-

Introducing BlueTrack™

BlueTrack™ is Barclays’ methodology for measuring our financed emissions, and tracking them at a portfolio level against the goals of the Paris Agreement.  It is also helping us to embed climate impact in our financing decisions.

The methodology builds on and extends existing industry approaches to cover not only lending but also capital markets financing.  This better reflects the breadth of our support for clients through our investment bank. 

We are actively involved in industry-wide initiatives to build consensus on carbon accounting and portfolio alignment, including through our work on the Paris Agreement Capital Transition Assessment (PACTA), and our membership of the Partnership for Carbon Accounting Financials (PCAF).

BlueTrack™ will be updated over time to track newer benchmark scenarios as they are developed. 

The first sectors to be covered by BlueTrack™ are Energy and Power; these two sectors are responsible for up to three quarters of all emissions globally.  Detailed work to extend coverage to other sectors in Barclays’ financing portfolio is already underway, and we expect to include a couple of additional Industry & Manufacturing sub-sectors over the coming year.

Find out more about our approach to net zero

How BlueTrack™ works

The BlueTrack™ methodology starts by selecting an appropriate benchmark for a sector, which defines how financed emissions for a portfolio need to change over time in line with the goals of the Paris Agreement.

We then determine how our actual sector portfolios are performing against these benchmarks: by measuring the emissions that our clients produce, determining how those emissions should be linked to the financing we provide, and then aggregating those measurements into a portfolio-level metric. 

This portfolio-level metric is then compared to the benchmark, and ultimately published on our climate dashboard.

Find out more about each stage of BlueTrack™

  • Selecting a benchmark

    BlueTrack™ starts by selecting an appropriate Paris-aligned climate scenario for each sector: an independent, third-party model of future global emissions from that sector.  We extract the relevant time series information from that scenario to make a portfolio benchmark, which provides a limit for emissions each year.

    What metrics are used as benchmarks for each sector, and why?

    BlueTrack™ uses both an absolute emissions metric, and an emissions intensity metric:

    • An absolute emissions metric is simply a measurement of the total quantity of greenhouse gasses emitted over time. For example, if a company emits 10 tonnes of carbon dioxide this year, its absolute emissions measurement would be 10 tonnes.
    • An emissions intensity metric is a measurement of the quantity of greenhouse gasses emitted per unit of output.  If the same example company produced 10 units of electricity this year, its emissions intensity would be 1 tonne CO2/unit of electricity.

    The most appropriate choice of metric for each sector depends on the nature of the portfolio being measured, and how far its emissions have already reduced. 

    Generally speaking, we believe that most portfolios will be best measured primarily using emissions intensity, at least in the earlier stages of de-carbonisation.  This encourages transition to lower emitting fuel sources.  Emissions intensity measures are also less affected by volatility, which can change the calculation of absolute emissions.

    The Power sector, which is responsible for generating the world’s supply of electricity, is best measured initially using an intensity metric.

    As a portfolio de-carbonises, we will also start to track its absolute emissions, which will enable us to reduce any residual financed emissions to net zero.

    An exception to our general measurement approach is the Energy sector, which is responsible for extracting fossil fuels from the earth – mainly coal, oil and gas.   It is different because it cannot reduce its emissions intensity below a certain point (a barrel of oil cannot be de-carbonised), and so a reduction in absolute emissions is the more appropriate measure.

    What scenario is used for benchmark construction, and why?

    We have derived Paris-aligned benchmarks for both the Energy and Power sectors using the International Energy Agency’s Sustainable Development Scenario (SDS), as set out in the 2019 World Energy Outlook.  The scenario is developed by a reputable external provider, and is aligned with the Paris Agreement goals.  Also, in contrast to some other scenarios, it offers a sufficiently high-resolution dataset to meet our needs.

    The absolute emissions benchmark for our Energy portfolio is taken from the SDS scenario’s OECD fossil fuel production forecasts, which we believe most accurately reflect the geographic range of our client base.

    For our Power portfolio, we believe the SDS electricity production pathway for the OECD is the most appropriate benchmark.  The intensity of the SDS pathway is derived by dividing electricity total emissions by electricity production.

    In order to remain consistent with the IEA SDS benchmarks, metrics for our Energy and Power portfolios will be calculated as CO2 only, disregarding other climate pollutants like methane and nitrous oxide.

  • Measuring client emissions

    Measuring the emissions produced by the clients we finance starts by setting boundaries to define the emissions for which a given company is responsible.  We then capture and process data from a variety of internal and external sources to quantify those emissions.

    What scope of emissions is included, and why?

    For the Energy sector, all emissions related to fossil fuel extraction and use (Scope 1, 2, and 3 under the Greenhouse Gas Protocol) are attributed to the extracting company: not just the direct and indirect emissions from their own operations (Scope 1 and 2), but also the emissions associated with combustion of the fuel extracted (Scope 3).

    This is a key design choice, as most of the emissions related to a given unit of fossil fuel are actually released into the atmosphere during combustion – for example by driving a car.  We have done this to recognise that both producers and consumers of fossil fuels share responsibility for reducing their emissions.  Scope 3 accounting is a topic under discussion across the industry, and we expect our approach to evolve as a consensus develops.

    For the Power sector, we attribute to each company the emissions that result from combustion of fossil fuels to produce electricity (Scope 1). We do not consider the Scope 2 emissions of the sector, as they are marginal in the context of electricity production.  Scope 3 emissions for the Power and Utilities sector generally comprise the emissions that result from the combustion of natural gas provided to end-users for residential or commercial heating. These emissions have not been included in the calculation for the Power sector: they are already accounted for in Scope 3 of the Energy sector that produces the natural gas, and will also be accounted for in the Scope 1 emissions of end users as we expand the number of sectors covered by the model.

