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Climate change
Introduction
Active ownership
ESG integration
Partnership with Prudential
Community and people
A final word
Strategy and metrics and targets In 2022, we have taken key strategic steps in building capacity for our sustainability ambitions, harmonised our Group RI Policy which now includes our stance on climate change and just transition, expanded our central engagement programme, and enhanced our data access to climate-related metrics via internal dashboards. Therefore, 2022 has largely been a capacity building year. Moving forward, Eastspring will work on enhancements to our RI processes. Near-term projects Moving forward, we believe continuing to add robustness to our climate strategy is a necessary enhancement that takes keen understanding of the local markets in which we operate in to better understand our Scope 3 carbon emissions profile and to incorporate biodiversity concerns into our policy and engagement. Driving the climate ambitions of Prudential Eastspring is aligned with the net-zero ambitions of Prudential and are active agents in driving the near-term targets of our largest client. Our current strategic initiatives include:
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation businesses, strategy, and financial planning where such information is material. Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
Short-term climate target
Metric rationale
2022 status update
25% reduction in the carbon emissions intensity of our investment portfolio by 2025 against our 2019 baseline
We use WACI as a proxy for the climate transition risk in our investment portfolio: a higher WACI normally indicates that an investment portfolio has to transition more extensively to align with the Paris Agreement. By reducing the WACI of our portfolios, we also support the transition to a low-carbon economy. A key benefit of using WACI is that it is agnostic to asset classes and can be applied to the various strategies that we employ. This is essential to both Prudential as the asset owner and Eastspring the asset manager, as we manage a wide range of investment portfolios. Whilst we appreciate the benefits of an intensity measure, we also recognise that complementing it with an absolute measure gives us a more insightful view into our portfolio carbon footprint. To that end, we have chosen to conduct engagement with companies using an absolute carbon footprint threshold.
We reduced the WACI of Prudential’s investment portfolio by 43% against our 2019 baseline. This also translates into a 26% year-on-year reduction of WACI from end 2021. Investment decisions such as strategic asset allocation, portfolio construction, and investment selection can influence the direction of the WACI, as can changes in the carbon emissions intensity of the underlying businesses in which we invest. This further reduction was a product of the following strategic drivers we employed: Driving the execution of the coal exclusion policy. Implementing WACI budgets by tweaking select existing strategies to reduce WACI relative to the benchmark. Engaging with companies in the investment portfolio to influence them to adopt positive strategies to further improve carbon efficiency and enhance disclosures on carbon emissions. To ensure that we continue to manage portfolio WACI, we look towards both portfolio innovation and effective corporate engagement.
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