Schroders : Climate Report 2023 (TCFD aligned)

CONTENTS

2023 highlights and achievements

quickly1

See

page

35% 39

decrease in operational Scope 1 and Scope 2 emissions since 2019

Schroders Climate Report 2023

Introduction

Our role in the transition to a net zero, nature positive future

We are a leading provider of active asset management, advisory and wealth management services. Recognised widely

as a leader in sustainability. Few investment managers can match the combination of capabilities and global reach that we offer.

This breadth of services across public and private

As a global investment manager, it is our responsibility to deliver excellent investment performance for our clients. Our understanding of how the impacts of climate change and biodiversity loss will affect assets and investments helps us to do this.

We believe that every economy, industry and company will need to plot a net zero path to remain competitive. Research from the United Nations (UN) suggests that unpriced climate and nature risk could wipe billions off the value of the world's food and agriculture companies alone.1 The huge structural shifts needed to address these threats are already affecting the value of companies across the globe.

We believe that to deliver robust long-term returns for our clients, we must encourage companies to mitigate the climate and nature risks embedded in

their operating models, before they crystallise as financial costs. We can be a catalyst for change, using our expertise and influence to encourage businesses in their transition towards a net zero, nature positive operating model.

Our own analysis indicates that those companies that reduce their greenhouse gas (GHG) emissions more quickly than their peers have tended

to outperform.2

Sustainable leadership is key to our business and flows from the long-term outlook at the heart of how we think about our business. Sustainability is integral to the ways we advise many of our clients, solve their problems, and manage their investments for the long term - it is not a standalone concept. We integrate the consideration of sustainability into the way we manage investments and engage with our clients and other stakeholders. Equally,

we integrate investment expertise and client relationships into our approach to sustainability and impact within our own business.

Our role as an active investment manager gives us the ability to engage with our investee companies and help drive sustained change. Our focus is

on encouraging and supporting the companies we invest in to establish net zero targets and robust plans for delivery, in order to improve their durability and profitability. We seek value in the opportunities that can be created when companies transition their business models. We aim to develop investment strategies that help our clients to meet their own investment and sustainability goals. Through this process we aim to deliver value for our clients, develop investment strategies that will help contribute to the significant capital reallocation that will be needed and contribute to the transition to a net zero, nature positive future as a result.

markets allows us to design distinctive solutions for the diverse needs of clients. They look to us to provide excellent long-term investment outcomes, and it is our duty always to act in their best interests.

That is a responsibility we take seriously - and we believe that when we succeed for clients, society and the wider world benefit too.

Corporate sustainability

Inspire

Our ability to lead by example in

our own corporate actions

While the emissions of the companies that we finance through our investments are more than 5,000 times greater3 than those from our own operations, we believe in leading by example, by managing and reducing the climate impact we have as a business. We have embarked on an ambitious plan to improve our own environmental performance and, in the process, engage our people and suppliers to support our climate goals. Our Group sustainability framework is shown on the left.

Schroders Climate Report 2023

Underpinned by responsible business practices

Compliance and ethics | Corporate governance | Data protection, privacy and cyber security

Human rights | Supply chain management | Tax policies and practice

1. https://climatechampions.unfccc.int/unpriced-nature-and-climate-risk-could-wipe-off-billions/#:~:text=About%20 the%20research%3A,worth%20over%20USD%242%20 trillion
2. Based on Schroders analysis of listed companies in the
   MSCI ACWI IMI index. We examined changes in companies' emissions over the last five years, relative to sector peers, and compared the total shareholder returns delivered by companies in each quintile of emissions reductions.
3. Based on 2022 Scope 1 and 2 emissions of investee companies (mandatory in-scope asset classes for Science
   Based Targets initiative) compared to Schroders' own Scope
   1 and 2 emissions.

2

Introduction

Our transition plan and the bigger picture

We have made a number of climate and nature-related commitments to support achieving net zero by 2050, or sooner.

These span both the investments we manage and our own operations. These commitments build on years of research, risk analysis, proprietary tool development and action

to understand and manage the risks and transition opportunities posed by climate change and biodiversity loss.