    What data is used for these calculations?

    Company-level disclosure has improved significantly in recent years, particularly driven by the Taskforce on Climate Related Financial Disclosures.  Nonetheless, we have found that the data is still not sufficiently robust overall to be used as the primary source for BlueTrack™.  Because of this, the methodology estimates company emissions by combining external fossil-fuel asset and production databases with assumptions about emissions factors and asset utilisation rates.  This is similar to the approach used by the 2Dii PACTA methodology

    Where companies do disclose emissions, and their financing is material to our portfolio, this information is integrated into BlueTrack™ as a secondary source.

    Fossil fuel extraction and electricity production capacity data used for our Energy and Power portfolios is obtained from a specialist data provider, Asset Resolution.  We combine this with additional data from MSCI and S&P Trucost.

    Data is expected to cover around 80-90% of Barclays financing as of December 2020, for both our Energy and Power portfolios.

  • Link emissions to financing

    Once we have measured a clients’ emissions, we can link them to Barclays based on the amount of financing we have provided.

    This involves defining the financing activities considered in-scope, determining how provided financing should be spread across the various business activities of diversified clients, and appropriately linking financing to the client’s emissions.

    What financing activities are considered in-scope, and why?

    All of our corporate lending activities are considered in-scope. The majority of Barclays lending is in the form of Revolving Credit Facilities, which are typically undrawn, particularly in the Investment Bank.  BlueTrack™ considers the maximum amount a company could borrow under the facility, rather than just the drawn amount.

    In addition to lending, BlueTrack™ also includes funding arranged in the capital markets.  This is a key element of our approach, and ensures that our we are properly accounting for the breadth of support we provide our clients through our capital markets franchise.

    When considering capital markets financing, we use the amount arranged over the past 12 months (pro-rated if there were several banks in the syndicate).  Barclays is allocated 33% of these transactions, with the remaining proportion allocated to investors.

    How is provided financing linked to company-level emission metrics?

    Once company-level emissions metrics are calculated, those metrics must be linked to the financing we provide.

    For companies in sectors that use an intensity metric, such as Power, the emissions intensity for that company will simply be assigned to our financing (scaled based on share of revenue the company derives from electricity generation), which can then be aggregated to a portfolio level.

    For companies in the Energy sector, which uses an absolute emissions metric, linking financing to emissions is more complex.  Our approach must determine what proportion our financing represents of a company’s total financing, so that we can assign our ‘fair share’ of that company’s absolute emissions to our portfolio.  We do this using financing provided as a proportion of book value of equity.  We are cautious about using the more traditional measurement of enterprise value, as it relies on market capitalisation, which can create volatility. 

  • Aggregate to a portfolio-level metric

    The final BlueTrack™ step is to aggregate company-level emissions measurements and financing information into portfolio-level metrics. This is either a simple or weighted sum across all clients in a portfolio, depending on whether the portfolio in question uses an absolute or emissions intensity metric. 

     

    How are client-level measurements aggregated for the Power portfolio?

    For the Power portfolio, emission intensity is calculated as a function of each company’s emissions and energy produced.

    The portfolio metric is then tabulated as an average weighted value using proportion of total portfolio financing.

    How client-level measurements are aggregated for the Energy portfolio

    How are client-level measurements aggregated for the Energy portfolio?

    For the Energy portfolio, total absolute emissions are calculated as a simple sum of Barclays ‘fair share’ of each company’s absolute emissions (see Step 3).

    How client-level measurements are aggregated for the Power portfolio

Developing BlueTrack™

BlueTrack™ is a first generation methodology. We will enhance and refine it over time, in five main areas:

 

  • Calculation granularity

    As company disclosures continue to improve, not least as a result of the TCFD guidelines, we are hopeful that this source of data will become sufficiently robust to play a much greater role in the calculation of BlueTrack™ metrics.  Among other things, this could allow us to account more easily for regional capacity factors, global carbon intensity factors by fuel type, and other GHGs.  More comprehensive data would also enhance differentiation within the model, enabling us to fully capture the distinction between fossil fuel producers with different levels of efficiency.

  • Data quality

    Climate data is an evolving topic, and data quality is not yet at the same standard as more traditional financial metrics.  The majority of the data for BlueTrack™ is collected from external sources, which requires mapping to Barclays’ internal data; this process is likely to improve over time.  More granular data would also allow a greater distinction to be drawn between different assets.

    Available data sources do not currently have 100% coverage. Whilst they tend to have strong coverage across our key markets in the US and Europe, it is less complete in non-OECD parts of the world. 

  • Forecasting

    BlueTrack™ currently calculates a spot, rather than forward-looking, metric.  Through our strong client relationships we are often aware of climate-related commitments clients have made, and we would like to reflect these in our approach.

  • Other sectors

    BlueTrack™ will ultimately cover our entire financing portfolio, and we expect to include a couple of additional Industry & Manufacturing sub-sectors over the coming year.

    We will prioritise the extension of our approach to other sectors by considering, among other things, the magnitude of emissions from a sector, the amount of business that Barclays does in it, the feasibility of emissions reduction using existing technology, and the availability of emissions data at an appropriate level of granularity. 

  • Other scenarios

    BlueTrack™ will be updated over time to track newer benchmark scenarios as they are developed. 

Find out more

Download our methodology whitepaper for a complete guide to BlueTrack™”