30 Pension Protection Fund Climate Change Report 2022/23 METRICS AND TARGETS CONTINUED 3. The Science-Based Targets initiative (SBTi) 4. Portfolio Alignment Metrics We view the SBTi (see last year’s We are pleased to see that currently As detailed earlier, our Portfolio Alignment project delivered a baseline that allows us to understand the report for a full explanation) almost 43 per cent of our Equities Next steps alignment of each of our asset class portfolios against the Paris Agreement to keep global warming within commitment or approved target book by market value has now set or 1.5°C of pre-industrial levels. The chart below summarises our baseline 昀椀ndings by asset class for our portfolio as a key metric for evaluating committed to an SBTi target, up by a Our ultimate desired outcome holdings as at December 2020. Please refer to page 13 for descriptions of our alignment categories. companies’ ambition. The initiative’s third from last year. from a real-world perspective Breakdown of portfolio alignment to Paris Agreement by asset class as at December 2020 (Baseline) aim is to provide companies with is to see companies actually a clearly-de昀椀ned path to reduce Increasing adoption is even more acting to reduce their carbon emissions in line with the Paris pronounced among credit issuers: reductions. However, as the Agreement by setting ambitious, in the UK Credit portfolio it has Equities science-based emissions reduction increased from last year by over energy transition has a multi- targets. As we noted this year, it has 80 per cent to more than half the year pathway, setting clear book demonstrating commitment targets is a step in the right Credit (corporate, cash, EM credit) been instrumental in improving the direction. We will continue to assessment of Paris alignment of by market value. The global Credit encourage more companies to many of our portfolio companies. book is lower at 26 per cent, but this set robust, science-based targets EMD (sov) is still an increase of nearly 50 per (for example, by supporting This year, we have used a new dataset cent on last year. It is also somewhat the CDP SBT Campaign – see within the MSCI ESG platform to expected to be lower due to the LDI UK Sov analyse our portfolios’ exposure to Credit portfolio’s higher allocation page 17) as well as monitoring companies that have either formally to Financials, which fall under a the progress of those that have committed to SBTi targets or had their di昀昀erent SBTi standard, (which is still already set targets. Real Estate targets approved by the initiative. in development). Percentage of portfolio committed to SBTi or SBTi-approved targets (by market value) 2022 Alt Credit 100% PE Core 57% 62% 74% 67% 49% 80% PE Non Core 60% Infra 51% 40% 43% 38% UK Public Credit 33% 20% 26% UK Private Credit 0 PPF Equity PPF Credit PPF 0% 20% 40% 60% 80% 100% Equities benchmark Credit benchmark UK Credit Committed to SBTi or SBTi-approved targets Rest of portfolio Net Zero Aligned Committed to Align/Aligning Not Aligned Insufficient data Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution. We acknowledge we are still relying on proxied data within our assessment for many asset classes, especially in private markets. For Private Equity, Infrastructure, Alternative Credit and UK Private Credit, over 80 per cent of portfolios were proxied. Real Estate was the only private markets portfolio with better disclosure (less than 50 per cent proxied).