32 Pension Protection Fund Climate Change Report 2022/23 METRICS AND TARGETS CONTINUED Other asset classes – Real Estate Real Estate alignment Real Estate: MV (%) in Assets with High Energy Rankings Real Estate Carbon Emissions This year, we worked with our external consultant to We are pleased that our Real Estate managers reported such Next steps enhance our approach to estimating data to address gaps a high amount of carbon emissions data to us. However, in our Real Estate analysis and to calculate portfolio ITRs we are not comfortable aggregating the emissions reported We would ideally like to report the percentage of our for the Real Estate book. Seven CRREM models were run to United States 63% by the managers yet, as they use di昀昀erent methodologies Real Estate book invested in buildings that are classi昀椀ed capture a combination of regions and building use types. In and there is still a high reliance on estimated emissions. as green or have certi昀椀cates that showcase excellence. addition, we moved from a point-in-time approach to using Half of the book is based on actual emissions and the rest is However, we have received reporting on this for less a 1.5°C carbon budget overshoot approach to align more estimated or not reported. than 40 per cent of the book, so it’s not currently with how our corporate ITRs are generated. Europe 17% meaningful to aggregate or analyse the data. We will From a reporting quality perspective, almost all reported work with managers to obtain better results next year. Results showed an improvement in the overall Real Estate emissions have achieved a PCAF Score of 2 or 4. Although portfolio ITR and only three sub-portfolios have ITRs of almost all managers (96 per cent by market value) reported 2°C or higher. However, we recognise that this was driven emissions, only 67 per cent of them provided the PCAF CASE STUDY largely by moving to a more sophisticated approach Japan/Korea 9% Score. We are engaging with managers to investigate the to applying real estate estimations from the global ESG reason behind this. platform Measurabl. There are still a few sub-portfolios Investing in whose results we are assessing with caution, given the PPF Real Estate – Emissions disclosure and higher percentage of estimated rather than actual data. United 8% PCAF Score distribution sustainable property In particular, our multimanager Real Estate mandate is Kingdom almost entirely based on estimates, given some challenges Real Estate Emissions Disclosure Rate This year we invested in a loan to 昀椀nance the in accessing underlying fund reporting. 0% 10% 20% 30% 40% 50% 60% 70% construction of a state-of-the-art o昀케ce building in Bristol’s business district. The seven-storey property is 100% 40% expected to have a net internal area of 200,000 sq ft Next steps and the capacity to host more than 2,000 employees. 80% At the time of the loan, the building was one of only We will continue to validate results at an individual two under construction in the UK regions to target real-estate asset level with our external managers, 60% 12% Net Zero carbon operations, a BREEAM ‘Outstanding’ prioritising action on assets generating high ITR scores rating for sustainability standards, and an Energy and on the portfolios relying heavily on estimated data. 40% 48% Performance Certi昀椀cate (EPC) A-rating. These classi昀椀cations will put the building at the forefront 20% of sustainable o昀케ce provision in the UK. Assessing the sustainability of our Real Estate assets We are pleased that our all our Real Estate managers provided at least some reporting, and this gave us the 0 opportunity to get an overview of how sustainable Actual Estimated Not Covered our Real Estate book is. We can potentially classify as ‘sustainable’ the assets that have the highest energy rating Real Estate PCAF Score Distribution in their region, hold certi昀椀cates showcasing excellence in sustainability, and/or are classi昀椀ed as green by a credible 90% third party. 80% 82% We have managed to obtain a breakdown of Energy 70% Ranking results for 88 per cent of our Real Estate book. Above right are the percentage of assets that have the 60% Highest Energy Rankings in their area. We break down 50% 昀椀gures by geographic region because we feel an aggregate 40% number would be misleading, given that each region has 30% di昀昀erent standards in their energy performance. 20% 10% 6% 3% 9% 0 0% PCAF PCAF PCAF PCAF PCAF Score 1 Score 2 Score 3 Score 4 Score 5