25 Pension Protection Fund Climate Change Report 2022/23 METRICS AND TARGETS CONTINUED High-carbon impact sectors In line with TCFD recommendations, Credit: Overall in our Credit book, we pay particular attention to our high-carbon impact sectors contributed Next steps investment exposure to sectors that more to overall emissions than last year have a higher contribution to global (56 per cent vs 34 per cent in 2021). We continue to engage with carbon emissions. Guided by these companies in these three recommendations, we focus on This is mainly due to an increased sectors – both directly and Utilities, Materials and Energy. contribution by Utilities (17 per cent vs through external managers or 9 per cent), which has seen an increase investor collaborations – to Equities: High-carbon impact both in emissions and asset allocation. encourage a transition to lower- sectors contributed marginally Materials also increased by contribution, carbon activities, especially less to emissions in our Equities with one company contributing to over those companies on our portfolios than last year (67 per cent a third of the sector’s emissions. This Climate Watchlist. vs 73 per cent). company is now part of our Climate Watchlist so will receive enhanced Materials and Utilities decreased attention from us going forward. We their contribution (18 per cent vs have also seen a change in sector 31 per cent, 8 per cent vs 19 per classi昀椀cation for a couple of our cent). However, the contribution credit holdings, for example where from Energy increased substantially the issuance has been re-classi昀椀ed (41 per cent vs 23 per cent). From from Financials to Materials. a risk management perspective, we have identi昀椀ed that 72 per cent UK Credit: Within our UK Credit of the Energy sector emissions are portfolio, the only exposure to high- associated with companies in our carbon impact sectors comes from Climate Watchlist, where targeted Utilities. Despite a slight increase in actions are being incorporated into portfolio allocation to the Utilities our dedicated engagement plans for sector from last year, we have seen a these companies. reduction in the emissions associated with this sector. This is largely due to the companies that we hold reducing their emissions from the previous year. Contribution to overall portfolio carbon emissions by high-impact sectors Equities Credit UK Credit 2022 8% 2022 2022 17% 33% 2021 18% 19% 2021 9% 2021 27% 44% 13% 51% 48% 13% 49% 31% 66% 52% 23% 26% 41% 13% Utilities Materials Energy Other Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution.