Update on Barclays’ ambition to be a net zero bank by 2050
I am writing to you as promised to update you on our strategy and targets to help address the climate challenge.
We are very grateful for the overwhelming support which you gave Barclays earlier this year when we adopted an ambition to become net zero by 2050 and a commitment to align all our financing activities with the goals of the Paris Agreement.
This letter now sets out the work that we have been undertaking in the intervening six months as well as being clear about the work that still needs to be done. The journey is far from complete – and the challenges in the current pandemic have not made it easy to progress the work beyond what we indicated in March – but we have made progress and are committed to continuous improvement in our response to the climate challenge.
Targets, data and measurement
Earlier this year we consulted extensively with stakeholders and specialists in order to establish the best means for measuring the emissions of our clients that are linked to financing we provide – what we call ‘linked emissions’ – as well as aligning our financing portfolio to the goals of the Paris Agreement.
Our preferred approach uses both emissions intensity and absolute emissions measures, which each have their place in tracking the journey to net zero. The most appropriate choice depends on the nature of the portfolio being measured, and how far its carbon intensity has already reduced. Generally speaking, we believe that most portfolios will be best measured primarily using an intensity measure – emissions per unit of output – at least in the earlier stages of decarbonisation. As the linked emissions of a portfolio reduce, we will also start to track an absolute measure, which will of course lead towards net zero.
We have continued to engage with a number of industry initiatives in this area, including the Two Degrees Investing Initiative’s Paris Agreement Capital Transition Assessment (PACTA), as well as with the Partnership for Carbon Accounting Financials (PCAF). We are also a member of the ‘Financing a Just Transition Alliance’ led by the Grantham Research Institute at the LSE. This engagement has informed our own work and we are now comfortable with the detail of the methodology we have developed to measure the absolute emissions and/or emissions intensity of different types of financing activity, although this is likely to continue to evolve and be further refined over time.
We have also worked out how we will account for the underwriting of equity and debt securities, which generally leave Barclays with no residual exposure but where we need to acknowledge that we will have played a role in financing emissions. In respect of underwriting we will take a proportion, generally one third, of the emissions linked to Barclays’ financing ‘against’ our own targets.
In the same spirit of trying to capture all meaningful activities here, we should stress that 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. We would like to emphasise that our methodology considers the maximum amount a company could borrow under the facility, rather than just the drawn amount.
We also said, back in March, that we would aim to adopt a strategy to align our financing in all sectors to the goals of the Paris Agreement. Our work over the last six months has confirmed our early thinking, and we will continue to use the International Energy Agency’s Sustainable Development Scenario as the benchmark for our Energy and Power portfolios. Our Energy portfolio should continue to track the benchmark from now onwards, and we will achieve full alignment in our Power portfolio by 2035.
This means that we are now able to confirm that we are on track to reduce by 30% the CO2 intensity of our Power portfolio by 2025.
For the Energy sector we have developed our thinking further and will now target a 15% reduction in absolute emissions by 2025, rather than in CO2 intensity. This reflects the fact that the Energy sector cannot so easily reduce its emissions intensity (you cannot de-carbonise a barrel of oil), and our Energy portfolio has already reduced in intensity, such that only 2% of the fuel mix is now represented by coal.
We are publishing today a new climate dashboard which will track progress against those targets1 As promised, this is available online together with more detailed information about the workings of our methodology, and its data sources, at home.barclays/netzero. We are committed to further enhancement and refinement of our methodology, including data capture, over time.
Continuing this work across Barclays
Whilst Power and Energy are responsible for up to three quarters of all emissions globally, and therefore we have made a big start, there is clearly more to do. 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. This means that, over the coming year, we will extend the coverage of our methodology to include a couple of Industry & Manufacturing sub-sectors. In some sectors, such as Aviation, these criteria for extension are not yet sufficiently fulfilled and so inclusion in our approach is likely to come later.
The totality of this work should enable us to set a decreasing ‘carbon limit’ for emissions linked to financing we provide to clients across every sector.
Our climate dashboard will be refreshed and expanded in line with our annual ESG reporting. We would like to see greater adoption of common measures across the industry, and will continue to work closely with our peers and industry groups to achieve that.
The next update, in the first quarter of 2021, will include more information about how Barclays is supporting clients through their transition with green financing and capital markets solutions.
Working with clients and our internal organisation
We have stressed that our approach is to focus on the transition to a low-carbon economy and specifically to work with clients to so do.
We have reorganised our Banking teams in one new multi-disciplinary Energy Banking group, which combines expertise in Power and Utilities, Natural Resources and Sustainable and Impact banking. Organised like this, transition is an opportunity for our bankers rather than a threat to well-established businesses within the Bank. We believe our net zero ambition and Paris alignment commitment represent the best way for Barclays to help accelerate that transition to a low-carbon economy, across all sectors, by harnessing the breadth and depth of our capital markets franchise to support financing needed to build a greener future. There may be companies or particular activities which cannot adjust to transition over time, for instance Oil sands companies which do not have a plan to reduce their emissions intensity to the level of the median global oil producer by the end of the decade; and in such cases we believe that they will find it increasingly difficult to access the capital markets for financing, including from Barclays.
In addition, as organisations and investors seek to understand the climate challenge and how they should respond, our Research teams are providing the expertise and insights to help navigate the green transition.
We are now embedding our ‘carbon limit’ operationally in financing decisions for our Energy and Power portfolios. This includes those areas where, in line with our decreasing ‘carbon limit’, we will necessarily reduce financing. Where specific sub-sectors risk environmental damage in addition to their effect on the climate – for example, Oil Sands and Arctic drilling – Barclays has implemented a set of exclusion policies, updated in April 2020, which became effective at the end of October following completion of our internal governance processes.
We are of course quite reliant on clients having the data to enable us to assess with full accuracy their emissions and their plans for Paris alignment. This work continues, not least so that we may improve the accuracy of our methodology and modelling. As more data becomes available, and the accuracy of our emissions assessments increases, we will update our approach accordingly.
We have laid out a commitment to a much greater degree of so-called green financing. Our green financing in the first half of 2020 was nearly as much as for the whole of 2019. Definitions of green financing are perhaps not always as strong as they could be. One of our tasks for the future is to work with our peers on a common definition. We think that the drive to a cleaner world would be facilitated by more rigorous definitions in this area. Our Sustainable Finance Framework sets out our approach to classifying financing as sustainable, and references industry guidelines and principles. We welcome and encourage greater global harmonisation in the way this financing is defined, supported by improved data availability and company disclosures, and will be working with other financial institutionals towards this goal.
Finally, we have made our climate challenge response a key responsibility of a new role on Barclays’ Executive Committee. Sasha Wiggins, Group Head of Public Policy and Corporate Responsibility, will guide the evolution of our approach, including the detailed work required to extend coverage to other sectors in Barclays’ financing portfolio and to update our methodology over time to track new benchmark scenarios as they are developed. We have also appointed a Group Head of Climate Risk.
The extra detail and targets we are sharing today are another step towards achieving our net zero ambition, and make it easier for you to hold us accountable. In aligning our portfolio to the goals of the Paris Agreement, and through real progress towards our green financing commitment, we hope we are already making a contribution to the transition.
Group Chairman, Barclays PLC
1 From a baseline of 12 months to 31 December 2020. Final baseline data will be available early in 2021. Indicative baseline data as at 30 June 2020: Power emissions intensity – 314 KgCO2/MWh; Energy absolute emissions – 80.4 MtCO2. The metrics used in the BlueTrack™ methodology are an evolution of initial work conducted earlier in 2020.