governs our principles and actions around climate change related risks relevant to oa beliefs and investment our investments. The policy was formally approved by the Board in 2019 and can be accessed on our website. c principles into our RI while also facilitating flexibility and for Responsible Throughout this report, we have provided signposts for each aspect of how we are implementing our climate h longevity, to enable us to keep pace Investment change policy: strategy with evolving regulation in this space. The PPF was an early signatory We view ESG factors as the Climate change policy to the PRI back in 2007, and has interaction of our investments Principle 1: We will incorporate (TCFD pillar*) Location considered the PRI’s six Principles with: ESG issues into investment analysis and decision-making Climate-related investment Our core RI beliefs (12); Managing climate change risks and opportunities as a base for guiding our own core - the physical environment and processes. beliefs (G) (30-37) RI beliefs and investment principles. climate (E); These beliefs are also embedded Assessment of Use of ESG data to identify and manage ESG risks (16, 31-32); Managing E Principle 2: We will be active x in our Statement of Investment - communities, workforces, wider climate-related impacts climate change risks and opportunities (30-37) e owners and incorporate ESG c u Principles. Our RI strategy and society and economies (S); on investments (S) t framework was further developed issues into our ownership ion in 2018/19. It incorporates ESG - governance structures of the policies and practices. risks and opportunities across our organisations and markets we External manager expectations Our RI approach (14-17); Working with our external managers (15-16, 20); investment process, with an essential invest in (G). Principle 3: We will seek around climate-related Managing climate change risks and opportunities (30-37); Climate change appropriate disclosure on ESG stewardship (RM) stewardship in risk management (32-33); Roadmap: assessing climate exposure issues by the entities in which (30-31) Our RI strategy we invest. Collaboration with peers Engagement with industry and collaborative initiatives (17); Collaborative Our core RI beliefs Principle 4: We will promote and industry initiatives (RM) efforts to engage and improve RI standards across asset classes (28-29); acceptance and implementation Managing climate change risks and opportunities (30-37) 1. By acting as a responsible and vigilant asset owner, we can protect L o of the Principles within the o and enhance the value of our investments. Reporting and engagement on Managing climate change risks and opportunities (30-37); Climate-related k investment industry. in climate-related activities (M&T) disclosure (35) g f o 2. ESG factors can have an impact on the performance of our r Principle 5: We will work w investments, and the management of ESG risks and exploitation of *G – Governance; S – Strategy; RM – Risk Management; M&T - Metrics & Targets ar ESG opportunities can, particularly for a portfolio-wide issue like together to enhance our d climate change, add value to our portfolio. effectiveness in implementing the Principles. Under stewardship, our minimum One aspect we recognise as an area Principle 6: We will each report standards policy sets out our for improvement is sharing what on our activities and progress requirements for responsible we do more widely, which we are RI Framework towards implementing the conduct from our underlying issuers addressing in a number of ways, Principles. and external managers, which including the publication of this are aligned with internationally report. Governance & Strategic Risk Metrics & recognised norms or international Accountability Direction & Management Transparency conventions for controversial Policy activities that are ratified into UK law. A new stewardship policy is also Priorities being developed with a bespoke voting and engagement focus for certain themes. Finally, for reporting, we are a strong advocate for transparency across Climate Change Stewardship Reporting the entire investment value chain and a supporter of several disclosure initiatives, including the TCFD and Underneath the RI framework, we have identified three key priorities: Climate the CDP, where we are an Investor Change, Stewardship, and Reporting. To support these priorities, we apply member. We were pleased to receive a set of specific policies, reviewed annually, to ensure that emerging best an assessment score of A+ for the practices are considered. Strategy & Governance module in the 2019 PRI reporting cycle, and A across nearly all other modules.

12www.ppf.co.ukResponsible Investment Report 2019/20 13 The foundations of our RI principles A Embedding our core focus on risk management. It covers ppr our processes and procedures, PRI’s six Principles Our climate change policy governs our principles and actions around climate change related risks relevant to oa beliefs and investment our investments. The policy was formally approved by the Board in 2019 and can be accessed on our website. c principles into our RI while also facilitating flexibility and for Responsible Throughout this report, we have provided signposts for each aspect of how we are implementing our climate h longevity, to enable us to keep pace Investmentchange policy: strategywith evolving regulation in this space. The PPF was an early signatory We view ESG factors as the Climate change policy to the PRI back in 2007, and has interaction of our investments Principle 1: We will incorporate (TCFD pillar*)Location considered the PRI’s six Principles with:ESG issues into investment analysis and decision-making Climate-related investment Our core RI beliefs (12); Managing climate change risks and opportunities as a base for guiding our own core - the physical environment and processes.beliefs (G)(30-37) RI beliefs and investment principles. climate (E); These beliefs are also embedded Assessment of Use of ESG data to identify and manage ESG risks (16, 31-32); Managing E Principle 2: We will be active x in our Statement of Investment - communities, workforces, wider climate-related impacts climate change risks and opportunities (30-37) e owners and incorporate ESG c u Principles. Our RI strategy and society and economies (S);on investments (S) t framework was further developed issues into our ownership ion in 2018/19. It incorporates ESG - governance structures of the policies and practices. risks and opportunities across our organisations and markets we External manager expectations Our RI approach (14-17); Working with our external managers (15-16, 20); investment process, with an essential invest in (G).Principle 3: We will seek around climate-related Managing climate change risks and opportunities (30-37); Climate change appropriate disclosure on ESG stewardship (RM) stewardship in risk management (32-33); Roadmap: assessing climate exposure issues by the entities in which (30-31) Our RI strategy we invest.Collaboration with peers Engagement with industry and collaborative initiatives (17); Collaborative Our core RI beliefsPrinciple 4: We will promote and industry initiatives (RM)efforts to engage and improve RI standards across asset classes (28-29); acceptance and implementation Managing climate change risks and opportunities (30-37) 1. By acting as a responsible and vigilant asset owner, we can protect L o of the Principles within the o and enhance the value of our investments.Reporting and engagement on Managing climate change risks and opportunities (30-37); Climate-related k investment industry. in climate-related activities (M&T) disclosure (35) g f o 2. ESG factors can have an impact on the performance of our r Principle 5: We will work w investments, and the management of ESG risks and exploitation of *G – Governance; S – Strategy; RM – Risk Management; M&T - Metrics & Targets ar ESG opportunities can, particularly for a portfolio-wide issue like together to enhance our d climate change, add value to our portfolio.effectiveness in implementing the Principles. Under stewardship, our minimum One aspect we recognise as an area Principle 6: We will each report standards policy sets out our for improvement is sharing what on our activities and progress requirements for responsible we do more widely, which we are RI Frameworktowards implementing the conduct from our underlying issuers addressing in a number of ways, Principles. and external managers, which including the publication of this are aligned with internationally report. Governance & Strategic RiskMetrics & recognised norms or international AccountabilityDirection & ManagementTransparencyconventions for controversial Policy activities that are ratified into UK law. A new stewardship policy is also Priorities being developed with a bespoke voting and engagement focus for certain themes. Finally, for reporting, we are a strong advocate for transparency across Climate ChangeStewardshipReportingthe entire investment value chain and a supporter of several disclosure initiatives, including the TCFD and Underneath the RI framework, we have identified three key priorities: Climate the CDP, where we are an Investor Change, Stewardship, and Reporting. To support these priorities, we apply member. We were pleased to receive a set of specific policies, reviewed annually, to ensure that emerging best an assessment score of A+ for the practices are considered. Strategy & Governance module in the 2019 PRI reporting cycle, and A across nearly all other modules.

14 www.ppf.co.uk Responsible Investment Report 2019/20 15 Our RI approach A ppr RI criteria and ESG considerations as part of our investment process oa c h Phase Request for Selection/ Appointment Post-funding proposal/ due diligence identification ESG Evidence of firm-level Ensure ESG Binding ESG and Ongoing monitoring requirement and strategy-level ESG processes are in climate-risk clauses and engagement with policy; PRI support; place, appropriate inclusion in legal external managers; E and capabilities or industry guidelines are documentation (e.g. regular fund-level x e c resources for ESG followed and reporting IMAs, LPAs, side ESG, carbon and u t integration. is available. letters). stewardship reporting; ion commitment to continuous improvement. ESG integration ESG integration (including climate External manager selection Our RI strategy is primarily focused change) is achieved by engaging with and due diligence on integrating material ESG issues and advancing the ESG practices Before we appoint external of our external managers and L into our investment process, which o managers, we carry out extensive o underlying issuers, rather than k we believe allows us to make more due diligence on their RI policies in divesting. As a large and diversified g informed decisions and enhances the and approach to ESG integration, f asset owner, we have the opportunity o r RI governance at the PPF value of our assets. Since 2007, we which not only includes minimum w have applied Principles 1 and 2 of the to encourage improvements in ar Inadequate governance is often a factor in schemes entering the PPF, therefore we have a responsibility to PRI’s Six Principles for Responsible ESG integration from the top down requirements that they must meet, d exemplify good governance on behalf of our members and levy payers. and bottom up. We expect our but also a consideration of how they Investment (see page 12) as a external managers to integrate all might go beyond those minimum benchmark for integrating ESG across relevant material factors into their standards. We have also integrated PPF Board Highest governing body with oversight of RI all asset classes and markets in which investment analysis and decisions, considerations on diversity and (including climate-related) issues. we invest. We take a materiality-based and demonstrate active stewardship. inclusion policies and initiatives approach to relevant ESG factors, Our expectations vary between within the external manager’s firm. and give particular consideration to different asset classes, depending We ensure that appropriate RI climate change (see page 13 Climate on relevance (such as time horizons clauses are incorporated into all Investment Responsibility for developing and maintaining the Fund’s change policy – assessment for or types of instruments used) and investment management agreements Committee (IC) RI principles and policies (including climate-related) is further information). current best practice. and side letters. delegated to the IC. Investment Team Led by the Chief Investment Officer (CIO). Responsibility for ensuring adherence to the RI framework and associated ESG Team policies (including the integration of climate change) across all asset classes, both internally and externally managed. The ESG Team, as part of the Investment Team, provides support and expertise, oversees appropriate implementation of the RI framework, engages with portfolio managers, and monitors investments for ESG risks and opportunities (including climate-related).

