M&G PLC

## Roles and governance

M&G's Real Estate business is supported by a dedicated sustainability team that acts as a centre of excellence and expertise that engages with senior decision makers, including our portfolio management team, to set and make recommendations on the implementation of ESG strategy. However, delivery and implementation remain devolved to the business and individual teams. The responsibilities and actions of many stakeholders are critical to the success of M&G's Net Zero Carbon programme. Everyone is expected to play their part and to take responsibility and ownership within their day-to-day work. The following are some of the key stakeholder groups and their relevant responsibilities:

##### The ESG team

- Responsible for defining and setting Net Zero Carbon goals, requirements and priorities and sharing best practice, toolkits and training to teams.

- Reviewing, monitoring and communicating progress to asset managers, fund managers, senior management and investors.

- Tracking and comparing asset performance using scorecards, and advising asset/property managers on initiatives to progress.

- Evaluating and comparing various and competing solutions, and advising teams on best value for money.

- Supporting teams in shaping Net Zero requirements and standards, and incorporating these into the contractual service agreements of our external partners.

- Selecting a global, centralised ESG data platform and data improvement strategies.

- Developing house views and policies on cross cutting themes such as offsetting.

##### Fund managers

- Responsible for approval of fund-level Net Zero targets and for the achievement of these. This includes communicating capital constraints or portfolio changes that may impact achieving Net Zero goals and considering Net Zero requirements and carbon stranding risks when acquiring, developing or disposing of assets.

- Approve budgets and capex to support the transition to Net Zero Carbon including energy efficiency projects and Net Zero audits as well as the creation of fund-level Net Zero pathways.

##### Asset managers

- Responsible for achieving progress at an asset level and integrating costed Net Zero improvements into asset management plans.

- Provide guidance on asset list for Net Zero Carbon/energy audits and suitability.

- Oversee activities with technical consultants and property managers, ensuring recommendations such as smart optimisation and solar photovoltaics are implemented.

- Internal asset managers communicate expectations with property management and closely monitor the performance of property managers and technical consultants that are implementing initiatives and managing sites.

- Key touchpoint with tenants, actively engaging with them to encourage them to act, share data and sign green leases.

- Take ownership for maintaining key asset level information (EPCs, Green Building Certificates etc) and for coordinating and reporting implementation of key initiatives to stakeholders.

A separate ESG Working Group meets monthly to oversee the integration of environmental and social factors across the asset management business. The working group consists of key asset and portfolio managers and includes the ESG team. Workstream leads are appointed to accelerate delivery in key programmes such as renewable projects, electric vehicle chargers, smart building solutions and energy efficiency.

M&G Real Estate's ESG team has the overall responsibility for monitoring the progress of the programme. Our quarterly environmental performance reports enable our investment managers to identify carbon risks in the assets we manage.

We continue to explore ways in which we can up-skill all teams on ESG issues, with particular focus on climate risk. We have delivered presentations on Net Zero to portfolio management teams, the wider real estate business, and colleagues in our Singapore office. ESG integration is a business objective and forms part of our employee objective and appraisal process for all investment professionals within M&G Real Estate.

##### Property managers

- Property management agents are selected following a rigorous process that incorporates ESG considerations, while Net Zero requirements are included in their contractual service agreements.

- Their responsibilities include refurbishment and development, utilities measurement and reporting, engaging with tenants and the community, implementing ESG business plans, quarterly monitoring of progress against targets, and driving, monitoring and targeting energy control in buildings.

##### Development team

- Working with the ESG team to create robust embodied and operational energy targets and procedures for development and major refurbishment and forward funding deals. Ensuring these are integrated from concept design through to design and construction contracts.

- Tracking projected carbon performance of the development pipeline against core requirements on ongoing basis, at project gateways and at key project stages of inflight projects.

- On forward funding deals, where we have limited control over the design, development teams seek to influence the embodied and operational carbon where possible.

##### Transaction team

- The team is responsible for integrating ESG criteria, along with Fund and ESG Team input, throughout the due diligence process.

