Partners : TCFD Report 2021

Partners Group TCFD Report 2021

Introduction and report overview:

The health of the planet is a dominant global concern.. The five most critical long-term threats to the world, as well as the most potentially damaging to people and the planet, are all environmental. "Climate action failure", "extreme weather", "biodiversity loss", as well as "livelihood crises" rank as the most severe risks1. Unless properly managed, these risks will have costly implications on communities, businesses and investors.

While addressing climate change will require action from governments and civil society, we believe that investors and investment managers are uniquely positioned to catalyze the transition to a low-carbon economy through systematic assessment and management of climate risks and opportunities.

As a responsible investor, Partners Group has been assessing and managing climate-related risks and opportunities in relation to the investments made on behalf of its clients for many years. To continue acting in the best interest of our clients and in line with our focus on generating long-term sustainable returns and positive impact for all our stakeholders, we have made the following commitments to further mitigate investment risks resulting from climate change:

Partners Group is committed to the Paris Agreement2 as an organization3 and we are working towards achieving net-zero emissions for our Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions by switching to renewable energy for our offices where available, implementing energy reduction measures and by using carbon offsetting as a last resort.

Partners Group is equally committed to managing its investment portfolio4 towards the Paris Agreement objectives, as we recognize our investment activity can have a positive impact through our transformational investing strategy.

• 1 According to the World Economic Forum:https://www3.weforum.org/docs/WEF_The_Global_Risks_Report_2022.pdf

• 2https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement: reduce anthropogenic impacts to reach a target of limiting global warming to well below 2°C above preindustrial levels and pursuing efforts to limit the temperature increase to 1.5°C,

• 3 Partners Group's investment portfolio, which corresponds to "category 15: investments", is excluded at the level of the organization. See the section

  "Metrics and Targets" for additional explanation.

• 4 For our controlled investments we have the governance and active ownership to lead assets on their path to net zero. For our non-controlled investments, climate change considerations can be addressed through the due diligence process and engagement with business partners.

Partners Group became a public supporter of the Task Force on Climate-related Financial Disclosures (TCFD) in 2020. With this report, we seek to transparently communicate our climate ambition to our clients and stakeholders as well as share our goals and milestones towards achieving a low carbon economy in line with the TCFD's recommended disclosures.

Governance

Climate Change is being acted on by the most significant governing bodies of our firm. To ensure proper oversight and implementation of our Climate Change Strategy, we have established clear governance structures and capacity building plans.

The below diagram summarizes the governance structure and key roles and responsibilities related to the implementation of the Strategy.

Governance (a): Board oversight

The Board of Directors is responsible for the Sustainability Strategy (including the Climate Change Strategy) of Partners Group as an organization and across its investment portfolio. Steffen Meister, Executive Chairman, will take over the responsibility for ESG at Board level from Grace del Rosario-Castaño, who will leave the Board on 25 May 2022.

Governance (b): Management's role

Within the Executive Team, Partners Group's CEO David Layton has assumed the responsibility for our ESG initiatives. We have linked ESG objectives to a part of the compensation of the Executive Team. Further details on our approach to compensation and benefits are available in the2021 Compensation Report.

In 2021, André Frei, former Co-CEO of Partners Group, assumed the role of Chairman of Sustainability. In this role he drives the Sustainability Strategy and collaborates with the Executive Team and with the Head of ESG & Sustainability.

At investment portfolio level, the investment teams are responsible for the identification of climate-related risks/opportunities and the day-to-day management of climate risks during the investment due diligence phase, and for the ongoing climate risk management during the ownership period of our controlled portfolio companies. Where climate risks are identified, the investment team works with the board members and executives of controlled companies to mitigate them. The investment teams are advised and challenged by the ESG & Sustainability team. We have started to appoint three ESG responsibles at board, executive and operational level for companies where we hold a controlling stake to ensure proper implementation of ESG initiatives, including climate change related projects.

Strategy

Strategy (a): Climate-related risks and opportunities over the short, medium, and long-term

Climate change is a material topic across our portfolio, including from a business risk perspective. Climate-related physical risks, such as extreme weather events, and transition risks resulting from carbon-focused policy making and other regulatory developments, can affect the performance of our investments and our ability to deliver long-term sustainable returns to our clients. To better understand the climate resilience of our investment strategy, we plan to approach and assess the climate-related risks and opportunities in our portfolio in a more systematic manner to make informed risk management decisions.