14www.ppf.co.ukResponsible Investment Report 2019/20 15 Our RI approach A ppr RI criteria and ESG considerations as part of our investment process oa c h Phase Request for Selection/ Appointment Post-funding proposal/ due diligence identification ESG Evidence of firm-level Ensure ESG Binding ESG and Ongoing monitoring requirement and strategy-level ESG processes are in climate-risk clauses and engagement with policy; PRI support; place, appropriate inclusion in legal external managers; E and capabilities or industry guidelines are documentation (e.g. regular fund-level x e c resources for ESG followed and reporting IMAs, LPAs, side ESG, carbon and u t integration. is available. letters). stewardship reporting; ion commitment to continuous improvement. ESG integration ESG integration (including climate External manager selection Our RI strategy is primarily focused change) is achieved by engaging with and due diligence on integrating material ESG issues and advancing the ESG practices Before we appoint external of our external managers and L into our investment process, which o managers, we carry out extensive o underlying issuers, rather than k we believe allows us to make more due diligence on their RI policies in divesting. As a large and diversified g informed decisions and enhances the and approach to ESG integration, f asset owner, we have the opportunity o r RI governance at the PPF value of our assets. Since 2007, we which not only includes minimum w have applied Principles 1 and 2 of the to encourage improvements in ar Inadequate governance is often a factor in schemes entering the PPF, therefore we have a responsibility to PRI’s Six Principles for Responsible ESG integration from the top down requirements that they must meet, d exemplify good governance on behalf of our members and levy payers.and bottom up. We expect our but also a consideration of how they Investment (see page 12) as a external managers to integrate all might go beyond those minimum benchmark for integrating ESG across relevant material factors into their standards. We have also integrated PPF BoardHighest governing body with oversight of RI all asset classes and markets in which investment analysis and decisions, considerations on diversity and (including climate-related) issues.we invest. We take a materiality-based and demonstrate active stewardship. inclusion policies and initiatives approach to relevant ESG factors, Our expectations vary between within the external manager’s firm. and give particular consideration to different asset classes, depending We ensure that appropriate RI climate change (see page 13 Climate on relevance (such as time horizons clauses are incorporated into all Investment Responsibility for developing and maintaining the Fund’s change policy – assessment for or types of instruments used) and investment management agreements Committee (IC)RI principles and policies (including climate-related) is further information).current best practice.and side letters. delegated to the IC. Investment TeamLed by the Chief Investment Officer (CIO). Responsibility for ensuring adherence to the RI framework and associated ESG Teampolicies (including the integration of climate change) across all asset classes, both internally and externally managed. The ESG Team, as part of the Investment Team, provides support and expertise, oversees appropriate implementation of the RI framework, engages with portfolio managers, and monitors investments for ESG risks and opportunities (including climate-related).

16 www.ppf.co.uk Responsible Investment Report 2019/20 17 Our RI approach – continued A Ongoing monitoring and rating We have an internal RI policy, as well Use of ESG data to identify ppr of external manager mandates as guidance and implementation and manage ESG risks oa c When monitoring our external documents which set out our At a strategy and individual portfolio h managers, we assign to them an ESG expectations of external managers level, ESG risks (including climate- rating which forms part of a wider and in various asset classes. These related risks) are identified internally integrated performance-monitoring are reviewed and updated when using monitoring processes, tools, framework. The ESG rating (specific to new insights and best practices data and systems – enabling us to asset class and strategy) scores our are available, such as when new engage with our external managers external managers across a number guidelines are issued by the PRI around risk identification and of areas, such as RI governance, or other organisations. These management activities. ESG data alignment and resources; integration documents support the assessment is available through our portfolio of our external managers, and E of ESG factors within investment management systems, and we x inform our due diligence process e c analysis and decision-making; are developing our processes u and requirements for incorporating t stewardship; and reporting. All ESG into fund terms. When for monitoring ESG and climate- ion external managers are required to communicating our expectations to related risks at a fund, asset class report material ESG issues alongside managers, the feedback is tailored and strategy level as part of risk their investment performance, and RI to the areas where we see scope for reporting (see page 30 for more on is a standing agenda item in external improvement. our activities around climate-related manager review meetings. strategy and risk identification). Exercising our ownership is currently operationally complex. For rights such as shareholder asset classes outside listed equities, rights and voting such as listed credit, alternative credit L and private equity, our external o o Active ownership through share k managers also report to us on in voting and issuer engagement is a g stewardship activities and progress f key part of our role as a responsible o r (see more on voting activity in 2019 w asset owner. It is an essential risk on page 27 and climate-related voting ar management tool that ensures that on page 33). d boards are accountable and are fulfilling their stewardship obligations. While these activities are outsourced, We welcome the enhanced UK we maintain oversight of our external Stewardship Code (January 2020) agents by monitoring their voting and and will develop a new stewardship engagement practices in order to policy and enhance our stewardship enhance the quality and quantity of practices to align with the Code. We their stewardship activities. For high are supportive of its aim to further profile issues, where possible, we will improve the quality of engagement enquire about our external managers’ between asset owners, external voting intentions ahead of AGMs. managers and issuers, and the emphasis it has on establishing Engagement with industry strong and transparent corporate and collaborative initiatives governance practices. We participate in industry-wide Within our global listed equity collaborative initiatives to help portfolio, our external agents develop best practice and to ensure (managers and other vendors) vote that our own RI standards are aligned and monitor portfolio companies for with industry standards. On pages ESG risks – if concerns arise, they will 20, 28-29, we outline outcomes of engage with issuers on our behalf. engagement with external managers, For our segregated equity portfolios, industry and collaborative initiatives we have appointed a specialist designed to improve or set RI Engagement & Voting provider to standards across asset classes. support our stewardship activities. For pooled equity funds, we rely on the relevant external manager’s stewardship activities, since extracting voting rights from pooled investments

16www.ppf.co.ukResponsible Investment Report 2019/20 17 Our RI approach – continued A Ongoing monitoring and rating We have an internal RI policy, as well Use of ESG data to identify ppr of external manager mandates as guidance and implementation and manage ESG risks oa c When monitoring our external documents which set out our At a strategy and individual portfolio h managers, we assign to them an ESG expectations of external managers level, ESG risks (including climate- rating which forms part of a wider and in various asset classes. These related risks) are identified internally integrated performance-monitoring are reviewed and updated when using monitoring processes, tools, framework. The ESG rating (specific to new insights and best practices data and systems – enabling us to asset class and strategy) scores our are available, such as when new engage with our external managers external managers across a number guidelines are issued by the PRI around risk identification and of areas, such as RI governance, or other organisations. These management activities. ESG data alignment and resources; integration documents support the assessment is available through our portfolio of our external managers, and E of ESG factors within investment management systems, and we x inform our due diligence process e c analysis and decision-making; are developing our processes u and requirements for incorporating t stewardship; and reporting. All ESG into fund terms. When for monitoring ESG and climate- ion external managers are required to communicating our expectations to related risks at a fund, asset class report material ESG issues alongside managers, the feedback is tailored and strategy level as part of risk their investment performance, and RI to the areas where we see scope for reporting (see page 30 for more on is a standing agenda item in external improvement. our activities around climate-related manager review meetings. strategy and risk identification). Exercising our ownership is currently operationally complex. For rights such as shareholder asset classes outside listed equities, rights and voting such as listed credit, alternative credit L and private equity, our external o o Active ownership through share k managers also report to us on in voting and issuer engagement is a g stewardship activities and progress f key part of our role as a responsible o r (see more on voting activity in 2019 w asset owner. It is an essential risk on page 27 and climate-related voting ar management tool that ensures that on page 33). d boards are accountable and are fulfilling their stewardship obligations. While these activities are outsourced, We welcome the enhanced UK we maintain oversight of our external Stewardship Code (January 2020) agents by monitoring their voting and and will develop a new stewardship engagement practices in order to policy and enhance our stewardship enhance the quality and quantity of practices to align with the Code. We their stewardship activities. For high are supportive of its aim to further profile issues, where possible, we will improve the quality of engagement enquire about our external managers’ between asset owners, external voting intentions ahead of AGMs. managers and issuers, and the emphasis it has on establishing Engagement with industry strong and transparent corporate and collaborative initiatives governance practices. We participate in industry-wide Within our global listed equity collaborative initiatives to help portfolio, our external agents develop best practice and to ensure (managers and other vendors) vote that our own RI standards are aligned and monitor portfolio companies for with industry standards. On pages ESG risks – if concerns arise, they will 20, 28-29, we outline outcomes of engage with issuers on our behalf. engagement with external managers, For our segregated equity portfolios, industry and collaborative initiatives we have appointed a specialist designed to improve or set RI Engagement & Voting provider to standards across asset classes. support our stewardship activities. For pooled equity funds, we rely on the relevant external manager’s stewardship activities, since extracting voting rights from pooled investments

18 www.ppf.co.uk Responsible Investment Report 2019/20 19 A p p r o Execution ach E xe c u t io n L o o k in g f o r w ar d

18www.ppf.co.ukResponsible Investment Report 2019/20 19 A p p r o Execution ach E xe c u t io n L o o k in g f o r w ar d