We were among the first 20 financial institutions to have our targets validated formally by the Science Based Targets initiative (SBTi). The validation confirmed that our Scope 1 and 2 targets are in line with a 1.5°C trajectory and that our relevant1 assets under management (AUM) are also targeted to be fully aligned with a 1.5°C pathway by 2040. Climate and biodiversity are intrinsically linked. We have published a Climate Transition Action Plan2 and

a Plan for Nature.3 We also update our Group Climate Position Statement4 and Group Nature and Biodiversity Position Statement5 annually. The latter sets out our commitment to the Finance for Biodiversity Pledge,6 our target to eliminate exposure to commodity-driven deforestation in the companies held in the investment portfolios we manage by 2025 and the key actions we are taking.

Further information

For our position statements and key documents see Appendix 1.

Our transition plan has four key pillars: our insights, our influence, our innovation and our ability to use our position to inspire others. A more detailed description of these levers of change can be found on our climate change strategy diagram (see page 11), with the actions we are taking under each pillar, covered in turn, in the Strategy section of this Group Climate Report.

Playing an active role across our sector and beyond

Our activity with policymakers aims to help them to propose and implement measures to support the transition and provide clear direction to companies and investors. By monitoring and influencing regulatory trends at their beginning, we aim to support the development of a business environment which is conducive to Schroders' strategic objectives. In 2023, we provided feedback on 12 consultations relating to sustainability regulations or initiatives.

We play an active role in a range of climate and nature-related coalitions and initiatives. These include initiatives to improve transparency and disclosure around climate data, collaborate on company engagement, encourage emissions reductions and establish opportunities to mobilise capital in areas that will support the transition, such as natural capital.

Further information

For a list of key initiatives and organisations we work with and a summary of our 2023 activity, see Appendix 2.

We believe that corporate transparency and accountability is important. As well as seeking to hold the companies we invest in to account

1. Current in-scope asset classes for SBTi, which represent more than 50% of our AUM, encompass listed equities
   (common and preferred stock), corporate bonds, real estate investment trusts (REITs) and exchange-traded funds (ETFs).
2. Schroders Climate Transition Action Plan
3. Schroders' Plan for Nature
4. Schroders Group Climate Change Position Statement.
5. Schroders Group Nature and Biodiversity Position Statement
6. https://www.financeforbiodiversity.org/about-the-pledge/
7. https://www.cdp.net/en/companies/companies-scores

Introduction

Group Chief Executive's message

The way we value investments is changing - and must continue to change

Through our engagement with companies we invest in, we have a thoughtful view of how sectors and firms are taking action. We continue to invest significantly in the analysis and tools that allow us to analyse companies' performances across many metrics.

Using our voice and influence to encourage companies to plan and prepare for decarbonisation is at the centre of our climate strategy. We set out to analyse the pressures individual firms are likely

earmarked for Schroders Greencoat renewables infrastructure across south west England.

The same world view that drives our investment strategy drives our view of our own business, and we hold ourselves to the high standards we expect of the companies we invest in. In 2022 we were among the first financial institutions - and the largest asset and wealth manager - to have our targets formally validated by the Science Based Targets initiative. We are making strong climate

We have compelling evidence that our approach is working.

Peter Harrison

Group Chief Executive

2023 saw climate change warnings break into new territory. Not only was it the hottest year on record, but also the first year where every day registered a temperature of more than 1°C above the pre-industrial level. Persistently higher readings across seasons meant that in 2023 global temperatures averaged almost 1.5°C above their pre-industrial average - the limit set out in the Paris Agreement.1

Even without evidence this stark, it has long been our view that climate change is among the greatest risks investors face. We believe that the transition to a cleaner global energy system represents

a revolution that will transform economies and societies. Companies face no choice: they will be a part of that disruption.

At an international level, response to this disruption is proving slow and inconsistent, which is hindering some financial institutions' willingness to proactively manage the risks and opportunities created.

We saw this at the UN Climate Change Conference (COP 28) for example. In fact, the polarisation of views around climate issues continues to increase. In 2022, Schroders was among 11 managers blacklisted by the State of Texas for our supposed refusal to do business with fossil fuel firms. As we said at the time, this portrayal of our position was wrong: our primary aim is to maximise returns for our clients over time.

