We're committed to supporting the UK Government’s Net Zero by 2050 target and are taking all reasonable steps to achieve this for our own operations by 2035 or sooner. For our investments, we seek to contribute to the global transition to Net Zero through our portfolio and engagement activities.
As a long-term investor, the PPF has a duty to consider all financially material risk factors in our investment decisions, including climate-related. We believe climate change can materially impact businesses, markets and economies globally in a number of ways, from a societal perspective as well as environmental.
The PPF has developed a specific Climate Change policy, as we see climate change as a systemic and non-diversifiable concern, which has the potential to significantly affect the value of our investments across the short, medium and long-term, throughout the global economy. We also believe that opportunities can exist and be exploited for companies and assets well-positioned for the transition to a low-carbon economy and for adaptation in relation to increasing physical risks. Through sharing our experiences, we can encourage others to increase investment focus in these areas to drive forward the transition.
We recognise the complexity and barriers to identifying and assessing the forward-looking financial materiality of climate-related impacts on our investments. However, we seek to assess the exposure of our investments to climate-related risks and opportunities through a range of metrics and analysis, as the tools available to measure these evolve.
Consideration is given to the potential impacts on asset prices and return expectations across both short and longer-term time horizons, and how this could inform our decisions around strategic asset allocation and portfolio construction.
We oversee all new and existing investment arrangements in a way that takes account of climate transition and adaptation risks, as well as resilience, opportunities and inclusivity, in line with the 2015 Paris Agreement commitment to keep global temperature rise this century to well below 2oC and aim to limit the increase to 1.5oC through an orderly transition.
We expect our external managers to understand and integrate material climate-related risks into their analysis and investment process, including undertaking carbon footprinting and scenario analysis, assessing asset exposure to physical risks, and engaging with issuers, where relevant for their asset class. We expect our managers to exercise their voting rights and engagement resource to positively influence the companies in their portfolio to transition to a low-carbon economy.
These expectations are a requirement of our manager selection process for new investment mandates. Managers that cannot demonstrate their commitment to meeting these expectations will not be appointed.
In monitoring the exposure and performance of our external managers, we review how they are managing climate-related risks and opportunities, including voting and engaging with issuers on climate-related issues, and how they are reporting to us on their actions. We share examples of best practice to promote consistency and alignment of approaches across our investment mandates.
Engagement and Collaboration
A significant part of our climate strategy to support the transition is implemented through our climate watchlist. This serves as an engagement focus list of companies that are responsible for over 70% of our public markets scope 1 and 2 financed emissions. We not only engage directly with selected companies, but also utilise our external managers and engagement service provider to achieve engagement objectives. Where sufficient progress is not considered to be taking place, we have developed an escalation policy which provides a framework to drive change at these companies.
We seek to encourage greater climate disclosure through supporting disclosure frameworks such as the CDP and the Task Force on Climate-related Financial Disclosures (TCFD), and through engaging with companies identified by Climate Action 100+ and the Net Zero Engagement Initiative, so that exposure to climate risks (and opportunities) can be better understood and managed.
We also collaborate with the wider investment community on climate change issues, as a signatory to the Principles for Responsible Investment (PRI) and as a member of the Institutional Investors Group on Climate Change (IIGCC).
As stated in our Sustainability Strategy, we support the UK Government’s Net Zero commitment and aspiration to make the UK the world’s first Net-Zero aligned financial centre. We seek to actively contribute to public debate on climate change risks and opportunities and use our influence to promote the growth of a sustainable pensions industry. We consider collaboration through industry groups such as the IIGCC to be valuable platforms for driving change.
We will communicate and engage on the actions and progress that have been taken around our climate change strategy to relevant beneficiaries and stakeholders, reporting in line with TCFD guidance for asset owners.
Last reviewed by Investment Committee: December 2023