25 Pension Protection Fund Climate Change Report 2021/22 METRICS AND TARGETS CONTINUED 2. The Transition Pathway Initiative (TPI) The TPI tool uses publicly-disclosed As explained earlier in this report, TPI levels for companies in our Equities portfolio Credit information collected by FTSE Russell we have used the TPIMQ level to This year, we extended the TPI analysis and validated by the Grantham inform our new climate-aware equity 160 TPIMQ coverage for to both of our Credit portfolios for the Research Institute at the London benchmark, the FTSE Custom All- 昀椀rst time. We found: School of Economics to assess more World Climate Minimum Variance 140 5.9% our Equities portfolio than 400 of the world’s highest- Index. Speci昀椀cally, the benchmark s Credit e i t emitting listed companies on now excludes any company where: i 120 has increased to 14 u 6.2% Less than 5 per cent of the Credit two measures: a) 25–50 per cent of revenues are q portfolio is covered by the TPI tool. F E100 coming from thermal coal power P per cent of market But of these holdings, the majority • The TPI Management Quality generation and the TPIMQ level is less n P 80 have a TPIMQ level of three or above. (TPIMQ) level assesses companies s i value from 12 per e than three; or b) more than 50 per cent i In addition, 60 per cent of companies n on how well management is of revenues are coming from Oil and a dealing with climate change risks, p 60 cent last year. covered have made a pledge (Paris Gas production and the TPIMQ level is m from Zero to Four Star. o Alignment / 2°C or below) and the less than three. . c 40 o 0.8% companies that are misaligned are • The TPI Carbon Performance N 0.6% currently under review for engagement. (TPICP) measure assesses Equity 20 companies on how e昀昀ective they TPI still only covers around 400+ 0.1% UK Credit are at achieving carbon reduction companies globally so not all holdings 0 MQ = 0 MQ = 1 MQ = 2 MQ = 3 MQ = 4/4* are covered. However, coverage for We achieved almost 20 per cent TPI in line with the Paris Agreement or our Equities portfolio has increased TPI Management Quality level coverage for the UK Credit portfolio. any target they’ve set. to 14 per cent of market value from The allocation to issuers with better 12 per cent last year. Additionally, a Weight in PPF Equities (%) management quality (i.e., with a TPIMQ substantially higher number of these level of three or above) is almost 17 per companies achieved a TPIMQ level of cent – out of 20 per cent achieved (i.e. three or above (78 per cent vs. 66 per 85 per cent of the covered portfolio) – 120 and there is no allocation to extreme A substantially higher cent last year). Lastly, the allocation to laggards (TPIMQ level of 0). Five out of companies that have set targets which 3.9% o align with the Paris Agreement / 2 s 100 seven companies have pledged to 2 C number of these e 3.4% i or below and only one is misaligned. t Degrees or below, or that have made i u companies received a other pledges, has remained steady q 80 F E TPIMQ Management at 4.4 per cent (compared to four per P cent last year). However, we have n P 60 s i e observed that many companies have i Quality level of n a improved their alignment from the less p 40 ambitious Paris pledges to the more m 0.5% three or above. o ambitious below two degrees. . c o N 20 0.4% 0 Not assessed/ Not Paris/ 2 Degrees no disclosure aligned other pledges or below TPI Carbon Performance assessment Weight in PPF Equities (%)