Down at a company level, however, the picture is both far more unified and positive. We see this through the view we have of our clients, as well as through our knowledge of the thousands of companies we invest in all over the world. Of our largest clients, for example, more than 75% have made climate commitments.

to face as the energy transition gains momentum and help them steer through these successfully.

This form of genuine active ownership is vital to support the change we believe is needed to deliver our clients' investment goals. As you will read on pages 5 and 6, we have compelling evidence that our approach is working.

Many among our clients and the wider investment community share the view that the disruption wrought by climate change is unavoidable. In our 2023 survey of 770 global institutional investors, comprising owners of assets worth $35 trillion, two-thirds saw the transition to net zero as spurring innovation leading to "significant opportunities".2

While there is an expectation that climate considerations apply broadly to portfolios, many institutions actively want to target specific transition investments. Almost half cited renewable energy infrastructure as best placed to capture decarbonisation benefits. Natural capital and biodiversity is another issue on investors' radar, as the focus moves on to include the historically overlooked value of nature services.

Schroders' growing focus on private markets, including renewables, reflects this sentiment.

We see a crucial role in finding new ways to connect capital with economic and environmental needs and the investment opportunities they will create. Large global insurers are already some of the biggest backers of Schroders Greencoat windfarm infrastructure, for example, but other investors are finding innovative ways to gain exposure. On a more local scale, in late 2023 six local government pension schemes came together to pool capital

progress in our own operations.

The scale of the transition and its timescale - measured in a generation or less - is going to radically change the values of assets as well as the way in which those values are assessed. Our responsibilities to our clients mean we must be at the heart of this change, acting proactively to benefit from disruption rather than reacting to changes after they unfold.

Climate commitments

more than 75%

of our largest clients have Paris-aligned targets

"Significant opportunities"

2/3rds

of global institutional investors see "significant opportunities" in the transition to net zero

1. https://climate.copernicus.eu/copernicus-2023-hottest-year-record#:~:text=Samantha%20Burgess%2C%20 Deputy%20Director%20of,than%20the%20 pre%2Dindustrial%20period
2. https://www.schroders.com/en-lu/lu/professional/insights/schroders-institutional-investor-study-2023-how-investors-are-responding-to-inflation-and-geopolitics-threat/

Introduction

Global Head of Sustainable Investment's message

Unlocking value in transition

As a result, establishing a proactive commitment to transition our business and the portfolios we manage toward a net zero destination was logical. It is a natural extension of our view that climate change is an unavoidable, disruptive and important

Rather, climate action must be embedded into investment processes. The rollercoaster ride in clean energy sectors, and recovery of oil and gas companies in recent years has reminded us that seeking or avoiding climate risks or opportunities

Our climate strategy reflects a long-held conviction that climate change will be an unavoidable and disruptive influence on economies, industries and investments in the coming years.

Leaders of countries representing 85-90% of global economic output and carbon emissions have set goals to reach net zero emissions over the coming decades. Peter's comments on the previous page underline the uncertainty over the timing and pace of political action to deliver those goals.

With countries representing over half the world's economic output due to go to the polls in 2024, we expect the sentiment of political signals to fluctuate.

Notwithstanding those uncertainties, a transition towards a net zero global economy looks inevitable. Clean technologies have become competitive

investment trend. However, while the destination is critical, the journey we take to reach it will determine the effect on investment returns,

as well as the contribution to global emissions reduction goals.

Setting a decarbonisation target is relatively easy: calculate baseline emissions, establish targets and define the line that connects them. However, we approach climate change as an investment challenge, rather than a constraint to operate within - a tailwind to investment performance rather than a headwind. Investing in transitioning companies and assets across the market, rather than simply avoiding some sectors, is more likely to provide sustained investment returns.

is not an investment strategy in isolation. Valuation and fundamental insights are critical to ensuring that climate exposures are considered alongside a myriad of other factors.

Our climate strategy focuses on decarbonisation in the companies and assets we hold in portfolios, rather than avoiding those with higher carbon footprints. Companies able to decarbonise more quickly than sector peers have outperformed in recent years, underlining the value that can be unlocked - for investors as well as society - as companies act to mitigate their carbon exposure.

with traditional hydrocarbon-based alternatives in areas that account for more than half of global emissions1, easing social and political resistance to

Investing in transitioning companies and assets is more likely to provide sustained investment returns.

