26 Pension Protection Fund Climate Change Report 2021/22 METRICS AND TARGETS CONTINUED 3. The Science-Based Targets Other asset classes CASE STUDY initiative (SBTi) We are committed to considering the In 2021, after repeated engagement Climate action plan for impacts of climate change across all from us, we also saw these managers Our Real Estate AUM in numbers US real estate assets The Science-Based Targets initiative Through engagement with our investments. We have focused 昀椀rst become PRI signatories. We continue While Europe has been generally (SBTi) is a partnership between companies directly and with our on analysing ‘Liquids’, such as Equities to encourage all our managers to ahead of the US in terms of CDP, the United Nations Global external fund managers we will and Credit, as these asset classes further elevate their ability to measure, 100% climate awareness, as well as Compact, World Resources Institute target an increase in this proportion. are the most measurable, have the collect and report data. We are pleased availability of data and tools (WRI) and the World Wide Fund for Currently our Credit book is lagging greatest depth of data (in the case of to see, for example, that physical risk for climate management, we Nature (WWF). It aims to provide its benchmark, with less than a Equities) and are where action is most assessment is a priority for all our is under transition and physical are delighted to see the work companies with a clearly-de昀椀ned 昀椀fth of market value exposure to expedient. However, we are striving to real estate managers, with progress climate risk assessment by our performed on our US real path to reduce emissions in line with issuers with SBTi commitments improve the reporting of other assets, on performing assessments and managers estate assets. the Paris Agreement goals by setting or approved targets which is likely especially in the real assets space. developing tangible plans for action. ambitious, science-based emissions due to the higher allocation to the Our US manager has conducted reduction targets. Financials sector. Real estate Measuring our real estate a robust assessment of risks, carbon footprint 95% measuring the carbon footprint This year we used a new dataset Outside of this analysis, three of our As discussed earlier in this report, We aspire to be able to measure the and thus the risk to assets being within the MSCI ESG platform Private Equity managers have also construction and buildings/real estate energy and carbon footprint of our is managed by PRI signatories stranded, as well as in-depth, to analyse what proportion of committed to science-based targets account for nearly 40 per cent of real estate assets. We have started location-based risk assessments our portfolios have exposure for private equity companies, as part energy and process-related carbon collecting data and have look-through of physical risk, quantifying the to companies that have either of the recently launched SBTi Private emissions, and therefore play a critical on the energy and carbon pro昀椀les of value at risk. committed to SBTi targets or Equity sector initiative. role in global e昀昀orts to decarbonise. individual funds. 77% had targets approved by the The consideration and assessment of On the basis of this assessment, initiative. We are pleased to see transition risks and physical risks in our However, we are not yet in a position the manager has developed a that currently around a third of Real Estate portfolio is therefore a vital to report a credible aggregated is managed by signatories to comprehensive climate action our Equities book by market value part of our RI approach. number for the overall portfolio. the Net Zero Asset Managers plan that commits it to reducing comprises companies with SBTi This is primarily due to challenges Initiative19 landlord carbon emissions by 70 commitments, which is ahead of Working with our real around tenant data transparency. per cent by 2025 and targeting our equity benchmark. estate managers Our external managers are working a more resilient portfolio with Our real estate investments are with data providers and consultants reduced climate risk exposure. Percentage of portfolio committed to SBTi or SBTi-approved targets predominantly managed externally to establish a benchmark, track 61% (by market value) so we focus on robust appointment, meaningful reductions in energy and monitoring and oversight processes develop tangible plans for action. is managed with speci昀椀c ESG 100% of our managers’ ESG and climate We welcome targeted engagement targets in place 67.7% 73.6% 82.7% 64.6% 72.9% capabilities. All of our real estate and the introduction of lease clause 80% managers now report to us annually changes (wherever jurisdictions allow) on the ESG and TCFD pro昀椀le of their to enable greater transparency around portfolios. We also use external tools tenants’ energy use. 60% such as GRESB and CRREM (Carbon 60% Risk Real Estate Monitor) to measure 40% and benchmark the performance are funds under the GRESB 32.3% 35.4% of real assets and assess the risk of survey assessment 20% 26.4% 27.1% stranded property assets. Two of our 17.3% managers have made substantial 0 progress in their disclosure and data PPF Equity PPF Credit PPF management, with one performing a Equities benchmark Credit benchmark UK Credit complete climate assessment (see US case study right). Committed to SBTi or SBTi-approved targets Rest of portfolio Certain information ©2022 MSCI ESG Research LLC. Reproduced by permission; no further distribution. 19 87 per cent is managed under a speci昀椀c strategy for Net Zero management.