# Making a difference Barclays PLC Climate-related Financial Disclosures 2020 --- # Making a difference Barclays is a British universal bank. We support consumers and small businesses through our retail banking services, and larger businesses and institutions through our corporate and investment banking services. In the wake of an extraordinary year, we have refreshed our corporate Purpose and our Values to ensure they are relevant to today’s world. ## Our Purpose We deploy finance responsibly to support people and businesses, acting with empathy and integrity, championing innovation and sustainability, for the common good and the long term. ## Our Values **Respect** We harness the power of diversity and inclusion in our business, trust those we work with, and value everyone’s contribution. **Integrity** We operate with honesty, transparency and fairness in all we do. **Service** We act with empathy and humility, putting the people and businesses we serve at the centre of what we do. **Excellence** We champion innovation, and use our energy, expertise and resources to make a positive difference. **Stewardship** We prize sustainability, and are passionate about leaving things better than we found them. You can read more about our new Purpose at [home.barclays/purposeandvalues](https://home.barclays/purposeandvalues) ## Our Stakeholders Having a strong Purpose and Values ensures we are able to deliver for all our stakeholders: **For our customers and clients** We help those who use our products, services and expertise realise their aspirations **For our colleagues** We support their health and wellbeing, enable them to build their career, and empower and motivate them to be able to provide excellent service **For society** Our success over the long term is tied inextricably to the progress of our communities, and the preservation of our environment **For our investors** We continue to build a strong, diversified business that can deliver attractive and sustainable returns --- # Contents Our climate-related financial disclosures form part of the Barclays PLC annual reporting suite. ### Inside this book * Introduction and Executive summary * Governance * Strategy * Risk management * Scenario analysis * Metrics and targets We understand our stakeholders’ needs for different levels and types of information and have therefore integrated extracts of our climate-related financial disclosures in the Strategic Report and Annual Report. ### Additional reports **Barclays PLC Annual Report 2020** A detailed review of Barclays’ 2020 performance with disclosures that provide useful insight and go beyond reporting requirements. **Barclays PLC Environmental Social Governance Report 2020** An overview of our ESG strategic priorities and performance, reported against a range of quantitative and qualitative indicators. **Barclays PLC Fair Pay Report 2020** An overview of our approach to pay-fairness and how we implement this in our principles and policies through the themes of our Fair Pay agenda. **Barclays PLC Diversity and Inclusion Report 2020** An overview of the Group’s approach to building a more inclusive company, including a progress report on each of our five pillars of diversity and inclusion. **Barclays PLC Country Snapshot 2020** An overview of our global tax contribution as well as our approach to tax, including our UK tax strategy, together with our country-by-country data. **Barclays PLC Pillar 3 Report 2020** A summary of our risk profile, its interaction with the Group’s risk appetite, and risk management. These can be found at: [home.barclays/annualreport](https://home.barclays/annualreport) ### ESG reporting hub **Non-financial reporting index** This includes additional information relevant to ESG investors, suppliers, clients and rating agencies prepared in accordance with the Global Reporting Initiative (GRI) Standards (core option) and with reference to the Sustainability Accounting Standards Board’s (SASB) reporting framework. **Further online resources include** * Barclays’ ESG Reporting Framework and Impact Eligibility Framework used for social and environmental financing * Barclays’ policy statements * Barclays’ investor ESG presentations * Other ESG-relevant content including details of Barclays’ green product suite This can be accessed at: [home.barclays/esg](https://home.barclays/esg) --- # Introduction Barclays was a founding member of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) and this is our fourth year of disclosure aligning to the TCFD recommendations. We continue to believe that comprehensive, robust and comparable disclosures are essential to enabling stakeholders to understand our activity and progress in managing our climate-related opportunities and risks. In our report this year, we are pleased to have been able to enhance our level of disclosure – further meeting the recommendations and demonstrating an evolution in our response to climate change, from the point of view of our governance, our strategic approach, the capturing of the opportunities and an increasingly sophisticated approach to our management of climate risk. We have run a climate internal stress test this year, which has been an evolution from our first climate stress test in 2019 which we disclosed details of in last year’s report. This year’s exercise has helped us to further understand climate risks and prepare for the Bank of England’s 2021 biennial exploratory scenario on the financial risks from climate change. We share details on our approach with our climate internal stress test in the Scenario analysis section. In last year’s ESG report, we announced our ambition to be a net zero$^a$ bank by 2050 across all of our direct and indirect emissions, and a commitment to align all our financing activities to the goals of the Paris Agreement. During 2020, we launched BlueTrack™ – our methodology to help us embed climate impact into our financing decisions, so that we can make active choices to re-shape our portfolio. In November 2020 we announced the targets that would guide us on this journey. This is the first time that we are reporting our performance against those targets and details can be found in the Metrics and targets section. ### Core elements of recommended climate-related financial disclosures ```mermaid graph TD A[Governance] B[Strategy] C[Risk management] D[Metrics and targets] A --> B B --> C C --> D ``` **Governance** The organisation’s governance around climate-related