20 www.ppf.co.uk Responsible Investment Report 2019/20 21 Being active owners A p Working with our external managers Stewardship outcomes 2019-2021 engagement themes of our external provider p r o From a stewardship perspective, we engage directly with We engage with our external managers and expect ach our external managers. Robust ESG data and tools allow them to monitor and influence underlying issuers for Environment Social Strategy, risk and Governance us to better track and manage our risk exposure, report both equity and debt positions. We also expect them to • Climate change • Conduct, culture communication • Shareholder transparently to our stakeholders, and communicate exercise voting rights on our behalf, with the exception • Natural resource and ethics • Risk management protection and rights regularly with our external managers. of our segregated equities where we engage with stewardship • Human capital • Corporate reporting • Executive companies and vote directly via our external provider. • Pollution, waste and management • Business purpose remuneration In late 2019, we expanded the ESG data we receive from The overarching themes that we expect our external circular economy • Human and and strategy • Board effectiveness external providers to include a wider variety of metrics at agents to engage on include climate change, human labour rights both a portfolio and issuer level, including climate-related capital, diversity and inclusion, board composition and metrics (see pages 32, 35, Managing climate change risks executive remuneration. E and opportunities for more detail). xe c u Segregated equities engagement strategy t Engagement milestone process of our external provider io We continuously monitor our external managers on their 2019-2021 n overall ESG performance and stewardship activities, and The following section focuses on the progress of our 4 offer guidance and support on their ESG practices, aiming external provider with respect to our segregated to elevate the industry to a more common understanding equity mandates, as this is where we receive the most The company of RI. Development plans for external managers that do comprehensive reporting. However, a key action for the 3 implements a strategy not meet our requirements are implemented. We ensure coming year is to work with our external managers of The company develops or measures to that these plans are meaningful and effective, and if signs pooled funds to improve the quality and comparability 2 a credible strategy to address the concern. of improvement or genuine action towards ESG progress of reporting. achieve the objective, or are not made over a specified time period, we will re- 1 The company stretching targets are set evaluate our relationship. acknowledges the issue L Our external provider for stewardship of our segregated to address the concern. o as a serious investor o Our concern is raised k equity mandates has created a 2019-2021 Engagement concern, worthy of a in with the company at g & Voting roadmap to engage with companies. The f response. o the appropriate level. r Case study roadmap identifies 12 themes across environment; w social; strategy, risk and communication; and ar Encouraging external manager governance, which cover material issues relevant to d industry collaboration through companies in all regions and sectors. engagement Engagement with investee companies happens in Progress stages, following specific milestones. Engagement can often take place over a multi-year period, so milestones Segregated equities engagement highlights We put PRI Principle 4, ‘promote acceptance track progress that are related to objectives set at the https://ppf.co.uk/reporting-investing-transparently Segregated portfolios and implementation of the Principles within beginning of our interactions, which can vary depending Over the 2019 calendar year, we engaged with 136 engagement by region the investment industry’, into practice by on the types of issues raised. companies in our segregated equity portfolios on 426 encouraging our external managers to issues and objectives through our external provider. 10% become signatories. Actively demonstrating The following charts summarise our activities by region the benefits of PRI membership, among other Case study and the most common topics that we engaged on. industry and collaboration initiatives such as Institutional Limited Partners Association Alternatives external manager (ILPA), GRESB, TCFD and Climate Action 26% 36% 100+, has seen a number of our external increases ESG integration managers in the Alternatives space becoming signatories to the PRI. Through continuous engagement, a long-standing US Alternatives external manager created a new vehicle designed to allow our RI expectations to be incorporated 27% within our mandate with them. North America Europe & UK Developed Asia (inc Aus & NZ) Emerging markets Source: EOS at Federated Hermes (external provider) 2019

20www.ppf.co.ukResponsible Investment Report 2019/20 21 Being active owners A p Working with our external managers Stewardship outcomes 2019-2021 engagement themes of our external provider p r o From a stewardship perspective, we engage directly with We engage with our external managers and expect ach our external managers. Robust ESG data and tools allow them to monitor and influence underlying issuers for EnvironmentSocialStrategy, risk and Governance us to better track and manage our risk exposure, report both equity and debt positions. We also expect them to • Climate change • Conduct, culture communication• Shareholder transparently to our stakeholders, and communicate exercise voting rights on our behalf, with the exception • Natural resource and ethics• Risk managementprotection and rights regularly with our external managers. of our segregated equities where we engage with stewardship• Human capital • Corporate reporting• Executive companies and vote directly via our external provider. • Pollution, waste and management • Business purpose remuneration In late 2019, we expanded the ESG data we receive from The overarching themes that we expect our external circular economy• Human and and strategy• Board effectiveness external providers to include a wider variety of metrics at agents to engage on include climate change, human labour rights both a portfolio and issuer level, including climate-related capital, diversity and inclusion, board composition and metrics (see pages 32, 35, Managing climate change risks executive remuneration. E and opportunities for more detail). xe c u Segregated equities engagement strategy t Engagement milestone process of our external provider io We continuously monitor our external managers on their 2019-2021 n overall ESG performance and stewardship activities, and The following section focuses on the progress of our 4 offer guidance and support on their ESG practices, aiming external provider with respect to our segregated to elevate the industry to a more common understanding equity mandates, as this is where we receive the most The company of RI. Development plans for external managers that do comprehensive reporting. However, a key action for the 3implements a strategy not meet our requirements are implemented. We ensure coming year is to work with our external managers of The company develops or measures to that these plans are meaningful and effective, and if signs pooled funds to improve the quality and comparability 2a credible strategy to address the concern. of improvement or genuine action towards ESG progress of reporting. achieve the objective, or are not made over a specified time period, we will re-1The company stretching targets are set evaluate our relationship. acknowledges the issue L Our external provider for stewardship of our segregated to address the concern. o as a serious investor o Our concern is raised k equity mandates has created a 2019-2021 Engagement concern, worthy of a in with the company at g & Voting roadmap to engage with companies. The f response. o the appropriate level. r Case studyroadmap identifies 12 themes across environment; w social; strategy, risk and communication; and ar Encouraging external manager governance, which cover material issues relevant to d industry collaboration through companies in all regions and sectors. engagementEngagement with investee companies happens in Progress stages, following specific milestones. Engagement can often take place over a multi-year period, so milestones Segregated equities engagement highlights We put PRI Principle 4, ‘promote acceptance track progress that are related to objectives set at the https://ppf.co.uk/reporting-investing-transparentlySegregated portfolios and implementation of the Principles within beginning of our interactions, which can vary depending Over the 2019 calendar year, we engaged with 136 engagement by region the investment industry’, into practice by on the types of issues raised. companies in our segregated equity portfolios on 426 encouraging our external managers to issues and objectives through our external provider. 10% become signatories. Actively demonstrating The following charts summarise our activities by region the benefits of PRI membership, among other Case studyand the most common topics that we engaged on. industry and collaboration initiatives such as Institutional Limited Partners Association Alternatives external manager (ILPA), GRESB, TCFD and Climate Action 26% 36% 100+, has seen a number of our external increases ESG integration managers in the Alternatives space becoming signatories to the PRI. Through continuous engagement, a long-standing US Alternatives external manager created a new vehicle designed to allow our RI expectations to be incorporated 27% within our mandate with them. North America Europe & UK Developed Asia (inc Aus & NZ) Emerging markets Source: EOS at Federated Hermes (external provider) 2019

22 www.ppf.co.uk Responsible Investment Report 2019/20 23 Being active owners – continued A p Summary of engagement themes p Segregated portfolios engagement by types of issue r o in 2019/20 ach Executive remuneration (45%) Board diversity (24%) 18% Engagement programme companies Human rights (22%) 192 42% # of # of issues % of objectives objectives engaged on Business strategy (37%) (related to) # of objectives completed 19% objectives objectives with or engaged engaged progress discontinued E Reporting & disclosure (26%) xe c Environment 90 62 47% 6 u t io Social 77 37 57% 9 51% n Climate change (63%) 21% Governance 179 67 54% 10 objectives with progress Governance Strategy, risk & Environmental communication 80 26 42% 5 Total 426* 192** 51% 30 Strategy, Risk & Communication Social & Ethical Source: EOS at Federated Hermes (external provider) 2019 * We measure engagement outcomes for specifically set objectives, while engagement happens on a broader set of identified issues of concern within ESG themes. Source: EOS at Federated Hermes (external provider) 2019 L ** Total number of objectives is higher than total number of companies engaged due to more o o k than one objective per company for some companies. in g Segregated equities f Companies engaged by number of interactions o r engagement outcomes and w Board composition and In support of the ‘30% Club’, our ar interaction intensity diversity and inclusion external provider developed a board- d Engagement differs between 71 level diversity recommendation to companies – some need multiple Within our segregated equity have 30 per cent women on FTSE engagements before they take action, mandates, board composition and 100 boards and 25 per cent on FTSE while others are responsive after very diversity accounted for almost a 250 boards (read about voting on minimal interaction. We are pleased quarter of governance-related board composition and diversity on to report that, as a result of successful engagements undertaken by our page 27). engagement, at least one milestone 32 33 external provider on our behalf. was moved forward for around 50 per Number of companies Through engagement, we seek We also support the progress cent of our objectives. to underline the importance of of board and gender diversity in 1 interaction 2 or 3 4+ diversity. This includes gender, age, other jurisdictions, for instance, the interactions interactions ethnicity, nationality, background, publication of the German Corporate skills and experience to improve Governance Principles mirrors the Companies engaged by number of interactions decision-making and avoid goal of the ‘30% Club’. Currently, only groupthink. Good governance 8 per cent of German companies 36 features significantly in our have more than one woman on the engagement, as it is often the first executive board. Two thirds still step towards addressing social or have no female board members. In 29 environmental issues. the US, we also continued to push our expectations for board diversity 21 across a number of dimensions. Engagement progress 11 Milestones seeing positive progress Governance Social Environment Strategy, Risk & Communication Source: EOS at Federated Hermes (external provider) 2019

