19 Pension Protection Fund Climate Change Report 2021/22 METRICS AND TARGETS CONTINUED Relative carbon Equities portfolio: carbon intensity metrics UK Credit portfolio: carbon intensity metrics intensity The December 2021 carbon footprint analysis for our listed Equities aggregate shows substantial The availability of reported carbon data for our UK Credit holdings is lower than for our other two progress from our 2020 footprint analysis, with our weighted average carbon intensity (WACI) portfolios, however we are engaging with a number of issuers to request more disclosure from them. declining by 37 per cent year-on-year. The WACI of the Equity benchmark reduced by over 70 per All three carbon intensity metrics have remained broadly unchanged year-on-year, which is to be We continue to use three key metrics cent as a result of the transition to our new climate-aware equity benchmark. This had the direct expected due to the longer holding periods and low turnover of this portfolio. to assess the relative emissions-based e昀昀ect of reducing the WACI of our equity passive mandates by the same amount, as anticipated. intensity of our portfolios, giving us a fuller picture and allowing us to PPF Equities carbon metrics PPF UK Credit carbon metrics measure di昀昀erent asset classes and di昀昀erent sizes of portfolio on a like- 350 350 for-like basis. See Appendix D for an c c i i r r explanation of each of these metrics. t 300 t 300 e 299 e n m250 n m250 o 257 o i i l l l 243 l i 226 i m 200 m 200 r $ r $ e 150 e 150 175 170 e p2 151 154 e p2 153 153 O 100 122 125 O 100 C C s s e 83 e n 70 n n 50 65 n 50 47 To 30 To 41 0 0 PPF 昀椀nanced Benchmark PPF 昀椀nanced Benchmark PPF weighted Benchmark PPF 昀椀nanced carbon emissions PPF 昀椀nanced carbon intensity PPF weighted average carbon emissions 昀椀nanced carbon carbon intensity 昀椀nanced carbon average carbon weighted average (tCO e/$m invested) (tCO e/$m revenues) carbon intensity 2 2 (tCO e/$m emissions (tCO e/$m intensity (tCO e/$m intensity carbon intensity 2 2 2 invested) (tCO e/$m invested) revenues) revenues) December 2020 December 2021 2 December 2020 December 2021 Certain information ©2022 MSCI ESG Research LLC. Reproduced by permission; no further distribution. Assessing our UK Gilts exposure Credit portfolio: carbon intensity metrics As explained earlier in this section, we have attempted for the 昀椀rst time to footprint the £15 billion This is the second year we have included the corporate bonds in our Strategic Cash, IG Credit, EM of physical UK Sovereign holdings in our LDI book, following a similar approach to that taken by 14 Debt and Absolute Return portfolios as an aggregate. The WACI of our global Credit portfolio the Bank of England in their latest TCFD report, and the recently proposed approach in the PCAF declined by 58 per cent over the year, driven largely by our strategic cash portfolio. The 昀椀nanced draft consultation for sovereign bonds. We show the 昀椀gures in both GBP and USD. carbon emissions and 昀椀nanced carbon intensity remained largely unchanged. Through this analysis we are pleased to see a year-on-year reduction of the emissions intensity for the UK from 152 tCO 15 e/USDm to 145 tCO e/USDm (emissions tonnes per $ GDP) . PPF Credit carbon metrics* 2 2 UK Sovereign holdings: carbon intensity estimate c 350 i r 250 t 300 318 e n m 279 n 228 o 250 255 P i 221 i D 200 211 l l i n Gy m 200 o c 14 PCAF’s draft new methods 204 203 i n r $ 192 193 l l for public consultation e i re 150 150 r 156 152 (carbonaccounting昀椀nancials.com) e p r mu 145 2 e c O 133 t 15 Note that UK Sovereign carbon emissions n C100 e p2a100 s v are reported on a two-year lagged basis, so e O e n 85 70 Cl Dec-21 昀椀gures are based on 2019 emissions, n 50 53 s re To 50 e 50 Dec-20 on 2018 emissions, etc. We decided n to include LULUCF, despite the ongoing 0 n debate of the potential distortion it might PPF 昀椀nanced Benchmark PPF 昀椀nanced Benchmark PPF weighted Benchmark To bring, to have a more complete overview carbon emissions 昀椀nanced carbon carbon intensity 昀椀nanced carbon average carbon weighted average 0 (tCO e/$m emissions (tCO e/$m intensity (tCO e/$m intensity carbon intensity UK Sovereign carbon intensity UK Sovereign carbon intensity (which is also in line with PCAF’s 2 2 2 (GDP expressed in GBP) (GDP expressed in USD) invested) (tCO e/$m invested) revenues) revenues) recommendation). To be consistent with 2 PCAF, we have used GDP-PPP Adjusted December 2019 December 2020 December 2021 (constant 2017 prices) as the denominator December 2020 December 2021 following PCAF’s recent consultation on this.