Picton Property Income Limited Annual Report 2023

Strategic Report

Governance

Financial Statements

Additional Information

Recommendation

Commentary

Strategy continued Physical and transition climate-related risks Time horizon Risk Risk description

Risk impacts

Risk mitigations

Changes in market and occupier expectations and demand

‒ Lower demand for inefficient assets, creating lower rental and asset values ‒ Stranded asset risk in high-risk geographies ‒ Occupier default risk for occupiers with carbon intensive operations ‒ Capital expenditure cost to meet new standards ‒ Stranded asset risk and increased void period for non-compliance

As markets shift to meet growing demand for low or zero carbon alternatives, climate resilient assets could achieve ‘green premiums’ by outperforming unsustainable assets. Failure to adapt could create competitive risk and occupier default risk, while demand also may shift away from certain geographies or sectors. Policy mandates buildings and developments to adhere to higher standards, to improve efficiencies and operational practice, and to embed climate resilience on-site. Non-compliant assets could experience reputational risk and reduced occupier demand. Macroeconomic instability could transpire as market preferences shifts towards low carbon solutions and climate resilience, or due to sustained damage from climate- related physical impacts, potentially affecting our ability to secure financial capital, acquisition activities and asset values. Increasing the share of renewable energy sources and decarbonising energy-intensive industries could intensify other transition risks associated with reputation damage, financial impacts and litigation risk.

‒ Regularly review

market and occupier demand

‒ Regularly review regulation and

building standards legislation

Increased building standards requirements

Short- term: 2020– 2029

‒ Monitor the

macroeconomic and financial environment on an ongoing basis policy of continual improvement ‒ Implement our net zero carbon pathway ‒ Implement ‒ Implement a refurbishment guidelines that incorporate transition risk mitigation measures ‒ Conduct renewable

Financial market impacts

‒ Rise in interest rates and a decrease in economic growth leading to higher financial capital costs ‒ Economic downturn reducing rental

income and asset value and increasing occupancy risk

Decarbonisation and increased energy demand/ cost

‒ Rise in energy prices due to support for low carbon generation and taxation ‒ Increased operational costs, fuelled by price increases and rising demand for cooling ‒ Increase in material and procurement costs due to supply chain disruptions and carbon tax on embodied carbon ‒ Repair costs and loss of access to asset ‒ Capital expenditure to install mitigation measures ‒ Reduced regional investment and footfall ‒ Decline in asset value or stranded asset risk ‒ Degradation of plant and equipment leading to capex associated with replacement ‒ Increased operational costs ‒ Reduced occupier demand for spaces lacking sufficient cooling and/or ventilation ‒ Repair costs and loss of access to asset ‒ Capital expenditure to install mitigation measures ‒ Decline in asset value or stranded asset risk ‒ Increased operational costs ‒ Decline in asset value for water inefficient asset ‒ Capital expenditure to improve efficiency

energy feasibility studies across our portfolio

Flooding

Increased duration and intensity of precipitation, snow melt and rising sea levels will exacerbate all types of flooding. Our current portfolio is exposed to fluvial and pluvial flooding risk, with limited exposure to coastal flooding.

‒ Annual asset business plans consider all material physical climate risks ‒ Assess asset resilience to material climate risks ‒ Implement resilience measures, prioritising our most at-risk assets ‒ Implement our net zero carbon pathway, including installing on-site renewables and introducing software

Medium- term: 2030– 2039

Heat stress

Rising mean temperature and extreme temperature highs put pressure on both our assets and people. Our concentration of assets in Southern England increases our susceptibility to this risk and to associated costs. Extreme weather events, including storms, heavy winds, heavy precipitation, drought and snow could become more frequent and severe, exacerbated by shifting sea temperatures and seasonal patterns. Water becomes increasingly scarce, with supply unable to meet demand. As temperatures rise, average drought lengths could increase, with implications on water costs, supply chains and public health.

Extreme weather events

to track embodied carbon from ‘in use’ standing assets

‒ Implement our refurbishment guidelines that

incorporate physical risk mitigation measures

Drought and water stress

Long- term: (>2040)

Transition risk

Physical risk

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