16 Pension Protection Fund Climate Change Report 2022/23 STRATEGY AND RISK MANAGEMENT CONTINUED How we manage the risks identi昀椀ed Considering the positioning During the year, we continued to CASE STUDY of our portfolios re昀氀ect the Institutional Investors Group The move to our climate-aware on Climate Change (IIGCC)’s Net Creating our Climate Watchlist equity benchmark, as reported in our Zero Stewardship Toolkit in our own Climate Change Report 2022, has been stewardship processes around climate This year, in line with the IIGCC’s Net Zero Stewardship Toolkit’s guidelines, instrumental in enabling us to improve risks. The toolkit aims to raise the bar we identi昀椀ed our Climate Watchlist: 87 companies in material sectors that our Equity portfolio’s emission pro昀椀le. for investor climate stewardship by collectively are responsible for over 70 per cent of the 昀椀nanced Scope 1 and 2 providing a systematic framework to emissions associated with our public markets investments. Our Equity passive mandates closely help investors prioritise high-impact track this benchmark. Additionally, we engagement while systematically Of these 87 companies – which are predominantly based in the US and Asia- use the information reported to us by ensuring they have measures in place Paci昀椀c – we are already engaging with 45 through the Climate Action 100+ our managers in our quarterly ESG to hold laggard companies to account. (CA100+) investor initiative. A further 22 are targeted for engagement by EOS, templates to review any material risks our Stewardship Services Provider. We are now identifying the best options for highlighted by them and compare these Establishing our voting guidelines engaging with the remainder, whether directly or through collaborations. against our own internal monitoring. on climate change This has allowed us to have much As mentioned in the previous section, more constructive discussions in our we updated our voting guidelines Our Net Zero engagement process manager review meetings, so we can during the year to integrate various understand their investment theses climate measures into our wider voting Undertake portfolio Achieve asset and potentially challenge them on strategy. This includes specifying alignment analysis, set Set Net Zero alignment Develop an owner and Establish a baseline their assumptions where necessary. some of the key escalation situations alignment goals and criteria, alignment engagement strategy manager alignment, engagement and The stewardship sections of our where we will consider voting against develop a stewardship levels and time bound for priority companies engagement and voting policy, and manager reporting template also management on issues including prioritisation framework engagement objectives transparency escalation approach provide us with more detail on how climate change. our managers are engaging with issuers We are reviewing all companies on or policymakers, and highlight progress our Climate Watchlist held by our Breakdown of Climate Watchlist engagement In addition to engagement, we have recently formalised an escalation made, or speci昀椀c escalations taken. external managers to ensure voting strategy for the Climate Watchlist that can be deployed when engagements Stewardship and engagement continuity where appropriate. The are either failing or progressing too slowly. Financed emissions analysis of Climate Action 100+ initiative (see 70%+ 昀椀nanced the PPF portfolio will be undertaken at least annually to ensure our Climate We engage extensively with all our page 17) highlights resolutions of emissions* – Watchlist always holds the most relevant names. external managers to encourage interest to members, alerting us to key 87 companies ongoing improvement in their proposals to take into consideration Our annual Responsible Investment report provides more detail on the approaches to managing climate during the voting season. We leverage stewardship activities and progress of EOS, our fund managers and any risks and ensure they continue to this list of resolutions as part of our EOS engagement direct or collaborative engagements we have carried out. This includes meet our standards in this area. Our oversight process. universe – activities related to climate issues. stewardship services provider EOS 22 companies prioritises climate risk and opportunity management in its engagement with issuers, which feeds into voting The creation of our Climate Watchlist is recommendations at company AGMs. a signi昀椀cant achievement, enabling us to hone CA100+ list: in on the companies that will have a real impact 45 companies on emissions reductions of the portfolio. Daniel Jarman * Using Scope 1+2 emissions. Stewardship Manager