38 Pension Protection Fund Climate Change Report 2022/23 APPENDICES CONTINUED Appendix B Appendix C PPF climate change policy Disclosure metrics from the 2022/23 Annual Report and Accounts Beliefs temperature rise this century to well As a long-term investor, we have below 2°C and aim to limit the increase PPF carbon footprint listed equities Scope 1 and 2 metrics a duty to consider all 昀椀nancially to 1.5°C. % Change from material risk factors in our investment 2022 2021 2020 2021 to 2022 decisions, including climate-related. Manager expectations Metrics based on investor allocation (EVIC) We believe climate change can We expect our external managers to e) 170,370 395,353 796,972 -57% Total 昀椀nanced carbon emissions (tCO materially impact businesses, markets understand and integrate material 2 e/$m invested) 57 65 122 -12% and economies globally in a number climate-related risks into their analysis Financed carbon emissions (tCO 2 of ways, from a societal perspective and investment process. This includes Financed carbon emissions intensity (tCO e/$m revenues) 112 151 226 -26% as well as environmental. undertaking carbon footprinting 2 and scenario analysis, assessing Metrics based on portfolio weights (WACI) We’ve developed a speci昀椀c climate e/$m revenues) 108 154 243 -30% asset exposure to physical risks, and Weighted average carbon intensity (tCO change policy, as we see climate 2 engaging with issuers, where relevant Equity benchmark weighted average carbon intensity (tCO e/$m revenues)* 83 83 299 – change as a systemic and non- for their asset class. 2 diversi昀椀able concern that has the Market value of the Fund’s equities covered by carbon data ($m) 2,948 6,090 6,528 potential to signi昀椀cantly a昀昀ect the In monitoring the exposure and Proportion of the Fund’s equities for which data is available (%) 99% 99% 98% value of our investments across performance of our external managers, the short, medium and long-term, we’ll review how they’re managing PPF carbon footprint corporate credit Scope 1 and 2 metrics throughout the global economy. We climate-related risks and opportunities, % Change from also believe that opportunities can including voting and engaging with 2022 2021 2020 2021 to 2022 exist and be exploited for companies issuers on climate-related issues, and assets well-positioned for the and how they’re reporting to us on Metrics based on investor allocation (EVIC) transition to a low-carbon economy. their actions. e) 233,705 321,205 329,106 -27% Total 昀椀nanced carbon emissions (tCO 2 e/$m invested) 51 50 53 +1% Financed carbon emissions (tCO Assessment Collaboration 2 e/$m revenues) 179 204 192 -12% Financed carbon emissions intensity (tCO We recognise the complexity and We also collaborate with the wider 2 barriers to identifying and assessing the investment community on climate Metrics based on portfolio weights (WACI) forward-looking 昀椀nancial materiality change issues, as a signatory to e/$m revenues) 181 133 318 +36% Weighted average carbon intensity (tCO of climate-related impacts on our the Principles for Responsible 2 Credit benchmark weighted average carbon intensity (tCO e/$m revenues) 162 279 255 -42% investments. However, we seek to Investment (PRI) and as a member of 2 assess their exposure to climate-related the Institutional Investor Group on Market value of the Fund’s corporate credit covered by carbon data ($m) 4,475 6,451 6,214 risks and opportunities through a range Climate Change (IIGCC). We seek to of metrics and analysis, as the tools encourage greater climate disclosure Proportion of the Fund’s corporate credit for which data is available (%) 96% 89% 93% available to measure these evolve. through supporting initiatives such as Source: Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution (PPF holdings as of 31/12/2022). Equity benchmark = FTSE Custom All-World Climate CDP and the Task Force on Climate- Minimum Variance Index. Credit benchmark = Bloomberg Barclays Global Aggregate Credit Index. Consideration will be given to the related Financial Disclosures (TCFD), * Equity benchmark changed from FTSE All-World Minimum Variance Index to FTSE Custom All-World Climate Minimum Variance Index on 1 August 2021. potential impacts on asset prices and and through engaging with companies return expectations across both short identi昀椀ed by Climate Action 100+, so Metric de昀椀nitions: and longer-term time horizons, and • Total Financed Carbon Emissions: Measures the Scope 1 + Scope 2 tonnes of CO equivalent emissions for which an investor is responsible by their total overall 昀椀nancing. Emissions are that exposure to climate risks (and 2 how this could inform our decisions opportunities) can be better understood. apportioned across all outstanding shares and bonds (% Enterprise Value including cash). around strategic asset allocation and • Financed Carbon Emissions: Measures the Scope 1 and 2 tonnes of CO equivalent emissions, for which an investor is responsible, per $ million invested, by their total overall 昀椀nancing. 2 portfolio construction. Reporting and engagement Emissions are apportioned across all outstanding shares and bonds (% Enterprise Value including cash). • Financed Carbon Intensity: Measures the carbon e昀케ciency of a portfolio, de昀椀ned as the ratio of Scope 1 and 2 tonnes of CO equivalent emissions for which an investor is responsible to We’ll communicate and engage on 2 We will seek to oversee all new and the revenues for which an investor has a claim by their total overall 昀椀nancing. Emissions and sales are apportioned across all outstanding shares and bonds (% Enterprise Value including cash). existing investment arrangements in the actions and progress that have • Weighted Average Carbon Intensity (WACI): Measures a portfolio’s exposure to carbon-intensive companies, de昀椀ned as the portfolio weighted average of companies’ Carbon Intensity (Scope 1 been taken around our climate change and 2 tonnes of CO equivalent emissions per $ million of revenues). a way that takes account of climate strategy to relevant bene昀椀ciaries and 2 transition and adaptation risks, as • Enterprise value including cash (EVIC): Market capitalisation at 昀椀scal year-end date + preferred stock + minority interest + total debt. well as resilience, opportunities and stakeholders, reporting in line with inclusivity, in line with the 2015 Paris TCFD guidance for asset owners. Agreement commitment to keep global (Last reviewed December 2022.)