- Evaluating new acquisitions in the context of carbon transition risk and the Net Zero Carbon goals of M&G Real Estate and individual funds.

- Estimating capital expenditure requirements for aligning assets with Net Zero ambitions.

- Ensuring completion of ESG acquisition risk screening and incorporating the findings in the Property Investment Committee Paper.

A strong governance structure is important for monitoring and accountability for delivery of our Net Zero Carbon pathways. Our Global Sustainability Forum, a committee comprised of representatives from key areas of M&G Real Estate, oversees our sustainability activities and the delivery of these pathways. This provides a sounding board for our environmental initiatives and ensures that key projects and best practices are embedded.

Lobbying activities report

We believe that better disclosure would help shareholders understand the company's use of shareholder funds.

We will generally vote in favour of these resolutions.

In addition to the training schedule for the year, in June 2022 the Risk Committee received a presentation on greenwashing risk. This session covered what risks fall under greenwashing and how these can present, including: policies, risk reporting, funds and products, and external stakeholder perceptions. As a result of this presentation, the Risk Committee approved further action in a number of areas, including updates to staff training, and certain fund-related actions relating to terminology and ratings. [...] A Central Sustainability Office was created in 2022 to implement a Group-wide sustainability governance operating model, shape the group's sustainability strategy and policy, and oversee delivery of its commitments. As part of this, an Executive Sustainability Committee was also formed in 2022, and is chaired by our Chief Financial Officer. The Executive Sustainability Committee is responsible for: – supporting the Board in the successful execution of M&G's sustainability strategy, policy, public sustainability commitments and disclosures; – promoting and driving a collaborative approach across M&G; [...] Sustainability disclosures and reporting that are considered material to the Group are presented to the Management Disclosure Committee (MDC), which has responsibility for external reporting and disclosure, prior to submission to the Audit Committee. The MDC is also chaired by the Chief Financial Officer.

* Asking for publicly disclosed alignment of capex with a company's decarbonisation strategy, while also seeking alignment with lobbying activity, both from the company and its trade organisations [...] * Encouraging executive remuneration to be linked to decarbonisation and other sustainability targets, while having clear governance oversight in place for climate strategies [...] * Discussing companies' progress towards their targets, and potentially increasing the ambition of those targets [...] ##### Ongoing review [...] This is why we review progress towards their targets on an ongoing basis, and will engage with the company if we feel it is necessary. We also provide commentary on investee company progress in our funds' annual emissions reports.

2.1.1 Responsibility for ESG across all the Group's activities lies with the M&G plc Executive Committee (ExCom). [...] 2.1.2 The first version of the Policy was approved by the PAC Board, and will be reviewed on an annual basis and periodically as required. Any changes proposed as a result of the review will require approval at the M&G Life Executive Investment Committee (EIC)[1]. The M&G Life EIC may escalate any changes the Chair (CEO, M&G Life) deems material to the PAC Board for final approval. The chair of the M&G Life EIC has in turn delegated authorities to the Co-Heads of the Treasury and Investment Office (T&IO), including responsibility for implementing the PAC ESG Investment Policy. Appropriate governance is followed with respect to subsidiary entities. [...] 2.1.3 The T&IO will also work in a cross-functional fashion across the various business areas of M&G plc, to ensure that our ESG frameworks and thinking are kept up to date, and are always relevant to all aspects of investment strategy.

