22 Pension Protection Fund Climate Change Report 2022/23 METRICS AND TARGETS CONTINUED Relative carbon intensity We continue to use three key metrics to assess the relative PPF Equities carbon metrics emissions-based intensity of our portfolios, giving us a fuller picture and allowing us to measure di昀昀erent asset classes 350 and di昀昀erent sizes of portfolio on a like-for-like basis. See c i Appendix D for an explanation of each of these metrics. r 300 et 299 m n 250 Including UK and EM Sovereign Debt emissions in our o 257 243 relative carbon intensities analysis means we can now illi 226 m 200 $ analyse $21 billion or 55 per cent of the total PPF portfolio r pe150 in this way. 154 e2 151 O 122 125 C 100 Equities portfolio: carbon intensity metrics 112 108 es 83 83 n 70 74 The December 2022 carbon footprint analysis for listed n 50 65 57 o Equities shows ongoing progress, with all three metrics T 30 34 seeing a year-on-year fall. The two intensity metrics 0 PPF financed Benchmark PPF financed Benchmark PPF weighted Benchmark dependent on company revenues show higher year- carbon emissions financed carbon carbon intensity financed carbon average carbon weighted average on-year reductions, which implies that the portfolio is (tCO e/$m emissions (tCO e/$m intensity (tCO e/$m intensity carbon intensity 2 2 2 invested) (tCO e/$m invested) revenues) revenues) more exposed to companies operating more e昀케ciently 2 this year (i.e. a lower ratio of emissions per unit of December 2020 December 2021 December 2022 revenue generated). Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution. See Appendix C for However, the Equities Book still has higher relative Equity benchmark. emission intensity than its benchmark. This is mainly Credit portfolio: carbon intensity metrics due to our Active Equities book, whose carbon intensity Financed carbon emissions per $m invested for our global Credit book remained broadly the same as levels are roughly twice the level of the climate-aware last year and 昀椀nanced carbon intensity has reduced. However, the weighted average carbon intensity equity index we introduced last year. As mentioned (WACI) has increased this year, although is still lower than for 2020. Deeper analysis shows the externally- earlier, we have internally evaluated our Equities book managed Credit book is mostly driving this, which we are looking to address through our Climate and the companies accounting for the majority of Watchlist – 昀椀fty companies contributing around a third of our external Credit emissions are on our material high impact 昀椀nanced emissions are now on Climate Watchlist. EOS, our external stewardship manager, and our external managers are engaging with our Climate Watchlist of companies requiring more these names on our behalf. We also ask our external Credit managers for speci昀椀c climate engagement intensive engagement. reporting to ensure maximum oversight of what is driving our 昀椀nanced emissions metrics. PPF Credit carbon metrics c 350 i r 300 318 et m 279 n 250 o 255 illi m 200 $ 204 203 r 192 179 193 194 181 pe150 162 e2 133 O C 100 es 85 n 50 70 n 53 51 57 o 50 T 0 Benchmark Benchmark PPF weighted Benchmark PPF financed PPF financed carbon emissions carbon intensity average carbon weighted average financed carbon financed carbon (tCO e/$m emissions (tCO e/$m intensity (tCO e/$m intensity carbon intensity 2 2 2 invested) (tCO e/$m invested) revenues) revenues) 2 December 2020 December 2021 December 2022 Certain information ©2023 MSCI ESG Research LLC. Reproduced by permission; no further distribution. See Appendix C for Credit benchmark.