30 Pension Protection Fund Climate Change Report 2021/22 APPENDICES CONTINUED Appendix B Appendix C PPF climate change policy Disclosure metrics from the Annual Report and Accounts Beliefs global temperature rise this century As a long-term investor, we have to well below 2°C and aim to limit the PPF Carbon Footprint Listed Equities Scope 1 & 2 Metrics 2021 2020 Change % a duty to consider all 昀椀nancially increase to 1.5°C. Metrics based on Investor Allocation (using EVIC) material risk factors in our investment Manager expectations 1. Total Financed Carbon Emissions (tCO e) 395,353 796,972 -50% decisions, including climate-related 2 factors. We believe climate change can We expect our external managers to 2. Financed Carbon Emissions (tCO e/$m invested) 65 122 -47% understand and integrate material 2 materially impact businesses, markets 3. Financed Carbon Emissions Intensity (tCO e/$m revenues) 151 226 -33% and economies globally in a number climate-related risks into their analysis 2 of ways, from a societal perspective as and investment process. This includes Metrics based on Portfolio Weights (WACI) well as environmental. undertaking carbon footprinting 4. Weighted Average Carbon Intensity (tCO e/$m revenues) 154 243 -37% and scenario analysis, assessing 2 * We’ve developed a speci昀椀c climate asset exposure to physical risks, and Equity benchmark Weighted Average Carbon Intensity 83 299 -72% change policy, as we see climate Market value of the Fund’s equities covered by CO e data (£m) 6,090 6,528 engaging with issuers, where relevant 2 change as a systemic and non- for their asset class. Proportion of the Fund’s equities for which data is available (%) 99% 98% diversi昀椀able concern that has the potential to signi昀椀cantly a昀昀ect the In monitoring the exposure and PPF Carbon Footprint Credit Scope 1 & 2 Metrics 2021 2020 Change % value of our investments across performance of our external managers, the short, medium and long-term, we’ll review how they’re managing Metrics based on Investor Allocation (using EVIC) throughout the global economy. We climate-related risks and opportunities, 1. Total Financed Carbon Emissions (tCO e) 321,205 329,106 -2% also believe that opportunities can including voting and engaging with 2 2. Financed Carbon Emissions (tCO e/$m invested) 50 53 -6% exist and be exploited for companies issuers on climate-related issues, 2 and assets well-positioned for the and how they’re reporting to us on 3. Financed Carbon Emissions Intensity (tCO e/$m revenues) 204 192 6% their actions. 2 transition to a low-carbon economy. Metrics based on Portfolio Weights (WACI) Assessment Collaboration 4. Weighted Average Carbon Intensity (tCO e/$m revenues) 133 318 -58% 2 We recognise the complexity and We also collaborate with the wider Credit benchmark Weighted Average Carbon Intensity 279 255 9% barriers to identifying and assessing the investment community on climate Market value of the Fund’s credit covered by CO e data (£m) 6,451 6,214 forward-looking 昀椀nancial materiality change issues, as a signatory to the 2 of climate-related impacts on our Principles for Responsible Investment Proportion of the Fund’s credit for which data is available (%) 89% 93% investments. However, we seek to (PRI) and as a member of the assess their exposure to climate-related Institutional Investor Group on Climate Source: Certain information ©2022 MSCI ESG Research LLC. Reproduced by permission; no further distribution (PPF holdings as of 31/12/2021). Equity benchmark = FTSE Custom All-World Climate risks and opportunities through a range Change (IIGCC). We seek to encourage Minimum Variance Index. Credit benchmark = Bloomberg Barclays Global Aggregate Credit Index. of metrics and analysis, as the tools greater climate disclosure through * Equity benchmark changed from FTSE All-World Minimum Variance Index to FTSE Custom All-World Climate Minimum Variance Index on 1 August 2021. available to measure these evolve. supporting initiatives such as the CDP and the Task Force on Climate-related Metric de昀椀nitions: Consideration will be given to the • Total Financed Carbon Emissions: Measures the Scope 1 + Scope 2 tonnes of CO equivalent emissions for which an investor is responsible by their total overall 昀椀nancing. Emissions are Financial Disclosures (TCFD), and 2 potential impacts on asset prices and through engaging with companies apportioned across all outstanding shares and bonds (% Enterprise Value including cash). • Financed Carbon Emissions: Measures the Scope 1 + Scope 2 tonnes of CO equivalent emissions, for which an investor is responsible, per USD million invested, by their total overall 昀椀nancing. return expectations across both short identi昀椀ed by Climate Action 100+, 2 and longer time horizons, and how so that exposure to climate risks Emissions are apportioned across all outstanding shares and bonds (% Enterprise Value including cash). • Financed Carbon Intensity: Measures the carbon e昀케ciency of a portfolio, de昀椀ned as the ratio of Scope 1 + Scope 2 tonnes of CO equivalent emissions for which an investor is responsible to this could inform our decisions around (and opportunities) can be better 2 strategic asset allocation and portfolio understood. the revenues for which an investor has a claim by their total overall 昀椀nancing. Emissions and sales are apportioned across all outstanding shares and bonds (% Enterprise Value including cash). construction. • Weighted Average Carbon Intensity (WACI): Measures a portfolio’s exposure to carbon-intensive companies, de昀椀ned as the portfolio weighted average of companies’ Carbon Intensity (Scope 1 + Scope 2 tonnes of CO equivalent emissions per million $ of revenues). Reporting and engagement 2 We will seek to oversee all new and • Enterprise Value including cash (EVIC): Market capitalisation at 昀椀scal year-end date + preferred stock + minority interest + total debt. existing investment arrangements in We’ll communicate and engage on a way that takes account of climate the actions and progress that have transition and adaptation risks, as been taken around our climate change well as resilience, opportunities and strategy to relevant bene昀椀ciaries and inclusivity, in line with the 2015 Paris stakeholders, reporting in line with Agreement commitment to keep TCFD guidance for asset owners.