46 | Just Group PLC | Annual Report and Accounts 2023
SUSTAINABILITY STRATEGY: TCFD DISCLOSURE FRAMEWORK continued
The metrics below are used for our Lifetime Mortgage portfolio:
What progress have we made to improve climate risk management of the credit portfolio? In 2023, we continued to enhance our approach to responsible investment in the following ways: • Developed a comprehensive responsible investment manager assessment framework aligned with industry best practices, such as the United Nations-backed Principles for Responsible Investing guidelines. • Enhanced our internal classification system, PRAYG, by leveraging our third party data sources. • Signed up to the Partnership for Biodiversity Accounting Financials and various other initiatives (more detail on page 39). • Set and published investment specific targets aligned with the Net Zero Asset Owner Alliance. • Further enhanced our emissions model and developed an internal tool for deeper scenario analysis. • Improved governance, reporting and culture, we: – introduced a responsible investment tracker to monitor investment decisions and engagement activity; – provided quarterly responsible investment updates to the investment team reflecting the dynamic nature of this area; – hired two more employees dedicated to responsible investment. Lifetime Mortgage portfolio Our property underwriting assessments allow for existing flood and coastal erosion risk. We are undertaking climate change scenario analysis to improve our understanding of how our lending policy and underwriting approach need to evolve to manage any future exposure to climate change risk. We have been engaging with the ERC and PCAF on developing a standardised approach to emission reporting to further support the development of green lending and retrofit mortgages.
CARBON FOOTPRINT The estimated carbon emissions of the LTM portfolio expressed as an average per USD million of LTM balance emissions. Property value at risk A risk metric which estimates the potential reduction in residential property values under different climate scenarios arising from physical and transitional risks. Energy Performance We monitor our portfolio distribution by EPC rating using actual and estimated ratings to measure our exposure to any introduction of minimum EPC standards.
The emissions calculation uses assumptions based on the EPC rating that is held for the property, implied by the property postcode, or modelled (available for about 96% of the portfolio).
SCENARIO ANALYSIS Background
Scenario analysis remains a key tool for ensuring we have a deep understanding of the risks the Group faces over a long-term time horizon. Just’s climate scenarios comprise property scenarios, relating to the lifetime mortgage portfolio, measured using the Representative Concentration Pathway (“RCP”) for assessment of physical risks and assuming that a minimum EPC-C rating is implemented by government for assessment of transition risks. The Network for Greening Financial System (NGFS) scenarios were used for the Credit Portfolio. Overall, each of these scenarios were mapped against the wider NGFS climate scenarios. The identification, disclosure and management of climate-related risks and broader sustainability risks (environmental, social or governance) is key for Just. We recognise that the potential impact from these risks on Just’s overall strategy could manifest in a way that might lead us to change aspects of our strategy. We also recognise that sustainability and climate-related risks impact many of the other types of risks faced by Just, such as credit, market, operational, reputational and compliance/legal. As a result, during 2023 we took the action to ensure the management of sustainability risks were further embedded within Just’s risk governance and management structures and are reflected within Just’s Enterprise Risk Management Framework. Sustainability was further incorporated into our overall Risk Operating Model to ensure integration across all business areas. Scenario analysis is used to deepen understanding of the risks the Group faces and permit a consideration of a long-term time horizon. For 2023, we retained the use of the NGFS scenarios and in particular the base case given market conditions continue to reflect a scenario, where policy actions appear to be changing due to general geopolitical tensions. We have taken a prudent approach by assessing the most extreme transition/physical risk scenarios to understand the extent to which this may affect the Group. Below we provide additional information on these scenarios.
METRICS AND TARGETS The metrics below are used for our Credit portfolio:
CLIMATE VALUE-AT-RISK A risk metric which is an estimation of scenario-specific valuation impact for transition and physical impacts, at both an issuer and portfolio level. CARBON FOOTPRINT An impact metric that gives the GHG emissions at an issuer and portfolio level. IMPLIED TEMPERATURE RISE (“ITR”) A metric to analyse and monitor the portfolio’s exposure to companies with forward-looking commitments (an ITR).
The Climate Value-at-Risk is purely illustrative as it projects far into the future based on assumptions about our existing investment portfolio. The longer the time period that data is projected into the future, the more uncertainty in the results. The carbon footprint metric reflects the emissions of our current portfolio. We expect each of these metrics to reduce as the composition of our investment portfolio changes over the years through the application of our Responsible Investment Framework.
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