Portfolio footprinting (direct portfolio):

We measure and report the carbon intensity of direct lead investments annually with our standardized GHG tool, which we use to create transparency at portfolio level. The GHG tool facilitates our assessment of the overall carbon risk and the identification of assets that could benefit from emissions reduction-related engagements. Carbon emissions are estimated based on the direct (Scope 1) and indirect (Scope 2) emissions of a company, and carbon intensity is measured by tCO2e/sales. We use external service providers to calibrate our calculations where necessary, and we estimate Scope 3 emissions where appropriate.

As transformational investors, we aim to identify potential opportunities to actively and effectively reduce carbon emissions for our direct lead investments. For the development of such reduction strategies, we will prioritize direct private equity, infrastructure and real estate assets for the mid-term.

Strategy (b): Impact on business, strategy, and financial planning

Our strategic asset allocation is in line with our broader investment strategy, which includes the thematic sourcing of opportunities: we identify assets that stand to benefit from transformative trends over the long term, and we actively seek to acquire and transform these assets during our holding period.

As part of this thematic sourcing, we have identified the global shift toward net-zero carbon as a key driver of our investment strategy for the coming years. Our asset allocation includes low-carbon investments and guides our investment teams to avoid certain carbon-related sectors to protect our clients from future carbon risks.

Next to our focus on renewable energy infrastructure, we plan to continue investing in select carbon-based assets that enable the transition towards a lower carbon economy. We regard specialized gas pipelines, treatment facilities and gas-powered plants as supportive of the transition into cleaner sources of energy in the near term, and as a bridge to accommodate more renewables.

Furthermore, we may consciously invest in certain carbon intensive assets where we identify significant value creation opportunities to reduce their carbon intensity through our ownership, leveraging our experience and making a positive contribution to the environment. Our ESG criteria will typically provide for stringent value creation requirements that can only be met with substantial carbon reductions.

Strategy (c): Resilient strategy and scenario analysis

Scenario Analysis:

We acknowledge the importance of scenario analysis as a forward-looking instrument to define risks and opportunities over different pathways. Given the complexity of various methodologies, the broad range of assumptions made, and the data availability to support assumptions during scenario analysis, we will start scenario analysis for our organization in a qualitative manner by first outlining the risks we believe are relevant at a macro-level across our portfolio.

As outlined by the TCFD, there are two main climate risks to consider when looking to identify risk in our portfolio: physical risk and transition risk.

Physical risk

Acute physical risks:

Extreme weather events like floods and fires could negatively impact revenues because of value chain repercussions (i.e. damage to production centers, supply chains, or commercial routes) orend markets. Increased severity and frequency of extreme weather events could also lead to increased capital costs (e.g., to repair damage to facilities) and increased insurance costs to hedge potential future damage.

Chronic physical risks:

Changes in weather patterns that lead to long-term drought and sea-level rise could also negatively impact revenues of business models with operations facilities in areas that are more subject to such risks (e.g., heat waves would decrease number of working hours per day for construction and thus delay development projects). Asset values in these areas could also decrease (e.g., real estate value decreases in coastal flooding areas such as Florida).

Next steps:

The next step in our physical risk assessment requires a mapping of our exposures by geography and cross referencing our exposures with potential hot spots for physical climate impacts. While such analyses were only implemented for select assets in the past, we plan to refine our approach to physical risks over the next three years.

Transition risk

Policy and regulation risks:

Implementation of a carbon tax, expanded renewable energy subsidies or restrictions on fossil fuel developments are potential risks that could affect our portfolio by creating higher operating costs for carbon intensive business models and creating higher reporting obligations and related costs (i.e. data collection) across all business models. By understanding the carbon intensity of different operations, we are able to see how directly or indirectly carbon prices might impact the portfolio under different scenarios until 2030 and beyond. More work will be performed in relation to potential carbon prices and taxes, which would impact the profitability of assets depending on their exposure and financial situation, their long-term carbon strategy and mitigation, and other factors. We will continue to look into these risks in the coming years, as we further increase the quality and coverage of our carbon data. As we move forward, our goal is to develop this analysis further to include additional asset classes and additional political and policy responses.

Technology risks:

New technologies that drive opportunities for improved energy efficiency, battery storage or cheaper renewable energy, represent not only an investment and value creation opportunity but also a risk. Emerging technologies could cause write-offs and early retirement of existing assets. Stranded assets and the associated decommissioning costs could have outsized impact on specific business models, in particular companies in the power sector and oil and gas sector. Furthermore,