22www.ppf.co.ukResponsible Investment Report 2019/20 23 Being active owners – continued A p Summary of engagement themes p Segregated portfolios engagement by types of issue r o in 2019/20 ach Executive remuneration (45%) Board diversity (24%) 18% Engagement programme companies Human rights (22%) 192 42% # of # of issues % of objectives objectives engaged on Business strategy (37%) (related to) # of objectives completed 19% objectives objectives with or engaged engaged progress discontinued E Reporting & disclosure (26%) xe c Environment 90 62 47% 6 u t io Social 77 37 57% 9 51% n Climate change (63%)21%Governance 179 67 54% 10 objectives with progress Governance Strategy, risk & Environmental communication 80 26 42% 5 Total 426* 192** 51% 30 Strategy, Risk & Communication Social & EthicalSource: EOS at Federated Hermes (external provider) 2019 * We measure engagement outcomes for specifically set objectives, while engagement happens on a broader set of identified issues of concern within ESG themes. Source: EOS at Federated Hermes (external provider) 2019 L ** Total number of objectives is higher than total number of companies engaged due to more o o k than one objective per company for some companies. in g Segregated equities f Companies engaged by number of interactions o r engagement outcomes and w Board composition and In support of the ‘30% Club’, our ar interaction intensity diversity and inclusion external provider developed a board- d Engagement differs between 71 level diversity recommendation to companies – some need multiple Within our segregated equity have 30 per cent women on FTSE engagements before they take action, mandates, board composition and 100 boards and 25 per cent on FTSE while others are responsive after very diversity accounted for almost a 250 boards (read about voting on minimal interaction. We are pleased quarter of governance-related board composition and diversity on to report that, as a result of successful engagements undertaken by our page 27). engagement, at least one milestone 3233external provider on our behalf. was moved forward for around 50 per Number of companiesThrough engagement, we seek We also support the progress cent of our objectives. to underline the importance of of board and gender diversity in 1 interaction2 or 3 4+ diversity. This includes gender, age, other jurisdictions, for instance, the interactionsinteractionsethnicity, nationality, background, publication of the German Corporate skills and experience to improve Governance Principles mirrors the Companies engaged by number of interactionsdecision-making and avoid goal of the ‘30% Club’. Currently, only groupthink. Good governance 8 per cent of German companies 36 features significantly in our have more than one woman on the engagement, as it is often the first executive board. Two thirds still step towards addressing social or have no female board members. In 29 environmental issues. the US, we also continued to push our expectations for board diversity 21 across a number of dimensions. Engagement progress11 Milestones seeing positive progress Governance Social Environment Strategy, Risk & Communication Source: EOS at Federated Hermes (external provider) 2019

24 www.ppf.co.uk Responsible Investment Report 2019/20 25 Being active owners – continued A p p r o Case study ach Continuous engagement with miners on board diversity Through our external provider, we have been engaging with a multinational mining company on a range of themes, from climate change and natural resource E xe use to executive remuneration and risk c u t management. In 2017, concerns included io direct engagement with the chairman on n board structure changes, which resulted in the appointment of two female directors to the 12-member board. Furthermore, in early 2018, the company appointed a new female non-executive director in a step towards 33 per cent female representation. A minimum target was also recommended for 2020, with continued engagement L o from our external provider on this. o k in g f o r Case study w Human capital and and informally) with employees to include a list of companies required ar Corporate governance engagement in Asia corporate culture further understand results. Whilst to comply with the MSA, regardless d Within our passive equity mandates, culture-related metrics and targets of whether they had submitted a we place a high level of scrutiny on are challenging to determine, we compliant statement or not. They Corporate governance can still South Korea: In 2019 our our external managers’ stewardship are now seeing their inclusion in also supported the 'Find It, Fix It, vary across countries. Asset external provider joined the activities. During 2019, our external standardised frameworks such Prevent It' collaborative initiative to owners and external managers Asian Corporate Governance manager piloted a corporate as the Sustainability Accounting combat modern slavery, which called can play an effective role by Association’s (ACGA) culture and human capital project, Standards Board (SASB) and the on UK-listed companies to increase elevating their expectations coordinated engagement with to increase understanding and Workforce Disclosure Initiative. We their efforts to address this issue and assessment within the largest hope to see the emergence of best to support the provision of remedies on stewardship and ESG regulators, government and US technology companies. The practice over the next few years to victims. engagement in these countries. large companies from South project commenced by engaging as more standardised metrics are Japan: The introduction of the Korea on ways to improve with company executives who agreed, and our external manager In another engagement, as an Stewardship Code (2012) and corporate governance, such as had oversight for internal culture, will continue to engage with advisory committee member the Corporate Governance board role and composition, board oversight, strategy and technology companies on this issue. of the PRI’s cobalt supply chain Code (2015) in Japan has executive remuneration, capital remuneration. collaborative engagement, on our supported our engagement management and shareholder Forced labour and behalf, our external provider was protection. Although the responses from modern slavery the sole investor representative to with companies over the last the companies differed, some attend an Organisation for Economic few years. However, there are Our external provider responded to Co-operation and Development-led still some issues associated with commonalities were identified the UK Home Office's consultation (OECD) event and roundtable in the board composition and diversity, during the process. For example, all on potential revisions to the UK’s Democratic Republic of Congo. The and our external provider’s companies conducted engagement Modern Slavery Act (MSA) in 2019 event allowed them to see first- engagements with Japanese surveys with their staff, and most and argued for a requirement to hand the human rights challenges companies are often centred on passed aggregated engagement report on recommended areas, presented in the mining sector and this issue. results to the board, but very instead of adopting a 'comply or share perspectives with local and few gave examples of tangible explain' approach. They supported international stakeholders. board actions arising from survey the creation of a central registry outcomes. This is inconsistent with to enable stakeholders, including our external manager’s expectation investors, to access companies' for boards to engage (formally modern slavery statements, to

24www.ppf.co.ukResponsible Investment Report 2019/20 25 Being active owners – continued A p p r o Case study ach Continuous engagement with miners on board diversity Through our external provider, we have been engaging with a multinational mining company on a range of themes, from climate change and natural resource E xe use to executive remuneration and risk c u t management. In 2017, concerns included io direct engagement with the chairman on n board structure changes, which resulted in the appointment of two female directors to the 12-member board. Furthermore, in early 2018, the company appointed a new female non-executive director in a step towards 33 per cent female representation. A minimum target was also recommended for 2020, with continued engagement L o from our external provider on this. o k in g f o r Case study w Human capital and and informally) with employees to include a list of companies required ar Corporate governance engagement in Asia corporate culturefurther understand results. Whilst to comply with the MSA, regardless d Within our passive equity mandates, culture-related metrics and targets of whether they had submitted a we place a high level of scrutiny on are challenging to determine, we compliant statement or not. They Corporate governance can still South Korea: In 2019 our our external managers’ stewardship are now seeing their inclusion in also supported the 'Find It, Fix It, vary across countries. Asset external provider joined the activities. During 2019, our external standardised frameworks such Prevent It' collaborative initiative to owners and external managers Asian Corporate Governance manager piloted a corporate as the Sustainability Accounting combat modern slavery, which called can play an effective role by Association’s (ACGA) culture and human capital project, Standards Board (SASB) and the on UK-listed companies to increase elevating their expectations coordinated engagement with to increase understanding and Workforce Disclosure Initiative. We their efforts to address this issue and assessment within the largest hope to see the emergence of best to support the provision of remedies on stewardship and ESG regulators, government and US technology companies. The practice over the next few years to victims. engagement in these countries.large companies from South project commenced by engaging as more standardised metrics are Japan: The introduction of the Korea on ways to improve with company executives who agreed, and our external manager In another engagement, as an Stewardship Code (2012) and corporate governance, such as had oversight for internal culture, will continue to engage with advisory committee member the Corporate Governance board role and composition, board oversight, strategy and technology companies on this issue. of the PRI’s cobalt supply chain Code (2015) in Japan has executive remuneration, capital remuneration. collaborative engagement, on our supported our engagement management and shareholder Forced labour and behalf, our external provider was protection. Although the responses from modern slavery the sole investor representative to with companies over the last the companies differed, some attend an Organisation for Economic few years. However, there are Our external provider responded to Co-operation and Development-led still some issues associated with commonalities were identified the UK Home Office's consultation (OECD) event and roundtable in the board composition and diversity, during the process. For example, all on potential revisions to the UK’s Democratic Republic of Congo. The and our external provider’s companies conducted engagement Modern Slavery Act (MSA) in 2019 event allowed them to see first- engagements with Japanese surveys with their staff, and most and argued for a requirement to hand the human rights challenges companies are often centred on passed aggregated engagement report on recommended areas, presented in the mining sector and this issue. results to the board, but very instead of adopting a 'comply or share perspectives with local and few gave examples of tangible explain' approach. They supported international stakeholders. board actions arising from survey the creation of a central registry outcomes. This is inconsistent with to enable stakeholders, including our external manager’s expectation investors, to access companies' for boards to engage (formally modern slavery statements, to