risks and opportunities. **Strategy** The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning. **Risk management** The processes used by the organisation to identify, assess and manage climate-related risks. **Metrics and targets** The metrics and targets used to assess and manage relevant climate-related risks and opportunities. **International Climate Reporting Awards** Barclays was recognised at the 2020 Awards in the Banks category for our 2019 ESG Report (Climate Disclosure). Building on leading global standards, including the TCFD, the Awards aim to recognise financial institutions that integrate climate-related considerations into their reporting and business practices. $^a$ Net zero is defined on page 39 of the Barclays PLC 2020 Annual Report. --- # Executive summary We have further developed our strategic response to climate-related issues in 2020 and will continue to evolve our approach over the coming years. These advancements are reflected in our TCFD disclosure this year. | TCFD theme | Progress and enhancements in 2020 | | --- | --- | | Governance | 1) Further information on the Board’s approach to overseeing social and environmental matters, including our approach to climate change. 2) A new role of Group Head of Public Policy and Corporate Responsibility, who is also a Group Executive Committee (Group ExCo) member, was created. The role is responsible for leading Barclays’ efforts in tackling climate change. 3) The Chief Risk Officer maintained responsibility for climate-related financial risk under the Senior Managers Regime. | | Strategy | 1) Barclays announced an ambition to be a net zero bank by 2050, across all our direct and indirect emissions and across all sectors, and we committed to aligning our financing activities to the goals of the Paris Agreement. 2) Undertook climate internal stress test in preparation of Bank of England’s climate biennial exploratory scenario (Climate BES) in 2021. Disclosure of scenario, models, results and management actions. | | Risk management | 1) Each Principal Risk has continued to evolve its approach through implementation of the Climate Change Financial and Operational Risk Policy and ongoing requirement to meet the PRA Supervisory Statement on financial risks of climate change. 2) A new role of Head of Climate Risk was created with responsibility for developing our climate risk methodologies and managing climate risk in our portfolio. 3) Integrated our enhanced due diligence approach to include clients in the additional energy sub-sectors that became in scope of our Climate Change Statement. | | Metrics and targets | 1) Progress against Paris Agreement targets set across our Energy and Power portfolios. 2) Disclosure of 2020 and 2019 figures for key metrics to provide year on year comparison – elevated risk sectors, carbon-related assets and capital markets financing. | --- # Governance Barclays’ governance around climate-related risks and opportunities. --- # How climate is embedded in our governance structure ### Governance structure ```mermaid graph TD A[Barclays PLC Board: The Board oversees social and environmental matters, including our approach to climate change] B[Group Executive Committee (Group ExCo): Responsible for leading Barclays’ efforts in tackling climate change; Responsible for climate-related financial risk under the Senior Managers Regime] C[Group Head of Public Policy and Corporate Responsibility] D[Group Chief Risk Officer] E[Global Head of Sustainability and ESG] F[Head of Climate Risk] G[Barclays UK] H[Barclays Execution Services Limited] I[Barclays International] A --> B B --> C B --> D C --> E D --> F A --> G A --> H A --> I ``` **Barclays PLC Board** The Barclays PLC Board sets the strategic direction and risk appetite of the Group and is the ultimate decision-making body for matters of Group-wide strategic, financial, regulatory or reputational significance. Oversight of social and environmental matters, including climate change, was reallocated to the Board in 2019. The Board recognised that Barclays can, and should, make a real contribution to tackling climate change, and help to accelerate the transition to a low-carbon economy. The Board also recognised, however, that we were behind where we needed to be, and approached the challenge to help accelerate the transition in a positive, thoughtful, authentic and open way. Having begun in the autumn of 2019 to review our environmental policies with a view to making the step-change required, in the first quarter of 2020 the Board established a Board Climate Committee, to oversee our activities in this critically important area. The Board Climate Committee met four times throughout the year and played a key role in setting our ambition on climate change, advising the Board on formalising the commitment at the AGM in May 2020 and reporting on progress in November 2020. In addition to advice and support from the Board Climate Committee, the Board also received updates on environmental matters and climate-related issues from management at each scheduled Board meeting. **Board Risk Committee (BRC)** The Barclays PLC Board Risk Committee monitors and recommends the Group’s financial, operational and legal risk appetite. It considers reports on key financial and legal risk issues and oversees conduct and compliance. It also monitors the Group’s financial, operational and legal risk profile. In 2020 a climate dashboard was introduced and this is reviewed by the BRC on a quarterly basis. It provides updates to the Committee on evolving climate risk governance and our exposure to elevated risk sectors and countries across financial and operational risks. In late 2020 the Committee made a decision that Climate risk would become one of the Principal Risks within the Enterprise Risk Management Framework (ERMF) from 2022. **Climate change at the 2020 AGM** Resolution 29 at the Company’s 2020 Annual General Meeting (AGM) set the ambition for Barclays to be a net zero bank by 2050 and committed the Group to a strategy, with targets, for alignment of its entire financing portfolio with the goals and timelines of the Paris Agreement. The Board had extensive discussions with stakeholders in advance of proposing Resolution 29 and unanimously recommended its adoption by shareholders. Further details can be found in our Section 172(1) statement on pages 18 to 21 of the Barclays PLC Annual Report 2020; and further details can also be found in our 2020 