The latest climate change report from the Pension Protection Fund (PPF) shows progress in achieving more high-quality disclosure from issuers.
This, according to the PPF, helps deepen climate management beyond listed equities and drive better alignment with the Paris Agreement goals.
The disclosure from issuers showed that 96% of credit portfolio holdings and 90% of UK credit portfolio holdings assigned carbon data (compared with 89% and 80%, respectively, for 2021-22).
It also showed that 84% of portfolio companies in the PPF’s Climate Watchilst now report carbon emissions data, and 37% of private companies report ESG data through a private markets ESG reporting pilot.
As a result, 55%-plus of the fund’s total net asset value is now covered by carbon footprint metrics and 95% of the fund is assessed for alignment with the Paris Agreement.
The report also disclosed that there was a 30% reduction in the weighted average carbon intensity and a 22% reduction in financed emissions of its UK credit portfolio over the year (in comparison with 3% and 15%, respectively, in 2021-22).
In last year’s climate change report, the PPF introduced the Paris Portfolio Alignment Project initiated in partnership with Dutch consultancy Ortec Finance to better understand its risks using evidence-based data.
Barry Kenneth, the PPF’s chief investment officer, said that since then the fund has been spending “considerable” time gathering climate assessment for every asset class “so we can see how the fund’s position aligns to net zero and the Paris Agreement” and continually evolved this to reflect new methodologies and changes in the fund’s portfolios”.
He continued: “This has been helping us improve our understanding of ESG data and make more informed decisions about the portfolio, especially in our unlisted investments where pre-investment due diligence is even more critical.
“We’re encouraged to see the progress already made on the fund’s alignment since 2020, as more companies have committed to setting science-based targets and have started to share their transition plans with investors.”
Kenneth said that gathering this additional data has been crucial for the PPF. However, he added that “the sheer speed of change surrounding ESG continues to keep us on our toes” and is one of the reasons why the fund is focused on the use of data internally through its portfolio management system to help monitor portfolios on a real-time basis.