26 www.ppf.co.uk Responsible Investment Report 2019/20 27 Being active owners – continued A p Our external provider has Voting activity in 2019/20 p r o contributed to a number of Case study ach consultations on our behalf, such as the Competition and Markets Aside from climate change-related most frequently in the North American Voting on board Authority’s (CMA) Statutory audit voting activities, including shareholder region (74 per cent of resolutions), composition services market study consultation resolutions, which are covered in more where 24 per cent of our votes were in (2019), where they called for detail in the Managing climate change support of shareholder proposals. and diversity a less concentrated market, risks and opportunities section on improvements in audit quality page 33, we provide a summary of the Our most common rationale for and audit independence. Another key themes within our voting activities supporting was that the proposal Board composition and example is the Department for during 2019/20. promoted appropriate transparency, diversity is critical to company Business, Energy & Industrial accountability or incentivisation. 1 E management , so we increased Strategy’s (BEIS) consultation on xe Segregated equities voting Opposition to remuneration-related our expectations on gender c u the recommendations made by Sir t activity resolutions was our primary concern diversity within our issuers this io John Kingman in the independent For our segregated equities, our in the UK, Australia and New Zealand year. For UK companies, our n review of the Financial Reporting regions, and concerns around external provider developed Council (2019), providing support external provider voted on our behalf board structure were highest in the a board-level diversity for Kingman’s view that a stronger on 7,260 total resolutions at 643 US, developed markets in Asia and recommendation to have 30 regulator was needed to help meetings during the 2019 calendar emerging markets. per cent women on FTSE 100 improve audit quality. The UK year and opposed 15% boards and 25 per cent on Government agreed to support the of these resolutions. An overview of our voting records by FTSE 250 boards. This also proposal for a new Audit, Reporting geography and ESG issues can be extended to guidelines to vote & Governance Authority (ARGA), Our role as a responsible shareholder seen in further detail in our annual entails holding management to against the chair of any FTSE which will have enhanced powers Voting & Engagement report – L o and be accountable to Parliament. account, and we opposed one or 100 company without a woman o https://ppf.co.uk/reporting-investing- k more resolutions in over 60% of these on its executive committee. in transparently g Fixed Income investors can also Emerging engagement on UK f The UK Parliamentary Select meetings. We opposed management We believe it is important to o r engage effectively audit practices Committee explored the role connect up our engagement w ar We expect our external managers in Robust and transparent audit of shareholders in audit, and Breakdown of the 15% opposed resolutions and voting activities, so d other asset classes (outside equity) to practices are an important agenda we are supportive of increased we wrote to 13 FTSE 100 also engage in active stewardship with item as they underline good engagement with audit committee companies, expressing companies where practicable. For governance. Recent high-profile chairs. Our external provider our concerns on gender example, an Investment Grade Credit cases of UK business failures have has already strengthened their 944 diversity, and held follow-up external manager has been actively raised questions about the quality, recommendations for audit voting, conversations with a number engaging with senior executives at relevance and independence of audit committees' composition and of them. General Electric on deleveraging, audits, and strengthened calls for tenure, and auditor independence. improving accounting practices and reform. Following the collapse of Votes 1 See Catalyst, Why Diversity and disclosures to investors. They also Thomas Cook in 2019, the company’s Inclusion Matter: engaged on climate-related issues, auditors were heavily criticised 121 Financial Performance (24 June 2020) such as encouraging the company to by the UK Parliamentary Select https://www.catalyst.org/research/why- 19 diversity-and-inclusion-matter-financial- set ambitious energy efficiency targets Committee inquiry because the performance/ (accessed 03/07/20); and consider science-based carbon goodwill on its balance sheet had not Against Abstained With management World Economic Forum article reduction targets. While further been written down since 2012. by expection https://www.weforum.org/agenda/ progress is required, the company Source: EOS at Federated Hermes (external provider) 2019 2019/04/business-case-for-diversity-in- sold a majority stake in its energy and the-workplace/ (accessed 03/07/20). oilfield services subsidiary in 2019 and stepped up its disclosures. Voting against management or abstaining by ESG issue For pooled equity funds, where 5% 0% Board Other possible, we engage with our 7% 43% structure external managers in advance of Audit and high-profile votes or resolutions 8% Remuneration accounts to obtain insights on their views. Shareholder Amend articles We also discuss their voting 8% activities as part of our ongoing resolution Poison pill/ external manager monitoring and 10% Capital anti-takeover reporting processes – this includes structure and device engagement around disclosure dividends quality on voting activities, as 20% we see this as a crucial area for improvement across the industry. Source: EOS at Federated Hermes (external provider) 2019

26www.ppf.co.ukResponsible Investment Report 2019/20 27 Being active owners – continued A p Our external provider has Voting activity in 2019/20 p r o contributed to a number of Case study ach consultations on our behalf, such as the Competition and Markets Aside from climate change-related most frequently in the North American Voting on board Authority’s (CMA) Statutory audit voting activities, including shareholder region (74 per cent of resolutions), composition services market study consultation resolutions, which are covered in more where 24 per cent of our votes were in (2019), where they called for detail in the Managing climate change support of shareholder proposals. and diversity a less concentrated market, risks and opportunities section on improvements in audit quality page 33, we provide a summary of the Our most common rationale for and audit independence. Another key themes within our voting activities supporting was that the proposal Board composition and example is the Department for during 2019/20. promoted appropriate transparency, diversity is critical to company Business, Energy & Industrial accountability or incentivisation. 1 E management , so we increased Strategy’s (BEIS) consultation on xe Segregated equities voting Opposition to remuneration-related our expectations on gender c u the recommendations made by Sir t activity resolutions was our primary concern diversity within our issuers this io John Kingman in the independent For our segregated equities, our in the UK, Australia and New Zealand year. For UK companies, our n review of the Financial Reporting regions, and concerns around external provider developed Council (2019), providing support external provider voted on our behalf board structure were highest in the a board-level diversity for Kingman’s view that a stronger on 7,260 total resolutions at 643 US, developed markets in Asia and recommendation to have 30 regulator was needed to help meetings during the 2019 calendar emerging markets. per cent women on FTSE 100 improve audit quality. The UK year and opposed 15% boards and 25 per cent on Government agreed to support the of these resolutions. An overview of our voting records by FTSE 250 boards. This also proposal for a new Audit, Reporting geography and ESG issues can be extended to guidelines to vote & Governance Authority (ARGA), Our role as a responsible shareholder seen in further detail in our annual entails holding management to against the chair of any FTSE which will have enhanced powers Voting & Engagement report – L o and be accountable to Parliament.account, and we opposed one or 100 company without a woman o https://ppf.co.uk/reporting-investing- k more resolutions in over 60% of these on its executive committee. in transparently g Fixed Income investors can also Emerging engagement on UK f The UK Parliamentary Select meetings. We opposed management We believe it is important to o r engage effectively audit practices Committee explored the role connect up our engagement w ar We expect our external managers in Robust and transparent audit of shareholders in audit, and Breakdown of the 15% opposed resolutionsand voting activities, so d other asset classes (outside equity) to practices are an important agenda we are supportive of increased we wrote to 13 FTSE 100 also engage in active stewardship with item as they underline good engagement with audit committee companies, expressing companies where practicable. For governance. Recent high-profile chairs. Our external provider our concerns on gender example, an Investment Grade Credit cases of UK business failures have has already strengthened their 944diversity, and held follow-up external manager has been actively raised questions about the quality, recommendations for audit voting, conversations with a number engaging with senior executives at relevance and independence of audit committees' composition and of them. General Electric on deleveraging, audits, and strengthened calls for tenure, and auditor independence. improving accounting practices and reform. Following the collapse of Votes 1 See Catalyst, Why Diversity and disclosures to investors. They also Thomas Cook in 2019, the company’s Inclusion Matter: engaged on climate-related issues, auditors were heavily criticised 121 Financial Performance (24 June 2020) such as encouraging the company to by the UK Parliamentary Select https://www.catalyst.org/research/why- 19 diversity-and-inclusion-matter-financial- set ambitious energy efficiency targets Committee inquiry because the performance/ (accessed 03/07/20); and consider science-based carbon goodwill on its balance sheet had not AgainstAbstainedWith management World Economic Forum article reduction targets. While further been written down since 2012. by expection https://www.weforum.org/agenda/ progress is required, the company Source: EOS at Federated Hermes (external provider) 2019 2019/04/business-case-for-diversity-in- sold a majority stake in its energy and the-workplace/ (accessed 03/07/20). oilfield services subsidiary in 2019 and stepped up its disclosures. Voting against management or abstaining by ESG issue For pooled equity funds, where 5% 0% Board Other possible, we engage with our 7% 43% structure external managers in advance of Audit and high-profile votes or resolutions 8% Remuneration accounts to obtain insights on their views. Shareholder Amend articles We also discuss their voting 8% activities as part of our ongoing resolution Poison pill/ external manager monitoring and 10% Capital anti-takeover reporting processes – this includes structure and device engagement around disclosure dividends quality on voting activities, as 20% we see this as a crucial area for improvement across the industry. Source: EOS at Federated Hermes (external provider) 2019

28 www.ppf.co.uk Responsible Investment Report 2019/20 29 Being active owners – continued A p p Collaborative efforts r o to engage and improve ach RI standards across asset classes Example: Continuing efforts to drive Example: Leveraging PRI’s Collaboration diversity and inclusion in industry Platform following mining disaster We collaborate with industry At an organisational level, diversity and inclusion is a vital The collapse of Vale’s dam at Brumadinho (January peers on initiatives that support commitment for the PPF and we look to encourage and 2019) killed more than 250 people consisting primarily progression towards our goals, such promote best practice, for example through gender, of employees, and Vale lost $1.6 billion (US) attributed to as supporting the Paris Agreement ethnicity and disability working groups. Upon signing the related costs in just the first quarter of the year. Women in Finance Charter two years ago, we committed E and the transition towards a to having 40 per cent female representation within Through the PRI, we joined a collaborative engagement to xe c decarbonised economy. One u senior management by 2021. In October 2019, we hit push for a transparent investigation into the causes of the t forum is the UK Pension Scheme io Responsible Investment Roundtable this target two years early. collapse, as well as encouraging the company to outline a n which meets quarterly, where we preventative action plan. Lack of appropriate governance, discuss issues with asset owner We are also members of The Diversity Project, with technical faults and overdue maintenance were identified peers. In addition, the PPF’s Head a PPF Executive Committee member on its Advisory as key causes. of ESG is a member of the PRI's Committee, and our Director of Legal, Compliance and Infrastructure Advisory Committee. Ethics on its Steering Committee. This engagement Vale was challenged to review its safety management We also support industry efforts adds another facet to our aspiration to promote a more procedures, and the board stepped in and appointed to more consistently measure ESG sustainable financial system, and within our investments, independent expert committees to oversee the response risks, such as the SASB’s sector- we have been working with both external managers to the situation. This led to changes in management and investee companies to support improvements in and the appointment of a new CEO, increased focus L specific materiality disclosures and o diversity and inclusion. on corporate culture and safety and operational goals. o metrics, which we use ourselves k We support many other industry collaborations and networks, Vale set a target to reduce its reliance on tailings dams, in as a guide when making direct g f and the following are some examples of our collaborative activities increasing the use of dry proceedings to 70 per cent of o investments. r during the year. its total volume by 2023. However, the company can still w ar improve engagement with families of its employees and d members of the local community affected. The tragic event highlighted the importance of active investor engagement, and opened up opportunities to engage across the sector more broadly, such as with the Investor Mining and Tailings Safety Initiative and the International Council on Mining and Metals (ICMM) independent review of global standards. Example: TCFD stewardship to drive industry Example: Driving policy and industry expertise and promote adoption change on climate change The TCFD recommendations are critical in considering We are keen to support policy development and a business’s climate-related risks and opportunities. cohesive industry dynamics, and we have been members We are delighted to sit on the Pensions Climate Risk of the Institutional Investor Group on Climate Change Industry Group that was formed by the DWP and TPR. (IIGCC) since 2018. Throughout 2019/20, we have The group was formed in 2019 and worked extensively participated in the Paris Aligned Investment Initiative, to produce guidance for UK occupational pension and contributed as a member of the Strategic Asset schemes around TCFD alignment to help trustees Allocation working group. assess, manage and report on climate-related risks. The open consultation for the guidance was launched Robust, transparent and strategic reporting by in March 2020. companies is vital, and we demonstrate our support for this through membership of CDP and the Transition We also promote the TCFD recommendations to our Pathway Initiative (TPI). We are also a signatory of Climate external managers to encourage acceptance, and seek Action 100+, which targets the 100 largest corporate to see an increase in TCFD alignment, which includes greenhouse gas emitters (accounting for two thirds of scenario analysis of both physical and transition annual global industrial emissions) and 61 other focus risks. Many of our external managers are already companies, to take necessary action on climate change. TCFD supporters and are working towards increased The initiative’s ultimate goal is to limit global warming to disclosure. Likewise, we expect our external managers less than 2°C, which it aims to do through encouraging to engage with underlying issuers on the same these companies to curb emissions, improve governance disclosure expectations. and strengthen climate-related financial disclosures.