Andy Howard

Global Head of Sustainable Investment

change. With global average temperatures already hitting levels very close to the 1.5°C limit over pre-industrial levels that global leaders committed to in Paris in 2015, whether or not governments take tougher action tomorrow, we believe that the pressure to deliver changes will only grow.

All portfolios are exposed to the risks and opportunities that climate change presents. Every economy and industry will be impacted to some extent. The only question is whether those risks and opportunities are considered and managed, or whether managers wait for them to crystallise before reacting.

1. Clean technologies are competitive with traditional alternatives in power generation and passenger transport (automobiles), which together account for around half of global emissions.

We based our Climate Transition Action Plan,1 published in 2021, on encouraging and supporting that transition in portfolio companies. Engagement is at the heart of that strategy, and the volume of climate-focused engagement we undertake across Schroders has risen accordingly in recent years. That strategy will only work if our engagement efforts support robust and meaningful action by portfolio companies.

The rising volume of climate-focused engagements across Schroders provides a foundation for deeper analysis of the relationship between those engagement efforts and their effects. We have developed ActiveIQ - a proprietary database used across many of Schroders' investment teams - to track engagements with investee companies and management teams on a range of sustainability- related topics, including climate change.

Since 2021, we have logged engagements with more than 1,000 companies on climate topics, primarily emission reduction goals and transition plans. That data set provides a basis to compare the changes we have seen among engaged companies with those of companies we did not engage with.

That analysis makes it clear that the strategy we have adopted is succeeding so far. Relative to peers, the large global companies we have engaged with since 2021:

• were more than twice as likely to publish new emission-reduction targets
• reduced their emission intensity twice as quickly
• outperformed by approximately 4% annually.

The results are plotted in the charts on the right, comparing trends in constituents of the global equity MSCI ACWI Investable Market Index (IMI) according to our engagement on climate topics.

We realise that there are many reasons companies set targets or take action to reduce their emissions beyond our engagement with them. We do not claim our climate engagement is the sole - or even main - factor driving the changes we have detailed here.

Percentage of companies setting new emission targets2

Did not engage

Engaged

0% 20% 40% 60% 80% 100%

Trend pace of annual emissions intensity reduction2

Did not engage

Engaged

-0.8%-0.6%-0.4%-0.2% 0%

Total shareholder return relative to market average2

Did not engage

Engaged

1. Schroders Climate Transition Action Plan.
2. MSCI, Refinitiv, Schroders Engagement database (ActiveIQ),
   Schroders calculations. Note: Analysis is based on constituents of the MSCI ACWI IMI global equity index. We examined the proportion of companies setting a new emissions intensity target since the start of 2021 (includes companies that previously had targets), the trend pace of annual emissions reduction (since 2019, reflecting lags in reporting emissions data) and total shareholder return relative to the simple average of all index constituents.

The same picture typically holds true based on the intensity of our engagement. Where engagement has so far been limited, the likelihood of companies taking action has been lower than those in cases where we have had the opportunity for sustained engagement and dialogue.

The engagement programme that underpins our transition strategy was calculated based on the assumption that engagement would result in companies being 10% more likely to establish transition plans than those we did not engage with. Although we are early in our multi-decade transition journey, the results we have seen to date give us comfort that we are on the right track.

Percentage of companies setting new emission targets since 2021, based on intensity of Schroder engagement2

1. growing focus on nature

Some of the same forces that have led to the climate crisis are becoming evident in a wider range of nature and biodiversity-related challenges. Climate change is one of the principal drivers of nature loss. It is estimated that climate change induced temperature increases may threaten as many as one in six species at the global level.1

Conversely, nature is one of the principal solutions for the climate crisis. Nature-based solutions (NbS) can provide as much as a third of the mitigation needed until 2030 to achieve the targets of the Paris Agreement.2 However, nature's capacity to provide these benefits is being eroded quickly by the pressures caused by economic development and growth. Close to $7 trillion is invested globally each year in activities that have a direct negative impact on nature from both public and private sector sources - equivalent to roughly 7% of global gross domestic product (GDP).3 Protecting biodiversity rich, high carbon value ecosystems such as tropical forests, peatlands and mangroves is a priority to maximise this mitigation potential.

