Investing responsibly

We recognise that the biggest environmental, social and corporate governance (ESG) impact of our organisation lies within our investment portfolio. Our primary focus is to ensure that we’re investing responsibly and stewarding this portfolio.

In this section

How we’re demonstrating transparency

Across our activities, we mirror best practice in the financial services and pensions industry, working to the highest standards of both.

Continuing to be transparent with our stakeholders, we published our second annual Responsible Investment (RI) report in October 2021 and our second Diversity Pay Gap report in March 2022.

The 26th United Nations Climate Change Conference (COP26), held in Glasgow in 2021, helped push climate change to the top of the agenda. Ahead of COP26, we published our first dedicated Climate Change report in September 2021, aligned with applying the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

We’ve also regularly reported to the Board and Investment Committee and published regular voting and engagement reports on our website. In March 2022, we were delighted to be formally accepted by the Financial Reporting Council as a signatory to the UK Stewardship Code 2020.

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Managing our exposure to ESG risks and opportunities

As part of the day-to-day implementation of our SIP and RI framework, we’re actively monitoring the activities of our managers and service providers to manage our exposure to potentially material ESG risks and opportunities.

We have seen our external fund managers who became PRI signatories increase significantly over the year, from 84% to 91% of our externally-managed assets. Encouragingly, most of this growth was driven by managers operating in private markets.

Over the year we’ve also made steady progress in improving the quality and quantity of both ESG and climate reporting offered through our portfolio management systems. For example, the access to carbon emissions data for our assets through these systems has increased from 30 per cent to approximately 55 per cent of the fund’s net asset value (NAV).

Our private markets investment software now enables us to carry out key ESG risk analysis for our Alternatives funds through a new Sustainability module.

After the success in getting our Liquids managers to implement our quarterly reporting templates last year, we’ve continued to engage with them more recently to evolve some of the analysis. As more tools and data have become available, we’ve concentrated on expanding the range of TCFD-related metrics they report. Over one-quarter of our Liquids managers delivered on this ahead of our end of March 2022 deadline.

Striving for best practice in stewardship

Since finalising our stewardship policy in March 2021 we’ve been focusing on implementing it, including consolidating how we vote across our equity portfolios.

We had two funds that fell outside of this centralised approach, where we chose to use a split-voting mechanism to align our voting decision across equities.

We’ve also started developing a clear stewardship plan around a priority list of companies to engage with on climate transition and alignment with the Paris Agreement. This plan also identifies how to escalate climate issues, including robust measures to assess how plausible their transition plans are.

Case study decoration

UK Modern Slavery

We were a member of the 2021 Votes on Slavery
collaboration initiative run by the PRI during the year.
This initiative achieved close to a 100 per cent
success rate in encouraging compliance with the s54
reporting requirements of the UK Modern Slavery Act
for FTSE 350 companies. Only two companies, out of
the 61 we engaged with, remained non-compliant by
December 2021.

As a result of its success, the UK Home Office has
asked that the initiative continue to pressure FTSE
350 companies in 2022. We will continue to support
this campaign as modern slavery is a key theme in
our 2022 voting guidelines.

In this section

Reporting on climate change

We consider climate change as a systemic risk, which can affect the value of our investments across the short, medium and long term. As a supporter of the TCFD, we commit to reporting on our climate-related governance, strategy, risk management and metrics and targets. Our dedicated TCFD climate report shares this information in-depth, and we’ve included a summary here

Key progress in 2021/22

Governance
  • Reported climate-related risks to our Chief Investment Officer through Monthly dashboards and to our Investment Committee through Quarterly dashboards
Strategy
  • Assessed how a net-zero transition and physical climate risks might impact the Fund
  • Launched a project to estimate the degrees of warming by 2100 the Fund is aligned with as a baseline
  • Engaged with our fund managers on their consideration of net zero strategies, with 20 of our managers joining the Net Zero Asset Managers initiative
Risk Management
  • Transitioned the reference benchmark for our listed equities to a custom benchmark incorporating climate risks. The outcome led to a 50 per cent reduction in financed emissions compared to the broad equity market.
  • Started using some of the outputs of the Fund alignment project to inform our priority engagement list
  1. FTSE All World Index used to define the broad equity market. The 50 per cent reduction constraint is based on financed carbon intensity and weighted average carbon intensity (WACI). See Metric Definitions
  2. Comparing the new FTSE Custom All-World Climate Minimum Variance Index with the previous FTSE All-World Minimum Variance Index.