Notice of AGM which is available at [home.barclays/AGM](https://home.barclays/AGM) --- # Governance continued ### Committees and forums that underpin our governance | | | | | --- | --- | --- | | **Board Committees** | Board Audit Committee | Board Risk Committee | | **Management/Business Committees** | Group Controls Committee | Group Risk Committee | | **Management/Business-level Forums** | TCFD Forum | FORCC | **Board Audit Committee (BAC)** The Barclays PLC Board Audit Committee monitors and reviews the integrity of the Group’s financial statements and related announcements. It also monitors the effectiveness of the Group’s internal controls which includes restrictions on sensitive sectors, such as our position on climate change. ### Management responsibility for climate strategy and managing climate-related risk **Group Head of Public Policy and Corporate Responsibility** During 2020 the role of Group Head of Public Policy and Corporate Responsibility was created with accountability for the bank’s sustainability and citizenship agendas, and has overall responsibility for Corporate Relations and Regulatory Relations. Specifically, the role is responsible for leading Barclays’ efforts in tackling climate change, and for integrating our ambition and commitments to help accelerate the transition to a low-carbon economy into the business. **Global Head of Sustainability and ESG** The Global Head of Sustainability and ESG leads the strategic direction and execution of Barclays’ policies and practices across a broad range of sustainability and ESG matters, including climate change. The role also oversees the development of standards and metrics to advance green and sustainable finance and to steward early innovation in sustainable product and service development. **Chief Risk Officer** The Group Chief Risk Officer remains the Senior Manager responsible for climate-related financial risk under the Senior Managers Regime. **Head of Climate Risk** The Head of Climate Risk was appointed in July 2020 to develop Barclays’ climate risk methodologies and manage climate risk in the portfolio. The role includes development of climate risk governance, stress testing methodologies and our approach to carbon modelling, including the BlueTrack™ model. **Management/Business-level committees** The Group Controls Committee and the Group Risk Committee both have distinct roles in governing the issue of climate change. These committees are mandated and form part of Barclays’ formal governance architecture. * **Group Controls Committee (GCC)**: The GCC oversees the effectiveness of Barclays’ control environment in managing reputation risk. In instances where the reputation risk arises from a breach of sensitive sector restrictions, such as our position on climate change, this is reported into the GCC and any material breaches are ultimately reported up to the Group Executive Committee and the Board. * **Group Risk Committee (GRC)**: The GRC is the most senior risk executive body and it monitors Principal Risks and key topics of a material nature to Barclays, such as climate change. **Management/Business-level forums** * **TCFD Forum**: This senior forum, chaired by the Global Head of Sustainability and ESG, with representation from business lines and function teams including Strategy, Risk, Finance, Treasury and Compliance, was set up in 2017 to provide oversight and drive implementation of the TCFD recommendations and the Group’s wider climate change strategy. * **Financial and Operational Risks of Climate Change (FORCC) Forum**: To oversee the implementation of climate change risk management, a Monthly Execution Meeting was established in 2019, bringing together senior colleagues within Risk, Treasury, Finance and Sustainability. Chaired by the Head of Climate Risk, the purpose of this meeting is to drive execution of the FORCC PRA plan. --- # Strategy The actual and potential impacts of climate-related risks and opportunities on Barclays’ businesses, strategy and financial planning. --- # Supporting the transition to a net zero carbon economy We agree with the TCFD that while changes associated with the transition to a lower-carbon economy present risks, they also create significant opportunities for organisations focused on climate change mitigation and adaptation solutions. Alongside our detailed assessment and structured management of climate-related risks, we believe that Barclays can make a real contribution to tackling climate change and help accelerate the transition to a low-carbon economy. It’s our ambition to be a net zero bank by 2050. We’re already net zero emissions from our own operations, and our focus now is on reducing the client emissions that we finance. We have committed to aligning all of our financing with the goals of the Paris Agreement, on the way to achieving our net zero ambition. It’s a commitment that covers capital markets activity as well as lending, better reflecting the breadth of our support for clients through our Investment Bank. And it will ultimately cover all sectors, starting with Energy and Power. ### Risks and opportunities for Barclays Banking is a long-term business; our client relationships span decades, and sometimes centuries. As a significant institution in the global financial system, we recognise the importance of our contribution to achieving stability in the global economy, and in helping to provide the trillions of pounds of financing required for the world to make the transition to net zero – not just today, but in the decades to come. The timescales over which we think about our business vary. From near real-time decisions in support of delivering products and services to our customers and clients today, through in-year and multi-year risk assessment, financial planning and target setting, to longer-term thinking about the risk profile of our business and the role we can play in accelerating the transition to a low-carbon economy. ### Climate-related considerations and how they are significant to the bank Risk is, and has always been, fundamental to the business of banking; it is integral to the way we make decisions, and it defines our contribution to a safe and sound financial system. The ability to identify, understand and manage risk is not just how banks contribute to economic growth, it is critical to their long-term strength and stability. Climate risk is no different in this regard, although it requires banks to address risks that may be