As a result, it is unsurprising that many societies, policymakers, companies and investors have become increasingly focused on nature. Nature- related risks are starting to crystallise as financial and investment risks. Helping to articulate and

manage this, the Taskforce on Nature-related Financial Disclosures (TNFD) released its final recommendations in 2023.4 This is a critical step forward in achieving the Global Biodiversity Framework's 2030 target for companies and investors to disclose their risks, dependencies and impacts on biodiversity.5

We have integrated relevant nature-related information into this Group Climate Report, to start to align with these recommendations. We are continuing to work in earnest to meet the nature- related commitments we have made, including our commitment to eliminating exposure to commodity-driven deforestation in the companies held in the investment portfolios we manage

by 2025. We are pleased to see that our efforts have been recognised by Global Canopy in their Deforestation Action Tracker, where we were highlighted for our "significant progress".6

We plan to undertake our first iteration of a TNFD Locate, Evaluate, Assess and Prepare (LEAP) assessment 7 over the course of 2024 to support our commitment, as a TNFD "Early Adopter" (see page 9), to report next year. In the face of the risks, dependencies and impacts we will identify through this process, we are committed to taking action to tackle the risks in the investments we manage on behalf of our clients and to our business.

Given the recent publication of the Finance for Biodiversity Foundation's guidance on target setting8, we will reflect on how best to develop our nature-related commitments, consistent with our clients' goals, so that these become stronger and more comprehensive.

Our actions and commitments to achieve this will be integrated into our climate change strategy and performance measurement.

Insights

We are developing a holistic biodiversity assessment which will encompass the quantification of deforestation risk and management, leveraging insights from the development of our deforestation scorecard and exposure analysis. On completion, we will look to integrate that analysis into established analytical tools. We are drawing on our proprietary model, ThemEx - which assesses Sustainable Development Goal (SDG) alignment - to highlight companies which can help accelerate a nature positive future.

1. https://www.unep.org/news-and-stories/story/five-drivers-nature- crisis#:~:text=Global%20warming%20is%20 already%20affecting,species%20at%20 the%20global%20level
2. https://www.worldbank.org/en/news/ feature/2022/05/19/what-you-need-to-know-about-nature-based-solutions-to-climate- change#:~:text=Nature%2Dbased%20 solutions%20are%20 actions,well%2Dbeing%20and%20 biodiversity%20benefits
3. https://www.unep.org/resources/state- finance-nature-2023
4. https://tnfd.global/publication/ recommendations-of-the-taskforce-on-nature-related-financial-disclosures/
5. https://www.cbd.int/gbf/targets/
6. https://globalcanopy.org/wp-content/ uploads/2023/11/DAT_Report_2023.pdf
7. https://tnfd.global/wp-content/ uploads/2023/08/Guidance_on_the_ identification_and_assessment_of_nature- related_Issues_The_TNFD_LEAP_approach_
   V1.1_October2023.pdf?v=1698403116
8. https://www.financeforbiodiversity.org/ publications/nature_target-setting_ framework_for_asset_managers_and_asset_ owners/

Influence

A significant focus for us this year has been delivering on our intention to eliminate commodity-driven deforestation from the investment portfolios we manage by 2025.

In 2023 we engaged with 399 companies on biodiversity.1 Of these, 73% were on deforestation and the remainder were on other sub-themes such as sustainable food and water, nature loss, circular economy, pollution and waste. We also joined Nature Action 100 (NA100) and participated in letters to 100 companies calling for urgent action to protect and restore nature and ecosystems. We will participate in several collaborative engagements with NA100 in 2024, where we consider those companies' business models to be closely dependent on nature.

We continued our dialogue with policymakers at the UN Biodiversity Conference (COP 15), calling on them to take urgent action to join up the climate and nature agendas and clarify their plans to accelerate transformation in the real economy and financial services

in order to deliver a nature positive future.2 We also joined Business for Nature in calling for a robust EU Nature Restoration Law and gave evidence to the UK's Environmental Audit Committee regarding deforestation risk in investee companies. We have continued to contribute to industry groups to share knowledge on investment risks and opportunities relating to nature

and biodiversity.

Further information

For more on COP 15, see Glossary.

