21 Pension Protection Fund Responsible Investment Report 2021/22 OUR APPROACH TO ENGAGEMENT CONTINUED How we engage with private markets and unlisted assets Private Equity engagement – Private Equity managers Real estate engagement – One of our Property managers Infrastructure engagement – We are invested in an Given the diverse nature of private markets, we take a have a key role to play in the energy transition, given their is responsible for the day-to-day management of our UK Infrastructure fund that has three core investments all focused nuanced approach to engagement within these asset ability to invest in and support businesses across the value Property portfolio. As part of this role, they are responsible within Europe. We are pleased to note positive progress classes. We have been working with our managers in chain. One of our Private Equity managers engaged with all for the sustainability pro昀椀le of the properties. An example from the manager in engaging with its portfolio companies this challenging space to increase their stewardship its holding companies to set a decarbonisation journey and of progress in the portfolio was the redevelopment of on sustainability across each of the businesses during the and engagement processes. We look to our appointed assist them in setting up sustainability KPIs and measuring industrial units in the North of England. Both units on the year under review. The manager provides standardised ESG managers to drive improvement in the companies and them. This is part of the manager’s overall commitment since site have been speci昀椀ed for high ESG standards with Energy performance tracking tables in its investor reporting along managers they invest in, and encourage them to provide 2020 to align their activities with a 1.5°C global warming Performance Certi昀椀cate (EPC) ratings of A and a ‘Very Good’ with commentary on progress. Two of the businesses have us with information on progress and demonstrate the scenario, which has since been validated by the Science rating from BREEAM (one of the world’s leading science- recently released sustainability reports providing signi昀椀cantly added value of more stringent sustainability practices. Based Targets initiative (SBTi). based suite of validation and certi昀椀cation systems for a more insight into how they operate. We will continue to review See case study on the ESG Outreach project below and Private Debt engagement – Our Private Debt managers sustainable built environment). The site is also equipped and engage the manager on the information provided and examples for each asset class. with EV charging. encourage further improvements where deemed necessary. are less likely to have signi昀椀cant control or leverage with Our interactions with general partners (GPs) and underlying issuers. However, we still expect them to engage As the underlying client, we continue to interact with Forestry engagement – We have been engaging extensively expectations of how they engage with portfolio where they do have access to management. One of our the manager on sustainability issues, particularly to avoid with our Forestry managers over the last year to increase companies will di昀昀er from our expectations of our Private Debt managers negotiated with a UK company ‘stranded asset’ situations due to any buildings not meeting their reporting to us on carbon sequestration, moving on secondary managers, and how they engage with during the year to establish ESG KPIs for the ratchet that minimum energy e昀케ciency standards. from reporting on certi昀椀cation. Whilst we have received this underlying GPs. In terms of control, we have greater enhances credit quality, including Quality and Regulatory from most of our managers now, the data collection and expectations around stewardship where GPs hold Inspection, Patient Satisfaction, Annual Sta昀昀 Training and methodologies are still at very early stages so aggregation board seats or controlling stakes in companies. Carbon Emission Data requests. The latter hasn’t been across di昀昀erent mandates is not yet possible. We hope to have established yet. more in our next report to share on carbon sequestration. Taking action Farmland assets engagement Encouraging sustainability in a leading Collaborating to improve ESG data in beef producer private markets We are part of an investment consortium with In late-2021, we joined the working group of the ESG board representation that owns one of the largest Data Outreach project led by alternative investment and oldest agricultural and beef producers in Australia. technology platform eFront (part of BlackRock) to This enables us to in昀氀uence its strategic approach and accelerate and simplify the collection, analysis and sustainability pro昀椀le. reporting of ESG data for private markets. The initiative aims to collect a range of ESG metrics on portfolio In 2021, its inaugural sustainability framework was companies from a broad base of private equity and published, greatly improving disclosure to stakeholders. credit managers to facilitate, expand, automate and In addition, the team completed the conversion of all commercialise ESG reporting for private markets. bores and electricity power sources to solar, signi昀椀cantly reducing its fossil fuel consumption. This conversion We joined in our capacity as a limited partner (LP) made good business sense but also has environmental both to encourage our general partners (GPs) in and employee safety bene昀椀ts. private markets to participate, and to get access to the collected data as soon as it is available. We anticipate that this initiative will go a long way to improving the process for data collection, especially among smaller private market managers that haven’t built out their own reporting functionality yet. The pilot stage has been running through 2021 and 2022. The aim is to open the product up to over 2,500 private market managers, reaching over 70,000 private companies.