present over a much longer period of time than that covered by more traditional approaches to risk management. We broadly categorise climate risks into three types: transition risk, physical risk and connected risk. * **Transition risk**: Policy, regulatory and legal changes; Technology shifts; Changing market demand * **Physical risk**: Acute – event-driven e.g. extreme weather events; Chronic – longer-term shifts in climate patterns e.g. sustained higher temperatures * **Connected risk**: Second order risk arising from transition or physical risk impacts e.g. recessionary pressures When considering climate-related risks, Barclays has categorised short, medium and long term to mean the following timescales: * **Short term**: 0-1 year * **Medium term**: 1-5 years * **Long term**: 5-30 years --- # Strategy continued We manage these risks through our Enterprise Risk Management Framework (ERMF). The ERMF sets our strategic approach for risk management by defining standards, objectives and responsibilities for all areas of Barclays. ### Enterprise Risk Management Framework (ERMF) | | | | --- | --- | | **Climate Change Standard** | **Climate Change Financial Risk and Operational Risk Policy** | | Reputation risk | Credit risk, Market risk, Treasury and capital risk, Operational risk | ### Opportunities created by the low-carbon transition Banks, and especially those with a large capital markets business, are in a unique position within society to help accelerate the transition to a low-carbon economy. The world will require trillions of pounds of investment to enable it to become low-carbon, and the primary source of that investment will be financing arranged by banks like us, either through loans or from the capital markets. Certain sectors of the economy are more embedded in the high-carbon economy through long-standing technologies or supply chains they have relied on. These sectors in the coming years will need both substantial capital and investment but also innovative technological and financing solutions and products to help them on the complex journey to adapt to a low-carbon economy and eventually to net zero emissions. In the longer term, we will continue to work closely with our clients to help them understand what the transition means for them. There may be companies or particular activities which cannot adjust to transition over time, and in such cases we believe that they will find it increasingly difficult to access the capital markets for financing, not only through Barclays. To support environmental entrepreneurs to turn their green ideas into reality, our Sustainable Impact Capital Initiative will invest £175m over the next five years in the equity of innovative and environmentally focused private companies. --- # Strategy continued We will continue to engage with our peers, through established and emerging industry groups, to evolve our own approach and work towards standardisation across the industry. In setting out our own net zero ambition, and transparently disclosing the methodology and targets through which we are aligning our financing portfolio to the goals of the Paris Agreement, we are one of the first major capital markets banks to demonstrate tangible action on climate change. ### BlueTrack™ model structure ```mermaid graph LR A[Construct Paris-aligned portfolio benchmarks] B[Quantify client emissions] C[Link emissions to financing] D[Aggregate to a portfolio-level metric] E[Portfolio alignment measurement] A --> B B --> C C --> D D --> E ``` ### Aligning our financing with the Paris Agreement To deliver on our commitment to align all of our financing with the goals of the Paris Agreement, including our capital markets activity, it was necessary to create a methodology that builds on and extends existing industry approaches – we call this methodology BlueTrack™. Our work sits alongside engagement with leading industry and academic groups on common approaches to tackling the climate challenge, including the Paris Agreement Capital Transition Assessment (PACTA) and the Partnership for Carbon Accounting Financials (PCAF). ### Evolving our products and services We are re-focusing and re-shaping our Banking business to strengthen our support for clients in helping them understand what the transition means for them, and helping deliver the financing needed to achieve it. **Energy Banking Team** To help our clients accelerate the transition to a low-carbon economy, we have created a new, multi-disciplinary Energy Banking team. The team brings together our existing Power and Utilities, Natural Resources, and Sustainable and Impact Banking groups. **Green and Sustainable Capital Markets** The team is focused on underwriting Green and Sustainability Bond issuance across sectors and geographies for corporate, financial institution and sovereign clients. --- # Strategy continued ### Supporting clients across the spectrum | Consumer | Growth stage companies | Mid-size corporates | Large corporates and governments | | :--- | :--- | :--- | :--- | | **Green Home Mortgages**: Mortgage offering lower interest rates for new build properties meeting minimum energy efficiency requirements | **Sustainable Impact Capital Initiative**: £175m principal equity investments | **Sustainable and Impact Banking Group**: Strategic advisory, capital raises for growth companies and collaboration across the firm to support ESG integration for corporate and investor clients | **Green and Sustainable Capital Markets**: Origination, structuring and execution of Green, Social and Sustainability Debt products for our global clients | | **Sustainable Investing solutions**: Dedicated sustainable products | | **Sustainable Product Group**: Corporate Bank focus on renewables, green products and sustainability-linked loans | | **Sustainable and Impact Banking** SIB integrates with existing Investment Banking sector coverage teams and includes a specific focus on businesses addressing climate change across four key verticals: alternative energy technologies, circular economy, food and agriculture, and water. **Corporate Bank Sustainable Product Group** The Sustainable Product Group was created in 2020 to focus on the development and execution for green and sustainable banking products and solutions and enhance collaboration with other teams in the Corporate and Investment Bank and wider Barclays Group. **Financing, products and services** In the near term, our £100bn target for green financing is