 

Greening Government Commitments

We support the Government’s commitment to reduce its impact on the environment, so we’re reporting against the Greening Government Commitments for the first time. While we don’t yet have the systems in place to report on every measure, we’re working with our suppliers to capture the correct data from this year forward.

Managing our impact through our supply chain

We work with suppliers in a way that achieves value for money and benefits our work whilst also benefiting society and reducing our environmental impact.

The Social Value Model – supporting the Equalities Agenda, Sustainability, Corporate Responsibility, Local Economy and SMEs – at the heart of our procurement service. We encourage all our suppliers to carry out operations with care for the environment and comply with relevant legislation.

Finally, all our suppliers, along with their workers and subcontractors, are asked to commit to our high standards of social, ethical and environmental conduct under the Government Supplier Code of Conduct.

Managing our operational impact on the environment

As part of our Strategic Plan 2022-25, we’re tackling how we manage our operational impact on the environment. This includes embedding the right systems to gather and monitor data on our energy use, waste performance, paper use, water use and overall carbon emissions. As we lease our offices, we’ll work with our building managers to gather much of this information.

This is the first year we have reported on the environment impact of our operations out of these buildings and the data we have on our usage, both current and in the past is limited. We have provided data on the Greening Government Commitments insofar that it is available. In some situations, we have estimated our usage or spend, based on the amount of floor space we occupy for example.

The PPF occupies two shared-lease buildings, one in Croydon and one in London. Both buildings have zero emissions from combustion and our office in Croydon has a BREEAM rating of ‘Excellent’. So, we do not have any scope 1 Greenhouse Gas Emissions from combustion.

For electricity consumption (scope 2), we are invoiced for the electricity used on each floor occupied by us. We are charged for our share of communal electricity in both buildings which is included in the building service charges. All of the electricity we use is from renewable sources. Gas is not used.

Scope 3 reporting on travel and paper is captured using our expense reports and invoices. We do not own or lease any vehicles, and both buildings offer good bike storage and shower facilities to encourage commuting by foot or cycle.

Water and waste (excluding confidential waste) costs are included in the building service charges. We do not have data on our water usage so we have made an estimate based on the buildings’ total water usage and how much of the buildings we occupy – this is 40 per cent of the Croydon building and 12 per cent of the London building.

All waste from both buildings is either recycled or incinerated with energy recovery, with none going to landfill. We do not have data on the amount of waste from either office other than the quantity recycled (which is only available for the current year) and confidential waste, for which we are charged directly.

For the London office we have imputed an amount for total waste by using the building management’s estimate of how much of the total waste is recycled for the whole building.

The performance figures reported do not include any emissions arising from home based working or cloudbased services. This will be considered for future reporting.

2021/22 Operational performance

The Greening Government Commitments refers to establishing a 2017/18 baseline and reducing emissions, waste and water consumption from that point. As we do not have all data from that time, and this is the first time we are describing our operational impact, we are showing data for the current and prior year.

We will be identifying actions, targets and measures as we develop our sustainability strategy as part of our Strategic Plan 2022-25.

Energy consumption, waste and water usage was unusually low in the current and prior year, as members of staff worked from home for the majority of the years; we expect this to increase in future years. This is also the case for business travel. The majority of business travel is to visit suppliers in the United Kingdom and is typically by train.

Occasionally our investment and due diligence teams need to visit fund managers outside the United Kingdom by air.

The Covid-19 pandemic has also reduced paper usage. We expect this to continue to be low as staff members have become used to working without paper while working from home.
 

Embedding social value in our procurement process

During the year we piloted our approach to evaluating social value within various procurements. These pilots have achieved positive outcomes, with bidders demonstrating actions they’re taking towards improving employee wellbeing, working with communities, social capital and the environment. Alongside the pilot we’ve created a process to monitor social value commitments throughout the life of contracts.

When the contract with our custodian (the bank that holds our financial assets for safekeeping) was up for review, we took the opportunity to make social value an important part of the tender. Proposals were scored on metrics including suppliers’ carbon reduction plans and commitments to D&I.

The evaluating panel assessed the practices and commitments from the successful bidder, Northern Trust, including their net-zero commitment, carbon reduction plan, commitment to ESG reporting to meet TCFD requirements, and D&I reporting.

Although we’re in the early stages of our journey, we’re building a clear picture of how our procurement practices can impact society and the environment, and what actions we can take to reduce negative impacts. Our Commercial Services team are actively seeking opportunities to enhance their knowledge of social value, through training and engaging with peers and supporting organisations.

Strategic priority

Sustainable funding in volatile times

Sustainable funding in volatile times