Metrics and targets – continued Exposure to fossil fuel The UK Credit portfolio, although not Weight of holdings owning fossil fuel reserves activities measured against a benchmark, does have some exposure to companies 12.0% with fossil fuel reserves. However, all 11.0% 5.3% of the companies with reserves, with The risk of fossil fuel assets becoming the exception of one, have strong 10.0% management quality (MQ) scores for 9.0% stranded is a signi昀椀cant concern in climate-related strategy (as assessed by both an orderly or disorderly transition the TPI). 8.0% 7.9% towards net zero emissions by 2050. 7.0% 3.2% In fact, the most carbon-intensive The ‘weight of holdings’ metric tells us 6.0% 6.1% 5.2% 6.3% assets are likely to become stranded what our exposure is to companies much sooner. This is due to the falling that have reserves on their balance 5.0% 1.8% cost of renewable energy production sheet, but doesn’t give insight into the 4.0% 4.4% and rising carbon prices in regions with magnitude of potential emissions that 3.0% 1.6% 1.7% 1.9% emissions trading schemes or carbon might be released from the burning Per cent weight in portfolio3.0% 3.0% taxes. Thermal coal is unarguably facing of these reserves. Therefore, we have 2.0% 1.5% 1.8% also assessed the potential embedded 1.9% transition risks in the next 昀椀ve to ten emissions and contribution by reserve 1.0% years within the OECD regions. 1.2% 0.8% 1.2% type, as shown in the chart to the right. 0.0% 0.3% As a result, we assessed our portfolios’ Equities Equities benchmark Credit Credit benchmark UK Credit exposure to fossil fuel reserves by Our Equities portfolio has approximately overall percentage, as well as by 40 per cent lower embedded emissions Weight of companies owning any fossil fuel reserves Thermal coal Gas Oil than its benchmark, and our global fuel type. Credit portfolio has approximately 50 Certain information ©2020 MSCI ESG Research LLC. Reproduced by permission; no further distribution. The Equities portfolio has higher per cent lower embedded emissions. exposure than our equity benchmark. Both the global Credit and UK Credit As this is beyond a level we’re portfolios have minimal exposure to Potential emissions from reserves and contribution from reserves type comfortable with, it was a fundamental potential emissions from thermal coal. consideration in the design of our 30,000,000 120% new climate-aware equity index and we expect a signi昀椀cant reduction 26,116,086 25,958,559 to our exposure post-transition 25,000,000 100% to the new index. Taking action: Although the 29.7% 8.4% 39.1% 40.0% 51.9% Equities portfolio already has 10.8% The global Credit portfolio has lower thermal coal embedded 20,000,000 80.8% 80% a low exposure overall – especially emissions than its benchmark, in thermal coal – and when compared we have sought to reduce 15,000,000 15,868,662 60% to its benchmark. this further within the new 16.5% 13,312,590 44.8% We have sought to climate-aware index. 53.8% 53.4% 47.1% signi昀椀cantly reduce 10,000,000 40% our exposure to fossil 5,000,000 20% fuel reserves in our 15.1% new climate-aware 7.5% 1.0% 292,085 Potential embedded emissions in tonnes0 0% equity index. Equities Equities benchmark Credit Credit benchmark UK Credit Potential emissions from fossil fuel reserves Contribution from thermal coal Contribution from gas Contribution from oil Certain information ©2020 MSCI ESG Research LLC. Reproduced by permission; no further distribution.