21 Pension Protection Fund Climate Change Report 2022/23 METRICS AND TARGETS CONTINUED Absolute carbon emissions Again this year, we measured the total Scope 1 See Appendix D for more detail on the formulas used for and Scope 2 carbon emissions associated with our our calculations. UK and EM Sovereign Debt portfolios Reasons for fall in Equities’ absolute emissions Like last year, we have delved deeper into the liquid investments in global equity (‘Equities’), global are excluded from the absolute carbon emissions table; It’s important to note that absolute emissions for drivers causing the 57 per cent reduction in total investment grade and emerging market credit (‘Credit’) we report relative intensities only for sovereigns (in the Equities have fallen largely because of reductions in absolute 昀椀nanced emissions in the Equities portfolio. and the publicly-traded sterling credit sleeve within next section) as we feel comparing country-level absolute the portfolio’s value, due principally to asset allocation Changes in the portfolio holdings accounted for a 61 our internally-managed UK hybrid assets (‘UK Credit’). emissions alongside corporate emissions is counterintuitive. changes during the year (see page 10 for SAA changes). per cent reduction, yet we actually saw a 5 per cent Collectively, this accounts for $9.4 billion of our overall The next section looks at the year-on-year changes in increase in company emissions year-on-year. This is assets under management – around a quarter of our overall Our total absolute 昀椀nanced emissions in this portion of emissions on a relative basis, which allows for more most likely driven by the reopening of many industries AUM. This year, we have also started reporting Scope 3 our portfolio have reduced by around 40 per cent over the comparable year-on-year analysis. after two years of production declines due to Covid- emissions, although we are not aggregating them with year, and by 62 per cent since Dec 2020. More speci昀椀cally, related lockdowns. This is disappointing to see, although our Scope 1+2 emissions. Page 24 has more detail on this. Equities reduced by 57 per cent, Credit by 27 per cent and not surprising, and it indicates a strong need to continue UK Credit by 22 per cent since 2021. engaging with companies to encourage more transition- Our total 昀椀nanced emissions in tonnes for 2022 for listed equity and credit holdings planning and for science-based emissions targets to be set. This is why the CDP SBT campaign is so critical. Scope 1+2 Scope 3 emissions Causes of change in PPF Equities 昀椀nanced carbon emissions between 2021 and 2022 (tCO e) (tonnes CO e) 2 emissions 2 PPF AUM Scope 1+2 (tonnes Scope 3 – Scope 3 – assessed carbon data COe) upstream downstream ($m) coverage* 100 -61% 2 100% 5% Equities 170,370 455,226 1,149,779 2,977 99% Credit 233,705 391,542 1,271,796 4,617 82% ) 80 e2 UK Credit 62,509 122,909 191,880 1,769 77% O C Total 昀椀nanced emissions 466,584 969,677 2,613,455 9,363 86% es 60 n n o t ( s * This metric shows the percentage coverage of holdings that have either reported or estimated emissions data and an available 昀椀gure for Enterprise Value n 40 43% o Including Cash (EVIC). EVIC is essential for apportioning absolute 昀椀nanced emissions, but is not always available for 昀椀xed income holdings. Certain i s s information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution. i m e 20 Year-on-year change in our Scope 1+2 total 昀椀nanced emissions for listed equity and credit Percentage change in financed carbon0 tCO e $m PPF Equities 2021 Change in company emissions Change in portfolio holdings PPF Equities 2022 2 or AUM 1,600,000 16,000 14,754 14,522 Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution. 1,400,000 14,000 94,378 12,000 1,200,000 1,000,000 329,106 9,363 10,000 Our total 昀椀nanced emissions for listed equity and credit reduced 800,000 80,412 8,000 by -41 per cent from last year. 796,972 321,205 6,000 600,000 62,509 400,000 395,353 233,705 4,000 200,000 2,000 170,370 0 0 2020 2021 2022 Equities tCO e Credit tCO e UK Credit tCO e AUM (RHS) 2 2 2 Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution.