31 Pension Protection Fund Climate Change Report 2021/22 APPENDICES CONTINUED Appendix D Carbon metric equations Our carbon footprint calculations Total Financed Carbon Emissions in tonnes CO e: 2 We report a range of carbon Relative carbon intensity current value of investment in entity emissions-based metrics for our listed To give the fullest picture of the carbon ( Entity’s Enterprise Value including cash X entity’s GHG emissions ) global equity and credit investment intensity of our portfolio and compare holdings to align with both TCFD and di昀昀erent portfolios on as close to a Partnership for Carbon Accounting like-for-like basis as we can, we use Financials (PCAF) guidance. We are three key measures: also guided by the DWP’s work around Financed Carbon Emissions per million dollars invested proposed metrics for pension funds. • Financed Carbon Emissions per million dollars invested metric metric (may be shown in other currencies too): Although our year-end is 31 March, Measuring the Financed Carbon we review our climate exposure Emissions per million dollars current value of investment in entity metrics to 31 December. This allows invested helps us understand the X entity’s GHG emissions for the greatest coverage of climate carbon emissions being 昀椀nanced by ( Entity’s Enterprise Value including cash ) data, such as the annual corporate the size of our investment portfolio. CDP responses made available to • Financed Carbon Intensity per current portfolio value ($m) investors each autumn. million dollars revenue metric Our preferred metric for assessing Measuring the Financed Carbon carbon risk exposure on a day-to-day Intensity per million dollars of basis is the Weighted Average Carbon revenue helps us understand the Financed Carbon Intensity per million dollars revenue Intensity (WACI). We feel it gives us carbon e昀케ciency of our portfolio, the greatest coverage in 昀椀xed income i.e., how e昀케cient the companies metric (may be shown in other currencies too): where we have more signi昀椀cant are at generating output per tonne exposure, and allows us to compare of carbon. current value of investment in entity similar types of assets and portfolios, • Weighted Average Carbon ( Entity’s Enterprise Value including cash X entity’s GHG emissions ) regardless of investment size. Intensity (WACI) metric Absolute 昀椀nanced emissions As recommended by the TCFD, we use the WACI footprint to monitor current value of investment in entity For absolute carbon emissions, we our portfolios’ exposure to carbon- ( Entity’s Enterprise Value including cash X entity’s revenue ) measure the total operational Scope intensive companies. It’s 昀氀exible 1 and Scope 2 carbon emissions enough to use across asset classes (based on the de昀椀nition set by the and gives us greater coverage in Greenhouse Gas (GHG) Protocol) using 昀椀xed income portfolios. data from MSCI ESG Research. To Weighted Average Carbon Intensity calculate our apportioned ‘ownership’ of each investment, we’ve used metric (where normalisation factor is entity’s revenues, but other normalisation factors can be used): Enterprise Value Including Cash (EVIC) as recommended by the PCAF. We are also reviewing the inclusion of Scope current value of investment in entity X entity’s GHG emissions 3 emissions for some sectors where ( current portfolio value normalisation factor ) they are material, but we still feel the data is not robust enough to report on formally.