already helping to accelerate the transition to a low-carbon economy. By the end of 2019 we had already facilitated over £15bn of green financing, and our green financing in 2020 was nearly £18bn. **Financial planning** In 2020 we launched a strategic climate programme, which mobilised key functions and business areas to deliver on our climate ambition. The strategic climate programme manages the revenue opportunities and risks of climate change – aligning our portfolio with the Paris Agreement, growing green finance and managing exposures to sensitive sectors. The programme has been integrated into our financial planning process. --- # Strategy continued **Delivering a greener pension for Barclays’ employees** Our 210,000-member UK Retirement Fund (UKRF) was the first UK bank pension fund to sign up to the Principles for Responsible Investment (PRI) in 2015, and has PRI assessment scores of ‘A’ on Strategy and ‘A+’ on Manager Selection. It’s also a Tier 1 signatory to the UK Stewardship Code. Climate change is the subject of specific risk management and measurement as part of the fund’s responsible investment approach. **Managing our direct environmental impact** We have already made significant progress in managing the environmental impact of our own operations and have already achieved net zero across our own operations – using high-quality carbon credits to offset our residual emissions. We achieved a 71% reduction in carbon emissions against a 2018 baseline, through the purchase of renewable energy contracts across our operations in the UK and continental Europe. We are procuring 74% of our operational electricity needs from renewable energy and are on track to hit our interim RE100 target of 90% by 2021. **Evolving our approach** We are continually evolving our approach to climate-related issues, to ensure that our strategy is robust and resilient in an ever-changing environment. Particularly in relation to the alignment of our financing with the Paris Agreement, we will continue to engage with our peers, through established and emerging industry groups, to evolve our own approach and work towards standardisation across the industry. BlueTrack™ will ultimately extend to cover our entire financing portfolio, and we expect to include additional Industrial and Manufacturing or Transport sub-sectors over the coming years. --- # Risk management The processes used by Barclays to identify, assess and manage climate-related risks. --- # Risk management continued ### Enterprise Risk Management Framework The ERMF sets the strategic approach for risk management across the firm by defining standards, objectives and responsibilities for all areas of the Group. | | Enterprise Risk Management Framework (ERMF) | | --- | --- | | | **Climate Change Standard** | **Climate Change Financial Risk and Operational Risk Policy** | | | Reputation risk | Credit risk, Market risk, Treasury and capital risk, Operational risk | | **Responsibilities** | - Outline minimum requirements and controls for Reputation risk management relating to client relationships or transactions. - Outline the expected business behaviours in relation to these issues. - Outline the approach to enhanced due diligence. | - Review individual obligors’ exposure using Climate Change Lens. - Consider climate change risk appetite in relevant countries and portfolios. - Include in ICAAP. - Oversight by Retail and Wholesale Risk Management Committees, and Board Risk Committee. | - Assess and identify all risk factors affecting climate change risk. - Apply stress scenarios, assess stress losses and set risk limits. - Include in ICAAP. - Oversight by Market Risk Committee and Board Risk Committee. | - Identify exposure to climate change risks. - Consider key indicators and limits to support risk management. - Include in ICAAP and ILAAP. - Oversight by Treasury and Capital Risk Committee and Board Risk Committee. | - Integrate climate change across different risk categories e.g. Resilience and Premises. - Include climate change within risk assessment processes including Strategic Risk Assessment. | | **Ownership** | Global Head of Sustainability and ESG | Principal Risk Delegate | Principal Risk Delegate | Principal Risk Delegate | Principal Risk Delegate | --- # Risk management continued ### Climate-related risks We broadly categorise climate risks into one of the following – transition risk, physical risk and connected risk. * **Transition risk**: Transition to a lower-carbon economy will involve significant rapid policy, regulatory and legal changes, as evolving technology and markets adapt to a changing climate and associated impacts. * **Physical risk**: Physical risks resulting from a changing climate can be event-driven (acute risks), including increased severity of extreme weather events such as cyclones, hurricanes and flood. Long-term shifts in climate patterns (chronic risks) arise from sustained higher temperatures. * **Connected risk**: Connected risk is the second-order risks arising from physical or transition risk impacts. ### Examples of climate transition risks * **Regulatory risk**: Rapid policy or regulatory changes (e.g. carbon taxes, tightening of energy efficiency standards) could lead to increased credit risk of clients and counterparties. * **Technology risk**: New evolving and disruptive technologies could lead to substantial and rapid changes in costs of production and operation, competitiveness, supply and demand in certain sectors. * **Legal risk**: Clients could face potential litigation as a result of the environmental impact of their business activities. ### Examples of climate physical risks * **Acute physical risk (event-driven)**: These will impact on credit and market risk associated with counterparties and clients. Acute physical events are already happening in the short term but will likely continue to occur and become more widespread. * **Chronic physical risk (shifts)**: These risks could impact on entire sectors and geographic regions that the bank supports, as well as potentially impacting on the bank’s own infrastructure. --- # Risk management continued ### Climate Change Financial and Operational Risk (CCFOR) Policy The policy was introduced in 2019 addressing climate change as an overarching risk impacting Credit, Market, Treasury and capital, and Operational risks. | Climate-related risk management process | Credit risk | Market risk | Treasury and capital risk | Operational risk | | --- | --- | --- | --- | --- | | Frequency of assessment | Annual | Quarterly | Annual | Annual | | Time horizons covered | S,M,L | S,M,L | S,M | S,M | | Description | The risk of loss to the Group from the failure of clients, customers or counterparties to fully honour their obligations. | The risk of loss arising from potential adverse changes in the value of the Group’s assets and liabilities from fluctuation in market variables. | Treasury and capital risks are impacted by climate-related risks, primarily in a second order manner. | The risk of loss to the Group from inadequate or failed processes or systems, human factors or external events. | --- # Risk management continued ### Credit risk We start risk identification by highlighting sectors particularly susceptible to climate change risk. These are broadly divided into three categories: elevated, moderate and low risk. ### Elevated risk sector rationale * **Airlines / Airports**: More stringent air emission and carbon regulations, requiring high levels of capital investment and R&D expenditure. * **Automobile manufacturers**: Policy pressure to cut emissions to meet regional emission requirements, requiring high levels of capital investment and R&D expenditure. * **Building materials**: Policy pressure to cut emissions, in particular, for cement producers. * **Coal mining and supporting infrastructure**: Reduction in demand of thermal coal, as utilities transition away from fossil fuel. * **Commodity chemicals**: Increasing environmental regulation, including carbon regulations. * **Mining and metals, excluding coal**: Rising costs as a result of tighter environmental regulations and increasing water stress. * **Oil & Gas (Extraction, Midstream Energy, Oilfield Services, Refining and Marketing)**: Policy pressure to cut emissions, exposure to carbon taxes and overall increasing environmental regulation of operations and restrictions on access to new resources. * **Power Utilities**: Policy pressure to cut emissions, leading to increased capital expenditure costs, plus potential exposure to carbon taxes. * **Protein and Agriculture**: Shifts in environmental regulations may raise costs of production for animal protein. * **Shipping**: Policy pressure to cut emissions, requiring higher levels of capital investment. * **Steel**: Being an energy-intensive sector, the sector is exposed to the policy pressure to cut emissions and evolving air pollution regulation. * **Surface transportation and logistics**: Policy pressure to cut emissions, requiring higher levels of capital investment. --- # Risk management continued ### Credit Climate Lens sample questions | Risk | Focus area | Sample question | | --- | --- | --- | | Physical | Acute: Frequency and intensity of extreme weather events | What is the exposure of operations and supporting assets to direct damage from extreme weather events? | | Physical | Reducing availability of financial protection/insurance | What is the severity of the potential lack of insurance covering business interruptions caused by extreme weather events? | | Transition | Regulatory, policy and supervisory change | Does the company have an adaptation plan in place? | | Transition | Technology change | What is the likelihood of accelerating contingent liabilities, with alternative technologies displacing existing operations and supporting assets? | **Managing risk** On an annual basis, where an overall Credit Climate Lens rating for a client is assessed as Medium or High, the client details are referred to the Environmental Risk Team (ERT). This dedicated team within the Enterprise Risk Management (ERM) function, conducts enhanced due diligence (EDD). **Portfolio and Mandate & Scale** In 2020 we have integrated environmental and climate change risks into Mandate & Scale annual credit portfolio reviews for elevated risk sectors. Mandate & Scale Exposure Controls are a portfolio risk management tool and form part of the overall Risk Appetite control framework to review and control business activities. --- # Risk management continued ### Market risk Climate change may lead to Market risk through a disorderly transition to a low-carbon economy or via physical climate events and shifts in supply and demand for financial instruments, which may then impact market prices for susceptible sectors or countries. | Asset class | Physical risk | Transition risk | | --- | --- | --- | | Traded credit, Securitised products, Equities, Macro (FX, rates, commodities) | Countries most susceptible to climate changes | Sectors reliant on stable weather conditions and power/water supply. Financial protection – insurance against weather events | Carbon-intensive sectors (primary producers, consumers, supply chain). Additional cost to meet new regulatory requirements, carbon taxes, green energy subsidies. | | Event-based scenario | Narrative | Climate risk | | --- | --- | --- | | 1 Severe climate events in Europe and the UK | Wettest autumn with severe and widespread flooding. Europe and UK see early and record snowfall. | Physical | | 2 Severe climate events in the US | Historically late and severe autumn hurricanes and flooding. The northeast coast of US hit by repeated snow storms. | Physical | | 3 Severe climate events in India | India experiences simultaneous severe weather conditions. Government responds with sizeable fiscal package. | Physical | | 4 Disorderly introduction of carbon tax | Europe, UK and US introduce sudden and extreme carbon tax. Energy companies pass tax on to consumers. | Transition | --- # Risk management continued ### Treasury and capital risk Treasury and capital risks are impacted by climate-related risks, primarily in a second order manner, and include liquidity risk, capital risk and interest rate risk in the banking book. **Analysis to date highlights the following:** * **Capital risk**: Barclays’ capital position is indirectly subject to climate risk through Group-wide exposures across all risk types. * **Liquidity risk**: The 2020 Internal Liquidity Adequacy Assessment Process (ILAAP) outlines the potential funding and liquidity risks that may arise as a result of certain physical risks such as extreme weather events, or transition risks. * **Interest rate risk in the banking book and Pension risk**: * Fair value positions such as those within the Liquid Asset Buffer are exposed to general market conditions which could deteriorate under longer term climate stress. * Pension exposures are subject to