28www.ppf.co.ukResponsible Investment Report 2019/20 29 Being active owners – continued A p p Collaborative efforts r o to engage and improve ach RI standards across asset classesExample: Continuing efforts to drive Example: Leveraging PRI’s Collaboration diversity and inclusion in industry Platform following mining disaster We collaborate with industry At an organisational level, diversity and inclusion is a vital The collapse of Vale’s dam at Brumadinho (January peers on initiatives that support commitment for the PPF and we look to encourage and 2019) killed more than 250 people consisting primarily progression towards our goals, such promote best practice, for example through gender, of employees, and Vale lost $1.6 billion (US) attributed to as supporting the Paris Agreement ethnicity and disability working groups. Upon signing the related costs in just the first quarter of the year. Women in Finance Charter two years ago, we committed E and the transition towards a to having 40 per cent female representation within Through the PRI, we joined a collaborative engagement to xe c decarbonised economy. One u senior management by 2021. In October 2019, we hit push for a transparent investigation into the causes of the t forum is the UK Pension Scheme io Responsible Investment Roundtable this target two years early. collapse, as well as encouraging the company to outline a n which meets quarterly, where we preventative action plan. Lack of appropriate governance, discuss issues with asset owner We are also members of The Diversity Project, with technical faults and overdue maintenance were identified peers. In addition, the PPF’s Head a PPF Executive Committee member on its Advisory as key causes. of ESG is a member of the PRI's Committee, and our Director of Legal, Compliance and Infrastructure Advisory Committee. Ethics on its Steering Committee. This engagement Vale was challenged to review its safety management We also support industry efforts adds another facet to our aspiration to promote a more procedures, and the board stepped in and appointed to more consistently measure ESG sustainable financial system, and within our investments, independent expert committees to oversee the response risks, such as the SASB’s sector-we have been working with both external managers to the situation. This led to changes in management and investee companies to support improvements in and the appointment of a new CEO, increased focus L specific materiality disclosures and o diversity and inclusion. on corporate culture and safety and operational goals. o metrics, which we use ourselves k We support many other industry collaborations and networks, Vale set a target to reduce its reliance on tailings dams, in as a guide when making direct g f and the following are some examples of our collaborative activities increasing the use of dry proceedings to 70 per cent of o investments. r during the year. its total volume by 2023. However, the company can still w ar improve engagement with families of its employees and d members of the local community affected. The tragic event highlighted the importance of active investor engagement, and opened up opportunities to engage across the sector more broadly, such as with the Investor Mining and Tailings Safety Initiative and the International Council on Mining and Metals (ICMM) independent review of global standards. Example: TCFD stewardship to drive industry Example: Driving policy and industry expertise and promote adoptionchange on climate change The TCFD recommendations are critical in considering We are keen to support policy development and a business’s climate-related risks and opportunities. cohesive industry dynamics, and we have been members We are delighted to sit on the Pensions Climate Risk of the Institutional Investor Group on Climate Change Industry Group that was formed by the DWP and TPR. (IIGCC) since 2018. Throughout 2019/20, we have The group was formed in 2019 and worked extensively participated in the Paris Aligned Investment Initiative, to produce guidance for UK occupational pension and contributed as a member of the Strategic Asset schemes around TCFD alignment to help trustees Allocation working group. assess, manage and report on climate-related risks. The open consultation for the guidance was launched Robust, transparent and strategic reporting by in March 2020.companies is vital, and we demonstrate our support for this through membership of CDP and the Transition We also promote the TCFD recommendations to our Pathway Initiative (TPI). We are also a signatory of Climate external managers to encourage acceptance, and seek Action 100+, which targets the 100 largest corporate to see an increase in TCFD alignment, which includes greenhouse gas emitters (accounting for two thirds of scenario analysis of both physical and transition annual global industrial emissions) and 61 other focus risks. Many of our external managers are already companies, to take necessary action on climate change. TCFD supporters and are working towards increased The initiative’s ultimate goal is to limit global warming to disclosure. Likewise, we expect our external managers less than 2°C, which it aims to do through encouraging to engage with underlying issuers on the same these companies to curb emissions, improve governance disclosure expectations.and strengthen climate-related financial disclosures.

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.

30www.ppf.co.ukResponsible 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 risksrisks and opportunities per cent of the Fund, incorporates allocation (%): ach We are focusing our strategy and risk identifiedcarbon 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 33Hybrid 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 exposureWe 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.

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.

32www.ppf.co.ukResponsible Investment Report 2019/20 33 Managing climate change risks and opportunities – continued A p Scenario analysis and risk Physical riskstargets, conducting climate-risks and opportunities of the low-actions from management such as p r o managementPhysical 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 riskson: 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 managementwith 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 changemostly 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.

34 www.ppf.co.uk Responsible Investment Report 2019/20 35 Managing climate change risks and opportunities – continued A p Climate-related disclosure High-level findings p Identifying opportunities r Our exposure to o Whilst sectors such as renewable sustainable forestry Transparency and regular reporting are essential aspects The initial results of the assessments carried out on ach energy are clearly likely to benefit We have approximately £600 million of responsible investing and we are committed to our listed global equity and credit portfolios are shown from a transitioning economy, invested in timberland, with regional disclosing to our internal and external stakeholders. In below. Both portfolios are less carbon intensive than their we also recognise that some exposure mainly across Australia & relation to climate disclosure, we recognise that there benchmarks in terms of their exposure to operational sectors face larger challenges New Zealand, Europe and the US. is no single commonly agreed measurement of climate- carbon emissions. Scenario analysis indicates that some to decarbonise, such as cement We use a combination of primary related risks and opportunities, and we will continue companies within both portfolios could be associated and aviation. However, alternative and secondary funds, as well as co- to examine the most appropriate metrics to track our with potential transition risks due to their exposure to technologies or materials present investments to gain exposure. progress. We have expanded our ESG data coverage high carbon-intensive activities (e.g. in utilities, energy growing opportunities in other to provide us with a range of metrics at a portfolio and materials sectors). We have also started measuring sectors such as timberland and and issuer level – including scope 1, 2 and 3 carbon physical risk exposure for the listed global equity and Within our forestry investments, E transportation infrastructure, for we track the share of timberland emissions; climate value-at-risk measures; extractive credit portfolios, where coastal flooding is likely to be the xe example, increasing timber demand c fossil fuel revenues and reserves data; and physical risk most significant hazard. These findings have been useful u (by hectares) certified under major t within construction in place of datasets on various climate-induced events. in informing our conversations with our active external io cement; and rail travel substituting universally recognised third-party managers, and guiding our involvement in the various n demand for flying. systems for timber certification investor initiatives highlighted already. – the Forest Stewardship Council We believe that there are (FSC) and the Programme for the opportunities for some of our real Endorsement of Forest Certification Scope 1 + Scope 2 carbon footprints of our Transition Risks within Global assets in a decarbonising economy, (PEFC). We continuously engage and have identified forestry assets with our forestry external managers publicly listed Global Equities and Global Equities and Global Credit portfolios: as a key area. Forestry has a strong to explore carbon accounting Credit portfolios (as at 31 Dec 2019): potential to contribute to the for nature-based solutions. We Equity portfolio: Global Credit portfolio: Equity portfolio: Global Credit portfolio: are currently tracking carbon L mitigation of CO emissions, and o 2 sequestered from a number of • Weighted Average • Weighted Average • Sectors most at risk: • Sectors most o there is an increasing demand for k forestry plantations and are looking in carbon offsetting, with sustainable Carbon Intensity* Carbon Intensity* Utilities, Energy, at risk: Utilities, g f to expand this metric throughout our = 290 tCO e/USDm = 250 tCO e/USDm Transportation, Transportation, o forestry assets as one of a few viable 2 2 r holdings. w nature-based solutions. revenue revenue Materials Energy, Materials ar • Over 30% lower than • Over 20% lower than • Exposure to • Exposure to d the respective Global the respective Global extractives by MV = extractives by MV = Certification of timberland (the PPF’s share) Equity benchmark Credit benchmark 4% lower than Equity 36% lower than Credit Number of hectares Proportion % benchmark benchmark • Portfolio warming • Portfolio warming Certified timberland in accordance with 440,579 98.2% potential = 11% lower potential = 5% lower the FSC and/or PEFC than Equity benchmark than Credit benchmark Timberland in the process of certification in 742 0.2% accordance with the FSC and/or PEFC Land that is sustainably managed in accordance 997 0.2% Physical Risks most exposed to in Opportunities for Global Equities with the FSC and/or PEFC, but cannot be certified our publicly listed Global Equities and Global Credit portfolios: Other 6,271 1.4% and Global Credit portfolios: Equity portfolio: Global Credit portfolio: Equity portfolio: Global Credit portfolio: Coastal Flooding, Coastal Flooding • Exposure to • Exposure to renewable Extreme Heat • Sectors most at risk: renewable energy- energy generation by • Sectors most at risk: Software & Services, generation by MV MV = 9% lower than Software & Services, Consumer Services, = 55% higher than benchmark Autos, Transport, Transportation, benchmark Utilities, Banks, Utilities, Technology Telecoms, Technology, Energy, Materials * We have used the Weighted Average Carbon Intensity (WACI) of Scope 1 + Scope 2 tonnes of CO equivalent emissions per million USD of 2 revenues metric, as currently recommended by the TCFD (holdings as at 31/12/2019). Certain information ©2020 MSCI ESG Research LLC. Reproduced by permission; no further distribution.

