15 Pension Protection Fund Climate Change Report 2021/22 STRATEGY AND RISK MANAGEMENT CONTINUED How we manage the risks Considering the positioning of We are also adopting the Institutional Engaging with non-responsive issuers CASE STUDY our portfolios Investors Group on Climate Change We are active supporters of CDP, As detailed in the case study on page (IIGCC)’s Net Zero Stewardship Toolkit, a not-for-pro昀椀t organisation that Climate Action 100+ 16, we have moved to a low-carbon which was launched in April 2022. runs the global environmental equity benchmark to actively manage This aims to raise the bar for investor disclosure system in three key our equity positioning in relation to climate stewardship by providing a areas: climate, water and forests. We are a signatory to Climate Action 100+, the largest-ever the energy transition. Alongside our systematic framework that focuses CDP’s Non-Disclosure campaign, investor engagement initiative on climate change, involving passive mandates that closely track investors on ensuring they prioritise through collaborative engagement around 700 investors in 33 markets who collectively hold half this benchmark, we have also seen high-impact engagement while e昀昀orts among investors, aims to of the world’s assets under management. an indirect feed through into the systematically ensuring they have persuade non-responsive companies Climate Action 100+ puts pressure on the world’s largest positioning of our active quantitative measures in place to hold laggard to take action and report to the emitters, which together account for approximately 80 per cent equity strategies. companies to account. CDP questionnaires, depending on of global industrial emissions. Our RI reports provide more detail on which of its three focus areas are We use the information reported to material to their business activities The initiative published its 2021 Year in Review: A Progress us by our managers in our quarterly the stewardship activities and progress or supply chains. Update in March 2022. The review found that, largely as a result ESG templates to review any material of EOS, our fund managers and any of Climate Action 100+, 52 per cent of targeted companies risks highlighted by them and compare direct or collaborative engagements Earlier this year, we identi昀椀ed the have made Net Zero commitments and a substantial 72 per these reports against our own internal we have carried out. This includes companies across our listed portfolios cent now report in line with TCFD recommendations. Some monitoring. This has allowed us activities related to climate issues. that have not responded to CDP in examples around the world include: to have much more constructive Industry collaboration recent years. As we prefer engagement discussions in our manager review with companies to assist them in meetings, so that we can understand We continue to participate in climate- their Net Zero journey instead of • In It aly, Enel, the biggest utility company in the world, their investment theses and potentially focused memberships and networks, divesting, we are currently involved has committed to being Net Zero by 2040 solely by using challenge them on their assumptions such as the IIGCC and the ongoing in this campaign to encourage over renewables (with zero reliance on o昀昀sets or negative where necessary. The stewardship Climate Action 100+ initiative – see 700 non-disclosing companies to emissions removal technology) sections of our manager reporting the case study, right. We are carefully respond to CDP, either via leading the template also provide us with more reviewing the di昀昀erent frameworks engagement ourselves or supporting it. • The Chinese national oil comp any Sinopec has committed detail on how our managers are available for aligning our portfolio to be carbon neutral by 2050 – 10 years earlier than China engaging with issuers or policy- with Net Zero (e.g., the IIGCC Net We will assess the progress made on makers, and highlights on progress Zero Investment Framework, the UN this engagement campaign once the • The Austr alian company Boral is the 昀椀rst cement company made or speci昀椀c escalations taken. Net Zero Asset Owners Alliance, and annual reporting period closes and to commit being aligned with 1.5°C in its Scope 1 and the Science Based Targets initiative). the results are published at the end 2 emissions Stewardship and engagement We are thoughtfully considering their of the year. • R olls Royce, the FTSE 100 aerospace and defence company, We engage heavily with our external respective recommendations for Establishing our voting guidelines is committed to making all its civil aero-engines compatible managers to encourage ongoing di昀昀erent asset classes to ensure any on climate change with 100% sustainable aviation fuel by 2023 and has improvements in their approaches chosen framework can be realistically embedded this target into its executive remuneration policy to managing climate risks and to applied to how we manage our assets As mentioned in the previous section, ensure they continue to meet our high across a highly diverse portfolio. we drafted new voting guidelines • The S outh African chemicals company Sasol has set a target standards in this area. In addition, our during the year to summarise some to be Net Zero by 2050 stewardship services provider EOS of the key escalation situations where prioritises climate risk and opportunity we will consider voting against • US ener gy company Phillips 66 is the 昀椀rst oil re昀椀ner to include management in their engagement management on issues including Scope 3 emissions in its target (aiming to reduce the carbon with issuers, which feeds into voting climate change. See Appendix F to see intensity of its energy products by 15 per cent by 2030). recommendations at company AGMs. an overview of these new guidelines. Although the success of this initiative has been encouraging, there is a long way until companies fully align their capital expenditure with a 1.5°C world and achieve high-level performance across all indicators assessed by Climate Action 100+. Lots more work needs to be done.