• The M&G plc Board has responsibility for the oversight of the long-term sustainability and success of the business • PAC governance structure: In addition to the overarching structure at the plc level, PAC has its own governance structure which enables sustainability-related matters to be integrated into our business activities • The Prudential Assurance Company's (PAC) Board is responsible for interpreting and applying the Group strategy and ensuring it is appropriate for the PAC's business and customers. The PAC Board delegates specific duties, including sustainability-related matters to sub-committees • Resources: Our Treasury & Investment Office is responsible for the strategic allocation of funds, fund manager selection and oversight for the asset owner. Within the Treasury & Investment Office, a number of teams collaborate together with the aim to ensure clients receive good financial outcomes. Whilst every Treasury & Investment Office team has a responsibility for embedding stewardship and ESG considerations in their work, the ESG & Regulatory and Manager Oversight teams have primary responsibility of managing key ESG and stewardship processes • Processes: • The ESG & Regulatory team is accountable for developing the overall ESG investment strategy for the asset owner • The Manager Oversight team holds the responsibility of appointing and overseeing underlying asset managers • Over the course of 2023, the ESG & Regulatory team in collaboration with the Manager Oversight team worked on embedding a rigorous stewardship due diligence process that was developed in 2022. Please see page 38 of the Report for details • In Q3 2023, M&G plc launched all-staff mandatory anti-greenwashing training • In addition to the data that PAC receives from investment managers, third party research providers such as MSCI and ISS, are also used as a resource for ESG and stewardship data • We have embedded our Quarterly ESG Screening process throughout 2023, which adds an extra layer of due diligence by allowing us to screen our portfolios for exposure to various ESG risks [...] • Engagement policy: Engagement is a crucial part of enhancing the long term value of our investment for our PAC clients. To effectively fulfil our fiduciary and stewardship duties, we believe it is our responsibility to work closely with asset managers that engage with investee companies, including Environmental, Social and Governance (ESG) related issues • We require the asset managers that we appoint to carry out active engagement and responsible stewardship with investee companies on our behalf • They do this with the use of our financial ownership across both active and passive mandates. This is aimed at influencing their behaviour and expand sustainability-related disclosures to transparently communicate actions towards shifting to more sustainable business models and outcomes • Our PAC Shareholder Engagement Policy and PAC Voting Standard clearly set out our expectations for asset managers in conducting effective engagement and in exercising effective shareholder voting in conjunction with Shareholder Rights Directive II. The PAC Shareholder Engagement Policy can be found here • For active investment strategies, our chosen asset managers' investment processes are designed to select companies expected to outperform the relevant benchmark indices over the long-term. We expect our asset managers to conduct effective monitoring, including ESG risks and act on these where appropriate, in line with their respective policies, to drive active engagement and responsible stewardship • Our managers are expected to establish a clear timeframe for engagement activity with a clear escalation process which would be required if initial engagements are unsuccessful • ESG Monitoring is carried out using an Engagement Framework to ensure managers are performing aligned with expectations. Please see the case study on page 88 of the Report • We also use passive investment strategies, where the asset manager is required to track the portfolio against a specific benchmark index • The Manager Oversight team and the ESG & Regulatory team review the funds on an ongoing basis to ensure the underlying managers are aligned with the PAC ESG Investment Policy [...] • Monitoring of our managers via ESG Due Diligence Monitoring Questionnaire and ESG Engagement Template gives us confidence that they are adhering and aligning with the PAC ESG Investment Policy, PAC Shareholder Engagement Policy, and PAC Voting Standard • We have embedded our Quarterly ESG Screening process throughout 2023, which adds an extra layer of due diligence by allowing us to screen our portfolios for exposure to various ESG risks • The value of our oversight processes has been demonstrated throughout the year, where we were able to drive progress toward engagement on the topic of Modern Slavery • Enhanced engagement framework to hold asset managers accountable: The asset owner does not itself engage directly with investee companies, instead relies on its chosen asset managers to do so on its behalf. The asset owner maintains accountability for the framework for engagement with investee companies, and in turn commits to engage with asset managers to deliver on desired outcomes: • As of Financial Year 2023, the ESG & Regulatory team participated in the Manager Oversight Quarterly Manager meetings to discuss and monitor engagements

Climate policy & advocacy

Engagement and advocacy is a key part of our climate transition plan. As an active investor and steward of customers' assets, we use our expertise to identify climate risks and opportunities, and to use our influence and our votes to press for positive change.

Overall, we expect our investee companies to commit to reaching net zero in line with the Paris Agreement, and to provide credible targets and metrics for how they will do so, preferably evidenced by the Science Based Targets initiative (SBTi). We also specifically engage on strategy, disclosure, stranded asset risk, goals and targets to achieve decarbonisation.