34www.ppf.co.ukResponsible Investment Report 2019/20 35 Managing climate change risks and opportunities – continued A p Climate-related disclosure High-level findings p Identifying opportunities r Our exposure to o Whilst sectors such as renewable sustainable forestryTransparency and regular reporting are essential aspects The initial results of the assessments carried out on ach energy are clearly likely to benefit We have approximately £600 million of responsible investing and we are committed to our listed global equity and credit portfolios are shown from a transitioning economy, invested in timberland, with regional disclosing to our internal and external stakeholders. In below. Both portfolios are less carbon intensive than their we also recognise that some exposure mainly across Australia & relation to climate disclosure, we recognise that there benchmarks in terms of their exposure to operational sectors face larger challenges New Zealand, Europe and the US. is no single commonly agreed measurement of climate-carbon emissions. Scenario analysis indicates that some to decarbonise, such as cement We use a combination of primary related risks and opportunities, and we will continue companies within both portfolios could be associated and aviation. However, alternative and secondary funds, as well as co-to examine the most appropriate metrics to track our with potential transition risks due to their exposure to technologies or materials present investments to gain exposure. progress. We have expanded our ESG data coverage high carbon-intensive activities (e.g. in utilities, energy growing opportunities in other to provide us with a range of metrics at a portfolio and materials sectors). We have also started measuring sectors such as timberland and and issuer level – including scope 1, 2 and 3 carbon physical risk exposure for the listed global equity and Within our forestry investments, E transportation infrastructure, for we track the share of timberland emissions; climate value-at-risk measures; extractive credit portfolios, where coastal flooding is likely to be the xe example, increasing timber demand c fossil fuel revenues and reserves data; and physical risk most significant hazard. These findings have been useful u (by hectares) certified under major t within construction in place of datasets on various climate-induced events. in informing our conversations with our active external io cement; and rail travel substituting universally recognised third-party managers, and guiding our involvement in the various n demand for flying. systems for timber certification investor initiatives highlighted already. – the Forest Stewardship Council We believe that there are (FSC) and the Programme for the opportunities for some of our real Endorsement of Forest Certification Scope 1 + Scope 2 carbon footprints of our Transition Risks within Global assets in a decarbonising economy, (PEFC). We continuously engage and have identified forestry assets with our forestry external managers publicly listed Global Equities and Global Equities and Global Credit portfolios: as a key area. Forestry has a strong to explore carbon accounting Credit portfolios (as at 31 Dec 2019): potential to contribute to the for nature-based solutions. We Equity portfolio: Global Credit portfolio: Equity portfolio: Global Credit portfolio: are currently tracking carbon L mitigation of CO emissions, and o 2 sequestered from a number of • Weighted Average • Weighted Average • Sectors most at risk: • Sectors most o there is an increasing demand for k forestry plantations and are looking in carbon offsetting, with sustainable Carbon Intensity* Carbon Intensity* Utilities, Energy, at risk: Utilities, g f to expand this metric throughout our = 290 tCO e/USDm = 250 tCO e/USDm Transportation, Transportation, o forestry assets as one of a few viable 2 2 r holdings. w nature-based solutions. revenue revenue Materials Energy, Materials ar • Over 30% lower than • Over 20% lower than • Exposure to • Exposure to d the respective Global the respective Global extractives by MV = extractives by MV = Certification of timberland (the PPF’s share)Equity benchmark Credit benchmark 4% lower than Equity 36% lower than Credit Number of hectares Proportion % benchmark benchmark • Portfolio warming • Portfolio warming Certified timberland in accordance with 440,579 98.2% potential = 11% lower potential = 5% lower the FSC and/or PEFC than Equity benchmark than Credit benchmark Timberland in the process of certification in 742 0.2% accordance with the FSC and/or PEFC Land that is sustainably managed in accordance 997 0.2% Physical Risks most exposed to in Opportunities for Global Equities with the FSC and/or PEFC, but cannot be certifiedour publicly listed Global Equities and Global Credit portfolios: Other 6,271 1.4%and Global Credit portfolios: Equity portfolio: Global Credit portfolio: Equity portfolio: Global Credit portfolio: Coastal Flooding, Coastal Flooding • Exposure to • Exposure to renewable Extreme Heat • Sectors most at risk: renewable energy- energy generation by • Sectors most at risk: Software & Services, generation by MV MV = 9% lower than Software & Services, Consumer Services, = 55% higher than benchmark Autos, Transport, Transportation, benchmark Utilities, Banks, Utilities, Technology Telecoms, Technology, Energy, Materials * We have used the Weighted Average Carbon Intensity (WACI) of Scope 1 + Scope 2 tonnes of CO equivalent emissions per million USD of 2 revenues metric, as currently recommended by the TCFD (holdings as at 31/12/2019). Certain information ©2020 MSCI ESG Research LLC. Reproduced by permission; no further distribution.

36 www.ppf.co.uk Responsible Investment Report 2019/20 37 Managing climate change risks and opportunities – continued A p p Focus areas in 2020 and beyond r o Alongside the expansion of carbon footprinting ach to other asset classes, we will also start undertaking scenario analysis on a selection of private markets’ assets, and plan to expand the physical risks metrics for real assets. We note the UK Parliament’s legislation in 2019 requiring the Government to achieve net zero emissions by 2050 as part of its commitment to the Paris Agreement. In order to understand what tangible actions investors can practically E take to support the achievement of country or xe c regional targets, we are actively collaborating u t io with the IIGCC through their Paris Aligned n Investment Initiative (PAII), and following the developments of the Science Based Targets Initiative (SBTi) framework for Financial Institutions. Case study Infrastructure manager focus L o o k on sustainability in g f o r w ar Through an infrastructure external manager, we invested d in a high-class student accommodation project for the University of Hertfordshire. The housing stock of the University campus in Hatfield was in need of refurbishment, modernisation and expansion, and sustainability is a key priority at the University. The construction of 21 new buildings housing 3,000 people was completed in 2016 and delivered in partnership with Uliving@Hertfordshire. Quality of living was at the centre of the buildings’ design, with natural light, ventilation, superior air quality and acoustic performance considered, with the development rated ‘Outstanding’ by BREEAM. Alongside climate-related benefits, the development also has water efficiency, circular principles in both construction and operation phases and sustainable transport benefits. The overall development also included an onsite Energy Centre, completed in June 2018 to generate low-carbon heat and power for the accommodation blocks and communal facilities. High-level energy performance translates to significant savings on operational running costs, further supported by the availability of an onsite renewable Image courtesy of Pete Stevens energy source, with the University operation at 26-32 per cent lower energy use per bed space compared to other accommodation sites. Source: https://www.herts.ac.uk/about-us/news/2019/october/university-of- hertfordshire-opens-innovative-musculoskeletal-research-unit

36www.ppf.co.ukResponsible Investment Report 2019/20 37 Managing climate change risks and opportunities – continued A p p Focus areas in 2020 and beyond r o Alongside the expansion of carbon footprinting ach to other asset classes, we will also start undertaking scenario analysis on a selection of private markets’ assets, and plan to expand the physical risks metrics for real assets. We note the UK Parliament’s legislation in 2019 requiring the Government to achieve net zero emissions by 2050 as part of its commitment to the Paris Agreement. In order to understand what tangible actions investors can practically E take to support the achievement of country or xe c regional targets, we are actively collaborating u t io with the IIGCC through their Paris Aligned n Investment Initiative (PAII), and following the developments of the Science Based Targets Initiative (SBTi) framework for Financial Institutions. Case study Infrastructure manager focus L o o k on sustainability in g f o r w ar Through an infrastructure external manager, we invested d in a high-class student accommodation project for the University of Hertfordshire. The housing stock of the University campus in Hatfield was in need of refurbishment, modernisation and expansion, and sustainability is a key priority at the University. The construction of 21 new buildings housing 3,000 people was completed in 2016 and delivered in partnership with Uliving@Hertfordshire. Quality of living was at the centre of the buildings’ design, with natural light, ventilation, superior air quality and acoustic performance considered, with the development rated ‘Outstanding’ by BREEAM. Alongside climate-related benefits, the development also has water efficiency, circular principles in both construction and operation phases and sustainable transport benefits. The overall development also included an onsite Energy Centre, completed in June 2018 to generate low-carbon heat and power for the accommodation blocks and communal facilities. High-level energy performance translates to significant savings on operational running costs, further supported by the availability of an onsite renewable Image courtesy of Pete Stevens energy source, with the University operation at 26-32 per cent lower energy use per bed space compared to other accommodation sites. Source: https://www.herts.ac.uk/about-us/news/2019/october/university-of- hertfordshire-opens-innovative-musculoskeletal-research-unit

38 www.ppf.co.uk Responsible Investment Report 2019/20 39 A p p r o Looking ach E x e c u t forward ion L o o k i n g f o r war d

38www.ppf.co.ukResponsible Investment Report 2019/20 39 A p p r o Looking ach E x e c u t forward ion L o o k i n g f o r war d

40 www.ppf.co.uk Responsible Investment Report 2019/20 41 Continuing to drive RI forward A p Further development and Considering the p r UNFCCC COP 26 in the UK o continuation of RI capabilities, ‘new normal’ ach collaboration and active We need to see real world The role of private finance making ownership economy reductions of global finance flows consistent is vital In the year ahead, a critical carbon emissions and pursue in delivering on the ambitions In early 2020 the world was faced development is the lead-up to the a pathway towards net-zero of the Paris Agreement, as also with the unprecedented challenge UNFCCC’s Conference of the Parties emissions. The multilateral process referenced in the UK’s Green of the pandemic, caused by (COP) 26, and we will continue our of climate negotiations is key to Finance Strategy launched by coronavirus, leading to widespread collaboration with PRI and IIGCC, as curbing global emissions, and BEIS during 2019. We are closely disruption of economic and social well as working with the industry, the aspiration of individual states monitoring the dynamics and activity. We appreciate the gravity our external managers and peers to to set and achieve the goals focus around the COP meeting, of the situation facing the global E x encourage the necessary progress e of limiting the global average and as part of the policy-focused economy and circumstances faced c required for this to be a success. u t temperature rise to 1.5°C is working group of IIGCC, we are by many companies, and recognise ion Climate change will remain a priority. vital. The UK is due to host COP open to collaboration. The UK the critical role of good and stable We are planning to extend the 26 in partnership with Italy in Government’s pledge to achieve leadership – by both companies and measurement to our real assets in 2021, where the first review on carbon neutrality by 2050 sets a governments – in the management the next phase of our climate change the progress of the Nationally positive example and an ambitious of the immediate crisis and the type implementation plan, focusing also Determined Contributions (NDCs), agenda to mitigate emissions. of recovery that arises, while still on assessing the physical climate- submitted in 2015 as part of the considering the ongoing climate related risks that they could be Paris Agreement, will be discussed. crisis. Consequently, in the current vulnerable to. We will continue to AGM season, we have been voting develop our TCFD disclosure in for some ballots by exception if they are deemed important to ensure L alignment with the guidelines. We will o ongoing stability within a company’s o also review nature-based solutions k i management. n and explore further potential The role of private g f opportunities for sustainable o r investment in forestry. finance is vital in war delivering on the d While we are keen to keep evolving, ambitions of the Case study we have worked hard to set a baseline for understanding material Paris Agreement. Social infrastructure ESG and climate change risks and will continue to dive deeper, seeking to improve our management and One of our external government’s plan to add comprehension of these risks. We infrastructure managers beds to the healthcare will also seek to achieve greater recently opened the new system to tackle the transparency in reporting across Felix Bulnes Hospital in coronavirus pandemic. our pooled funds and segregated Santiago, Chile. This new mandates. state-of-the-art hospital will The hospital is modern Working with our external partners, provide health and sanitary and innovative, using we are also aiming to develop and services, emergency environmentally- implement our own stewardship inpatient, outpatient, adult, efficient systems and policy, including bespoke voting paediatric and maternal materials, energy-efficient policies for certain key themes. care to a population of architecture with the most 1.2 million people in one stringent anti-seismic of the poorest areas of technology, and contributes Chile. President Piñera to the infrastructure announced that the external manager’s global opening of the hospital strategy to deliver resilient will directly contribute infrastructure and develop up to 30 per cent of the sustainable cities.

40www.ppf.co.ukResponsible Investment Report 2019/20 41 Continuing to drive RI forward A p Further development and Considering the p r UNFCCC COP 26 in the UK o continuation of RI capabilities, ‘new normal’ ach collaboration and active We need to see real world The role of private finance making ownership economy reductions of global finance flows consistent is vital In the year ahead, a critical carbon emissions and pursue in delivering on the ambitions In early 2020 the world was faced development is the lead-up to the a pathway towards net-zero of the Paris Agreement, as also with the unprecedented challenge UNFCCC’s Conference of the Parties emissions. The multilateral process referenced in the UK’s Green of the pandemic, caused by (COP) 26, and we will continue our of climate negotiations is key to Finance Strategy launched by coronavirus, leading to widespread collaboration with PRI and IIGCC, as curbing global emissions, and BEIS during 2019. We are closely disruption of economic and social well as working with the industry, the aspiration of individual states monitoring the dynamics and activity. We appreciate the gravity our external managers and peers to to set and achieve the goals focus around the COP meeting, of the situation facing the global E x encourage the necessary progress e of limiting the global average and as part of the policy-focused economy and circumstances faced c required for this to be a success. u t temperature rise to 1.5°C is working group of IIGCC, we are by many companies, and recognise ion Climate change will remain a priority. vital. The UK is due to host COP open to collaboration. The UK the critical role of good and stable We are planning to extend the 26 in partnership with Italy in Government’s pledge to achieve leadership – by both companies and measurement to our real assets in 2021, where the first review on carbon neutrality by 2050 sets a governments – in the management the next phase of our climate change the progress of the Nationally positive example and an ambitious of the immediate crisis and the type implementation plan, focusing also Determined Contributions (NDCs), agenda to mitigate emissions. of recovery that arises, while still on assessing the physical climate-submitted in 2015 as part of the considering the ongoing climate related risks that they could be Paris Agreement, will be discussed. crisis. Consequently, in the current vulnerable to. We will continue to AGM season, we have been voting develop our TCFD disclosure in for some ballots by exception if they are deemed important to ensure L alignment with the guidelines. We will o ongoing stability within a company’s o also review nature-based solutions k i management. n and explore further potential The role of private g f opportunities for sustainable o r investment in forestry. finance is vital in war delivering on the d While we are keen to keep evolving, ambitions of the Case study we have worked hard to set a baseline for understanding material Paris Agreement. Social infrastructure ESG and climate change risks and will continue to dive deeper, seeking to improve our management and One of our external government’s plan to add comprehension of these risks. We infrastructure managers beds to the healthcare will also seek to achieve greater recently opened the new system to tackle the transparency in reporting across Felix Bulnes Hospital in coronavirus pandemic. our pooled funds and segregated Santiago, Chile. This new mandates. state-of-the-art hospital will The hospital is modern Working with our external partners, provide health and sanitary and innovative, using we are also aiming to develop and services, emergency environmentally- implement our own stewardship inpatient, outpatient, adult, efficient systems and policy, including bespoke voting paediatric and maternal materials, energy-efficient policies for certain key themes. care to a population of architecture with the most 1.2 million people in one stringent anti-seismic of the poorest areas of technology, and contributes Chile. President Piñera to the infrastructure announced that the external manager’s global opening of the hospital strategy to deliver resilient will directly contribute infrastructure and develop up to 30 per cent of the sustainable cities.

42 www.ppf.co.uk Meet the team Claire Curtin Iliana Lazarova Head of ESG Senior ESG Analyst Claire joined the PPF’s investment Iliana joined the PPF to implement team in 2018 to support our our RI strategy and bolster ambitions to further develop collaboration initiatives. She is and implement our Responsible responsible for streamlining Investment strategy. She is reporting on long-term ESG risks responsible for contributing to and deepening ESG integration the management of long-term across asset classes, with a focus risks, and to the achievement of on sustainable infrastructure and long-term sustainable investment private markets. returns, by aligning the PPF’s investment portfolio with the Iliana has long tenure as a consideration of ESG factors. sustainability professional with expertise on carbon, climate and Claire is a member of the renewable energy. PRI’s Infrastructure Advisory Committee and the Pensions Prior to joining the PPF, Iliana was Climate Risk Industry Group. an analyst with Trucost, part of S&P Global. Iliana has a Master’s Claire has 20 years’ experience in Environmental Management within the asset management from the Yale School of Forestry industry, with the last decade and Environmental Studies and a Getting in touch specialising in ESG research Bachelor’s degree in International Claire Curtin, Head of ESG and analysis, during which Economic Relations. [email protected] she has built a deep technical understanding of ESG issues Iliana Lazarova, Senior ESG Analyst across a wide range of asset [email protected] classes. She was awarded the Chartered Alternative Investment Visit our website to read our latest Analyst designation in 2007. news and reports.

42www.ppf.co.uk Meet the team Claire CurtinIliana Lazarova Head of ESGSenior ESG Analyst Claire joined the PPF’s investment Iliana joined the PPF to implement team in 2018 to support our our RI strategy and bolster ambitions to further develop collaboration initiatives. She is and implement our Responsible responsible for streamlining Investment strategy. She is reporting on long-term ESG risks responsible for contributing to and deepening ESG integration the management of long-term across asset classes, with a focus risks, and to the achievement of on sustainable infrastructure and long-term sustainable investment private markets. returns, by aligning the PPF’s investment portfolio with the Iliana has long tenure as a consideration of ESG factors. sustainability professional with expertise on carbon, climate and Claire is a member of the renewable energy. PRI’s Infrastructure Advisory Committee and the Pensions Prior to joining the PPF, Iliana was Climate Risk Industry Group. an analyst with Trucost, part of S&P Global. Iliana has a Master’s Claire has 20 years’ experience in Environmental Management within the asset management from the Yale School of Forestry industry, with the last decade and Environmental Studies and a Getting in touch specialising in ESG research Bachelor’s degree in International Claire Curtin, Head of ESG and analysis, during which Economic [email protected] she has built a deep technical understanding of ESG issues Iliana Lazarova, Senior ESG Analyst across a wide range of asset [email protected] classes. She was awarded the Chartered Alternative Investment Visit our website to read our latest Analyst designation in 2007.news and reports.

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