17 Pension Protection Fund Climate Change Report 2021/22 Metrics and targets This year, we have seen material improvement in both the of our external fund level of disclosure of carbon data and the level and intensity managers are now signed of emissions for our Equities portfolio – the latter resulting 25% from the move to our new climate-aware equity benchmark. up to the Net Zero Asset Our task now is to maintain this positive trajectory and work Managers initiative towards similar change across other asset classes. Metrics on our external managers As the ASCOR tool is still being developed, we are putting Supported by our engagement, 25 per cent of our external our e昀昀orts into assessing our sovereign exposure with fund managers are now signed up to the Net Zero Asset existing tools, data and methodologies where we can. After Managers (NZAM) initiative, part of the Glasgow 昀椀nance reviewing the latest draft consultation from the Partnership group convened at COP26. This includes some Alternatives for Carbon Accounting Financials (PCAF), we decided to managers in Private Equity, Infrastructure, Property and calculate our own sovereign carbon emission intensity Forestry. Meanwhile, three of our private equity managers metric for our LDI portfolio. have committed to Science-Based Targets as part of the We have started by calculating the sovereign emission newly-launched SBT initiative – see page 26. intensity of the physical UK gilts held in our LDI portfolio. After requiring our Liquids managers to start reporting to In line with PCAF’s consultation, we chose UK Production us quarterly using our ESG portfolio templates last year, we Emissions including LULUCF (Land Use, Land-Use Change 12 have now asked them to enrich the range of TCFD-based and Forestry) as an approximation of emissions . See the metrics on climate, as detailed on page 10. Over a quarter Relative Carbon Intensity section below for the results of of the managers were able to provide this additional data our analysis. Note that we have reported sovereign carbon in our January 2022 review meetings. The majority are emission intensity on a standalone basis and are not expected to comply by the end of Q2 2022. comparing or aggregating this with other asset classes, due to methodological di昀昀erences. Measuring carbon and climate risks for sovereigns We aspire to incorporate sovereign 昀椀nanced emissions We acknowledge the di昀케culties in assessing sovereign into our analysis. We will continue evaluating di昀昀erent bonds comprehensively as there is still a lack of suitable approaches (e.g. territorial; consumption versus methodologies and (often a lag in) data availability. We production-based) and closely watch for the latest strongly welcome various e昀昀orts to track the carbon developments in this area. footprint and climate risks of sovereign debt and are supportive of the establishment of the ASCOR project by the PRI to develop a robust assessment framework for sovereigns. 12 We decided to include LULUCF, despite the ongoing debate of the potential distortion it might have, to have a more complete overview (which is also in line with PCAF’s recommendation). As we want to be consistent with PCAF, we have used GDP-PPP Adjusted as the denominator following PCAF’s recent consultation on this.