Innovate

We have focused on building out our capabilities to help clients invest in real assets and NbS that seek to generate strong investment returns as well as accelerate positive change to protect and restore nature.

We have launched products across public and private markets, addressing themes such as the circular economy, food and water and environmental impact.

Inspire

Our direct impact on nature and biodiversity is through our resource consumption and waste management in the operation of our offices around the world. Our strategy is focused primarily on reducing our environmental impact by cutting our GHG emissions across our operational footprint and engaging with our supply chain to do the same. We are also looking to enhance the environments in which we operate. We use the mitigation hierarchy 3 - avoidance, minimisation, restoration and offsets

• in order to reduce impacts and control any negative effects on the environment.

1. Schroders managing deforestation risk within our investment portfolio
2. https://www.schroders.com/en-us/us/intermediary/insights/five-policy-recommendations-for-natural-capital-and-net-zero/
3. https://www.thebiodiversityconsultancy.com/our-work/our-expertise/strategy/mitigation-hierarchy/

Introduction

The aim, structure

and scope of this Report

This Group Climate Report (the "Report") aims to give our investors and other stakeholders a better understanding of our climate transition plan and progress. This includes how we manage our business' and clients' investment exposure to climate-related risks, our strategic resilience to these risks and the climate and nature-related opportunities we are pursuing.

This Report is in line with the recommendations and recommended disclosures of the Task Force on Climate-related Financial Disclosures (TCFD). It also takes into consideration the TCFD's Supplemental Guidance for the Financial Sector. It sets out how Schroders plc and its subsidiaries ("the Group", "our" or "we") incorporate climate-related risks and opportunities into governance, strategy, risk management and metrics and targets, and how we are responding to the expectations of our stakeholders. This Report also integrates some nature-related disclosures, where relevant. In January 2024, the TNFD announced the inaugural "Early Adopters". We were part of this cohort and we intend to start making disclosures aligned with the TNFD recommendations for our financial year 2024, recognising that data availability remains limited among investee companies and assets. This Report supplements the climate-related financial disclosures in our Schroders plc 2023 Annual Report and Accounts.

Further information

For our climate-related financial disclosures, see pages 30 to 37 of our Schroders plc 2023 Annual Report and Accounts.

The structure of the Report

We have followed the TCFD framework, as outlined in Appendix 3. The Governance section covers the Group's approach. For Strategy, Risk management and Metrics and targets, the Report is structured so it considers both:

The investments we manage

Our own operations

Some of the recommended disclosures for Metrics and targets have been integrated into the Strategy section for coherence.

Further information

For a summary index against the core recommendations, see Appendix 3.

A note on data limitations

We recognise that emissions data is frequently based on estimates or proxy data and, as a result, provides an imperfect view of portfolio exposures or risks. The data we rely on can also change materially from one year to the next, as data quality improves or estimation methods change. We continue to work to make sure that the data we use is as accurate as possible, but highlight that any outputs should be interpreted as approximate and not precise.

Entity reporting

The following entities within the Group, as a result of being regulated by the Financial Conduct Authority (FCA), are required to publish their own separate TCFD-related reports pursuant to the ESG Sourcebook rules issued by the FCA.

Materiality

We listen to our stakeholders in a number of different ways and use the information they provide us with to identify the issues that are important to them and consequently, that are important to our business.

When assessing materiality, we consider how the Group is affected by climate change, as well as the Group's own impact on the climate. This Report includes a range of topics that we believe are relevant to our business and that are of interest to investors and other

These entities will predominantly rely on this Report when publishing their own. The entities listed below will publish separate TCFD-related entity reports by 30 June 2024:

• Schroder Investment Management Limited
• Schroder Investment Management North America Limited
• Schroder & Co. Limited
• Schroders Greencoat LLP
• Schroders IS Limited
• Schroders Pension Management Limited
• Schroder Real Estate Investment Management Limited
• Schroder Unit Trust Limited

stakeholders. Materiality is considered to be the threshold at which issues become sufficiently important to our investors and other stakeholders that they should be reported publicly.

We know that what is important to our stakeholders, as well as emerging sustainability reporting frameworks, will evolve over time. We will continue to assess our approach to materiality so that we continue to report on what is of relevance to our stakeholders.