28 Pension Protection Fund Climate Change Report 2022/23 METRICS AND TARGETS CONTINUED 2. The Transition Pathway Initiative (TPI) The TPI tool uses publicly-disclosed As mentioned earlier, we use TPI Management Quality scores for PPF Equities information collected by FTSE Russell TPIMQ to measurably track and and validated by the Grantham encourage progress on climate 400 TPIMQ coverage for our Research Institute at the London among our portfolio companies 350 School of Economics to assess nearly and it is embedded within the index es 7% i Equities portfolio has t 8% 700 of the world’s highest-emitting construction for our Equity climate- i 300 u q listed companies on two measures: aware benchmark. For 2023 voting E increased to 17 per cent F 250 decisions, we increased the TPIMQ P P • The TPI Management Quality n of market value from score thresholds for climate-related i (TPIMQ) level assesses a company 200 es voting guidelines. i on how well its management is n 14 per cent last year. a 150 dealing with climate change risks, p Equity m o 100 c from Zero (0) to Four Star (4*). TPI now covers nearly 700 companies . o 1% • The TPI Carbon Performance globally, up from around 400+ last year N 50 (TPICP) measure assesses a so a good expansion rate that is set to 0% 1% company on how e昀昀ective it is at continue as the organisation builds out 0 achieving carbon reduction in line MQ=0 MQ=1 MQ=2 MQ=3 MQ=4/4* its coverage. Coverage for our Equities TPIMQ score with the Paris Agreement or any portfolio has increased from 14 per target it’s set. cent to 17 per cent of market value. Weight in PPF Equities (%) We also see more holdings (percentage TPI Carbon Performance assessments for PPF Equities of market value and number of A substantially higher holdings) achieving the highest TPIMQ 300 scores (MQ=3 and MQ=4/4*). Only 2 per cent of the 17 per cent coverage es250 number of these i t in the portfolio is scored in the i u q lower range. E companies received a 200 5% F In fact, most of our holdings PP TPIMQ Management n i maintained the same score as last year 150 es i Quality level of n and 2 per cent of the book increased a p 100 2% by at least one point. Eight names m three or above. o c constituting less than 1 per cent of the . o 50 book saw their TPIMQ score decrease N 1% 1% by one point. Roughly 4 per cent of the book are new additions as TPI 0 TPIMQ levels increased its coverage this year. Not assessed/ Not aligned Paris/Other 2 Degrees no disclosure Pledges or below Level 0 – Unaware We have seen improvements in the TPICP score Level 1 – Acknowledging Carbon Performance assessments Weight in PPF Equities (%) Level 2 – Building capacity from last year too. The biggest shift Level 3 – Integrating into operational in exposure has been from ‘Not decision-making aligned’ to ‘2 Degrees or below’, which is positive. Level 4 – Strategic assessment Level 4* – Meets all indicators