Strategy and risk management – continued Analysing portfolio temperature Managing climate-related In the absence of alignment risks across the PPF an existing solution, Following our involvement in the we’ve launched a IIGCC’s PAII, we’re currently undergoing a project to assess how the Fund As ESG and climate-related risks can unique pilot project aligns with a particular global warming to assess how our trajectory. signi昀椀cantly impact the long-term performance of assets, we’ve now entire portfolio We’ve found the PAII outputs a chosen to identify this as a speci昀椀c risk aligns with the useful starting point, but the current category in the investment risk register of our SIP. This means they’re monitored framework only o昀昀ers coverage for by the Investment Committee, which in Paris Agreement. less than 25 per cent of our portfolio. turn reports to the Board. As we could not identify an alternative solution to give us what we needed, On a day-to-day basis, we’re continually we’ve appointed an external consultant improving access to risk data across our to help us design one. Over the coming portfolio. We’re also active owners and year, we’ll be working together to assess stewards. Our stewardship provider our entire portfolio and acquire an and fund managers engage on our independent, objective measurement. behalf with the companies or issuers we In line with our overall strategy, we’re invest in to ensure climate-related risks taking a phased approach, with phase and opportunities are being managed one addressing 70 per cent of our appropriately. portfolio’s assets. The results of this project should help us set robust and credible climate-related objectives. We hope it will also be useful to other investors with similar exposure to more Assessing physical risks Assessing opportunities continually review the proportion of complex asset classes. Most modelling tools, such as those We believe that there are opportunities our timberland assets that are FSC mentioned on the previous page, largely for some of our real assets in a and/or PEFC certi昀椀ed. consider transition risks rather than decarbonising economy, and have • Infrastructure physical risks. To better assess physical identi昀椀ed forestry, infrastructure We see sustainable infrastructure as risk, we’ve started to explore the and property assets as a logical part an attractive opportunity, and within di昀昀erent data and analytical provider of the solution. options. However, these tend to focus this have identi昀椀ed urban resilience on listed companies’ headquartered Whilst sectors such as renewable as a key trend. locations rather than asset-level energy are clearly likely to bene昀椀t • Property locations. from a transitioning economy, we also Real estate is a critical component recognise that alternative technologies of the energy transition, not only While we continue to explore options, or materials present growing we’re also using analysis provided in opportunities in other sectors. through addressing energy e昀케ciency our MSCI Climate VaR reports, as this but also in design and construction. also incorporates some physical risks. • Forestry As part of our portfolio alignment We also continue to challenge our Forestry has a strong potential to project, we have recently started fund managers to assess physical and contribute to the mitigation of CO using the Carbon Risk Real Estate 2 Monitor (CRREM) tool to review our adaptation risks across our portfolios, emissions through carbon storage, property portfolios. CRREM is an especially in our real assets. and sustainable forestry assets are EU Horizon 2020 research project, one of a few viable nature-based the outputs of which indicate the solutions. Well-managed forests can percentage of a property portfolio also provide additional bene昀椀ts in that might become stranded by 2030 Taking action: We’re driving terms of biodiversity and be more a deeper understanding of resilient to physical impacts arising or 2050 under a speci昀椀c scenario. physical risks by challenging our from climate change. Over the year This can also help to de昀椀ne those we have increased our investment assets more likely to be resilient managers, by using Climate VaR in forestry by 20 per cent and we under net zero pathways. reports and by exploring new analytical tools.