climate stresses impacting market conditions. * Principal Investments (PI) – equity positions held by Barclays – are most likely to be impacted by stresses to energy markets and carbon transition changes. --- # Risk management continued ### Operational risk Barclays is exposed to climate change risks in its operations, either directly or via the operations of its suppliers. This exposure is predominantly related to physical risk such as extreme weather events (e.g. cyclones, hurricanes and floods), along with longer-term changes in weather patterns (e.g. increased mean temperatures, sea levels, changing rain patterns, water stress/scarcity or drought conditions). ### Position statements on sensitive sectors | Climate change | Forestry and agricultural commodities | | --- | --- | | - Coal mining | - Forestry, pulp and paper | | - Coal power | - Palm oil | | - Oil sands | - Soy | | - Fracking | | | - Arctic oil and gas | | --- # Risk management continued ### Enhanced due diligence Barclays’ front-office business teams are responsible for identifying client relationships and transactions that may present significant environmental and social risks. Where significant environmental and social risks are identified, or the client or transaction is in scope of our statements and standards, this will be referred to the Group Sustainability team to conduct enhanced due diligence. ### Equator Principles For project-related finance, we apply our Environmental Risk Standard which implements the Equator Principles and relevant IFC Performance Standards. Barclays was one of four banks which collaborated in developing the Principles, ahead of their launch in 2003. ### Deforestation and soft commodities Barclays recognises that deforestation is a critical environmental issue, and a key driver of climate change and biodiversity loss. We are committed to supporting clients that promote sustainable forestry and agribusiness practices, and are a signatory to the New York Forest Declaration of the United Nations. In recognition of the deforestation impacts of soy production in South America, during 2020 we expanded the scope of our Statement and enhanced due diligence approach to include clients involved in the production and primary processing of soy in this region. --- # Scenario analysis --- # Scenario analysis Scenario analysis is an important tool in assessing the future implications of potential climate change pathways on an organisation. It forms a key part of the TCFD’s recommendation on strategy, guiding organisations to assess their resilience to climate-related issues under a range of uncertainties and future states. ### Scenarios In June 2020, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) published its first iteration of climate scenarios. The three representative scenarios cover ‘Orderly’, ‘Disorderly’ and ‘Hot house world’, exploring key dimensions of climate risk and developed to provide a common starting point for analysing climate risks. ```mermaid quadrantChart title NGFS climate scenarios x-axis Physical risks y-axis Transition risks quadrant-1 Disorderly quadrant-2 Too little, too late quadrant-3 Orderly quadrant-4 Hot house world ``` * **Orderly**: We start reducing emissions now in a measured way to meet climate goals. * **Disorderly**: Sudden and unanticipated response is disruptive but sufficient enough to meet climate goals. * **Hot house world**: We continue to increase emissions, doing very little, if anything, to avert the physical risks. * **Too little, too late**: We don’t do enough to meet climate goals, the presence of physical risks spurs a disorderly transition. --- # Scenario analysis continued ### Key variables in the NGFS Disorderly and Hot house world scenarios The NGFS Disorderly scenario assumes climate policies are not introduced until 2030. Since actions are taken relatively late and limited by available technologies, in order to limit warming to below 2°C emissions reductions need to decline sharply resulting in high transition risk. In the NGFS Hot house world scenario, only currently implemented policies are preserved, resulting in emissions still growing by 2050. This scenario would result in severe physical risks, with an estimated median temperature rise of over 2°C by 2050. ### Carbon price A key assumption of the NGFS carbon price is the timing of policy action. This has a significant impact on the emissions price level that is required to achieve a given temperature target and the Disorderly scenario is subject to a rapid rise in carbon pricing between 2030 and 2050. ### Climate stress test methodology Approach Barclays’ approach for the climate stress test aligns to the proposals set out in the Bank of England’s Discussion Paper published in December 2019, on the Climate Biennial Exploratory Scenario. This includes assessments at five-yearly intervals, focusing on credit risk, traded market risk and non-traded market risk and based on a static balance sheet assumption with a cut-off date as at 30 June 2020. --- # Scenario analysis continued ### Corporates Climate risks in certain corporate sectors are judged elevated, while others are of moderate or low risk. We used a ‘tiered’ approach to stress our corporate exposures, utilising tools and subject matter expert analysis appropriate for the climate risk ‘tier’ under review. ### Corporate earnings and leverage model | Tier | Overview | | --- | --- | | **Material exposures** | Credit committee to review sample of material elevated exposures | | **Elevated risk sectors: high or medium-risk counterparties** | Elevated risk counterparties in elevated risk sectors subject to EBITDA methodology | | **Elevated risk sectors: low-risk counterparties** | Low-risk counterparties in elevated risk sectors considered ‘minimal risk’, evaluated with Climate Lens | | **Moderate risk sectors** | Moderate risk sectors stressed using physical and transition risk scorecards | | **Low-risk sectors** | Macroeconomic variables are applied to all counterparties, to assess the impact of connected risk | --- # Scenario analysis continued ### Households Barclays’ climate risk analysis for households included quantifying the effect of flood risk (physical risk) and changes in affordability as a result of certain transition policy actions (transition risk). **Governments (sovereigns)** We identified a set of risk factors to assess the potential impact of climate change on government credit ratings. Five Transition Risk