If we find that investee companies are not making adequate progress on these objectives we will use our vote to hold directors to account. As a last resort, if we feel that investees cannot or will not commit to Paris-alignment, we can divest from the company. Our main climate related engagement programmes are the Climate Hotlist and Thermal Coal Phase Out.

The Climate Hotlist consists of a list the top 100 investee companies based on highest emissions and largest M&G-wide exposure. Engagement began at the end of 2020, and continues to expand coverage. We have a specific engagement strategy for each engaged company with a clear objective, key performance indicators to determine progress to delivery, and a timetable for engagement, tracked by our engagement dashboard.

Through our coal engagement programme we are currently targeting investee companies with thermal coal exposure where it is not clear that they have a science based, time bound phase-out plan. If after engagement we feel that investees cannot or will not commit to a credible phase-out plan, they will become candidates for divestment.

Within CA100+, M&G is a co-lead on miner Rio Tinto, chemicals company BASF, auto maker VW and oil and gas supplier TotalEnergies, representing the 617 members of CA100+. We are also active members of working groups on energy company BP and Petrobras, and chemicals company LyondellBasell, while we sit on the Corporate Programme Advisory Group, which helps set future CA100+ priorities. During the year we also joined the Net Zero Stewardship Working Group.

We actively engage in consultative processes with our regulators as they develop climate related initiatives, both in our own right, and through investor organisations such as the UK Sustainable Investment and Finance Association (UKSIF) and trade associations such as the Association of British Insurers (ABI).

We are working closely with the global disclosure organisation the Carbon Disclosure Project (CDP) on a pilot to develop greater climate transparency for private equity and leveraged loans and encourage more widespread estimation of private asset emissions moving forward. We are also collaborating with CDP on improving decision-useful water data for investors, to help address global systemic water risks closely linked to climate change.

Governance and remuneration

As part of our overall environmental, social and governance (ESG) strategy, we have developed an ESG Risk Management Framework and Policy, including climate risks. Climate risks are discussed at the Executive Risk Committee, chaired by the Chief Risk and Compliance Officer. Issues are escalated to the PLC Board as appropriate.

Our transition to net zero carbon emissions across our operational activities is captured in our environmental policy, sponsored by our Chief People and Corporate Affairs Officer. Executive Committee members all have sustainability objectives in their personal performance management scorecards.

The 2022 long-term incentive plan (LTIP) for executives has a 7.5% weighting linked to actions to reduce the company's scope 1, 2 and operational scope 3 carbon emissions, relative to a 2019 base year.

The PAC Stewardship Report has been subject to a thorough governance review process as outlined in Principle 5, as found on page 60. [...] The interests of our with-profits and our corporate pensions clients are represented on an ongoing basis by two independent sub-committees, the With-Profits Committee (WPC) and the Independent Governance Committee (IGC). [...] M&G Treasury & Investment Office is responsible for the strategic allocation of funds, fund manager selection and oversight for the asset owner. [...] The exercise of these delegated authorities is overseen by the M&G Life Executive Investment Committee (M&G Life EIC). The M&G Life EIC is chaired by the M&G Life CEO and provides oversight and governance of the investment portfolios of Prudential Assurance Company (PAC), and Prudential Pensions Limited (PPL). [...] Investment decisions that are influenced by ESG, sustainability and stewardship considerations are channelled through this governance structure, and ultimately, through the M&G Life EIC, which in turn, reports to the PAC Board. This covers any ESG/sustainability-related matters, including ESG policies and external disclosures. Where appropriate, ESG disclosures will also be channelled through our Group level governance forums, such as the Management Disclosure Committee and Executive Sustainability Committee.

Does your organization have a public commitment or position statement to conduct your engagement activities in line with the goals of the Paris Agreement?[…]Yes

Describe the process(es) your organization has in place to ensure that your external engagement activities are consistent with your climate commitments and/or climate transition plan?[…]Public policy plays a big role in enabling M&G to deliver our 10-point sustainability plan. M&G works constructively with policymakers to create a policy and regulatory framework that will facilitate the right behaviours and drive the urgent and fundamental economy transformation needed.