factors were identified, alongside five Physical Risk factors and three Economic & Fiscal Strength factors. **Results of Disorderly stress test** The Disorderly stress test resulted in ‘transition impacts’, particularly in corporate and government portfolios, and indirect ‘connected’ macroeconomic impacts, primarily in retail portfolios. The peak losses were observed during the initial period of disorderly transition, 2031-2035, as a number of corporates more exposed to carbon taxes defaulted. **Hot house world stress test** The ‘Hot house world’ scenario stress test has been run as a sensitivity to the ‘Disorderly’ scenario stress test, assuming a more severe physical risk stress. It is designed to test Barclays’ vulnerabilities to more physical risk under the assumption the world reaches 2 degrees of warming by 2045-2050. --- # Metrics and targets The metrics and targets used to assess and manage relevant climate-related risks and opportunities. --- # Metrics and targets continued ### Targets In our 2019 ESG Report we committed to reduce the carbon emissions arising from activities financed by us, initially in the Energy and Power sectors. In November 2020, we provided an update to the market and introduced BlueTrack™, our methodology for measuring our financed emissions. ### Portfolio alignment targets Our carbon emissions model – BlueTrack™ – was developed to support Barclays’ portfolio transition in line with the Paris Agreement. It’s also helping us to embed climate impact in our financing decisions. At the highest level, the model uses the 2018 IEA Sustainable Development Scenario (OECD) to establish a set of benchmarks that define how the emissions embodied by the Group’s various financing portfolios will need to change over time to be aligned with the Paris Agreement. --- # Metrics and targets continued **Green financing** Our green financing commitment target is £100bn by 2030. **Our own operations** Our renewable electricity target is 100% by 2030. --- # Metrics and targets continued ### Metrics **Elevated risk sectors - Credit exposures** Barclays is committed to understanding the risks associated with sectors sensitive to the impacts from climate change. The following sectors represent those that the Group considers at an elevated risk from the impacts of climate change. | | Total 2019 £m | Total 2020 £m | YoY % change | | --- | --- | --- | --- | | Airlines | 1,381 | 1,339 | -3% | | Airports | 546 | 661 | 21% | | Automobile manufacturers | 2,971 | 3,649 | 23% | | Building materials | 1,141 | 1,194 | 5% | | Coal mining and supporting infrastructure | 40 | 28 | -28% | | Commodity chemicals | 1,882 | 2,005 | 7% | | Mining and metals, excluding coal | 2,071 | 2,065 | 0% | | Oil & Gas – Extraction | 7,308 | 7,414 | 1% | | Oil & Gas – Midstream Energy | 3,616 | 3,223 | -11% | | Oil & Gas – Oilfield Services | 2,480 | 2,100 | -15% | | Oil & Gas – Refining and Marketing | 2,774 | 2,821 | 2% | | Power Utilities | 10,319 | 9,911 | -4% | | Protein and Agriculture | 5,298 | 5,453 | 3% | | Shipping | 715 | 683 | -4% | | Steel | 471 | 502 | 7% | | Surface transportation and logistics | 657 | 689 | 5% | | **Total** | **43,670** | **43,737** | **0%** | --- # Metrics and targets continued ### Credit risk concentration by elevated risk sector (2020) | As at 31 December 2020 | Manufacturing £m | Energy and water £m | Wholesale and retail distribution and leisure £m | Other £m | Total £m | | --- | --- | --- | --- | --- | --- | | **Group total** | 47,780 | 30,502 | 29,734 | 34,508 | 142,524 | | **Identified as elevated climate risk sectors** | 9,558 | 21,084 | 1,251 | 11,844 | 43,737 | --- # Metrics and targets continued ### Carbon-related assets To align with the recommendation of the TCFD, we also disclose concentrations of credit exposure to carbon-related assets. | As at 31 December 2020 | Energy £m | Utilities £m | Total carbon-related assets £m | | --- | --- | --- | --- | | **Total** | 15,585 | 10,067 | 25,652 | | **% of total loans and advances and loan commitments** | | | 4% | --- # Metrics and targets continued ### Financing (capital markets) To facilitate greater understanding and transparency of our capital markets financing, in 2019 we disclosed the total capital raised for clients across all sectors using data sourced from Dealogic. | Carbon-related energy and extractive sectors | 2019 $m | 2020 $m | 2019 v 2020 % difference | | --- | --- | --- | --- | | Mining (General) Total | 1,137 | 1,494 | 31.4% | | Oil & Gas Total | 20,749 | 20,982 | 1.1% | | Utility & Energy Total | 32,835 | 21,976 | -33.1% | | **Grand Total** | 54,721 | 44,452 | -18.8% | | **Total of all industries** | 466,561 | 504,030 | 8.0% | --- # Notes The terms ‘Barclays’ or ‘Group’ refer to Barclays PLC together with its subsidiaries. ### Important Notice – Basis of Preparation The reader should be aware that this report and the information contained within it, is prepared on the following basis: i. The preparation of this report requires the application of a number of key judgements and also requires assumptions and estimates to be made. ii. Reported numbers reflect best estimates and judgements at the given point in time. iii. This report uses models, external data and other sources/methodologies. iv. The outputs of these models can be materially affected by the quality of the underlying data used. v. In general, the quality of the data relied upon in ESG reporting is often not yet of the same standard as more traditional financial reporting. vi. ESG reporting across the industry as a whole is not yet subject to the same accounting rigour. vii. This report and the information contained within it is unaudited. viii. Further development of accounting and/or reporting standards could materially impact the performance metrics. ix. As standards and practices continue to evolve, it may mean subsequent reports do not allow a reader to compare performance metrics directly. ### Forward-looking statements This report contains certain forward-looking statements with respect to the Group. Barclays cautions readers that no forward-looking statement is a guarantee of future performance and that actual results or other financial condition or performance measures could differ materially from those contained in the forward-looking statements. Subject to our obligations under the applicable laws and regulations of any relevant jurisdiction, we undertake no obligation to update publicly or revise any forward-looking statements.