Why net zero?
The science on climate change is settled: to avoid the most catastrophic effects of global warming, the world must hold the increase in global average temperatures to well below 2°C compared with pre-industrial levels. The 2015 Paris Agreement commits to that goal, and to pursuing actions to keep the temperature increase below 1.5°C.
Limiting warming to well below 2°C means the world has a cumulative carbon budget of around 1,400 GtCO21 . Remaining within that carbon budget requires emissions to peak as soon as possible, and to be net zero in the second half of this century.
If the transition to a low-carbon economy happens too slowly, climate change could have devastating effects on our planet. If the transition is disorderly, there could be very real social and economic costs for families and businesses around the world – from unemployment and financial hardship, to insufficient food and fuel to meet their daily needs. We must weigh and balance those risks, and maximise our contribution to the climate challenge.
Like any organisation, we can limit our own emissions from things like heating and lighting our buildings, and the journeys made by our people. This is why part of our climate strategy is to achieve net zero operations. We are also working to reduce our financed emissions, i.e. the emissions that result from the client activity we finance.
But banks, and especially those with a large capital markets business, are also in a unique position within society to help accelerate the transition. The world will require trillions of pounds of investment to enable it to switch to a low-carbon economy, and the primary source of that investment will be financing arranged by banks like us: either through loans or from the capital markets.
That might mean working with today’s energy companies to help them change their business from fossil fuels to renewables, as some of our energy clients have already begun to do. Or it might mean working with tomorrow’s entrepreneurs to help them build the tools that will make negative emissions technologies possible at huge scale.
As one of the world’s largest banks, with a significant capital markets franchise, Barclays can make a real difference in helping to accelerate the transition.
There is broad support for banks to take on this role. Seventy-five of the world’s central banks and financial regulators have joined together to form the Network for Greening the Financial System, which seeks to mobilise mainstream finance to support the transition toward a sustainable economy. And Barclays is amongst the 197 banks to have signed the UNEP Finance Initiative’s Principles for Responsible Banking, which calls for banks to align their business activities to the Paris Agreement.
Net zero guiding principles
Our journey to becoming a net zero bank by 2050 will be guided by six principles.
1. Transparent disclosure
From today, we will publicly track our progress in aligning our financed emissions with the Paris Agreement, starting with Energy, Power, Cement and Steel. As we get closer to 2050, we will also measure and disclose our gap-to-net-zero in absolute terms.
2. Working with clients to accelerate the transition
We will work with our clients to help facilitate their own transition to a low-carbon economy wherever possible. 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, including through Barclays.
3. Evolving our approach
Our approach to becoming a net zero bank will evolve over time, as the world around us changes. For example, our sector reference pathways will be updated as the world diverges from a given reference scenario, or as the decarbonisation pathways for currently hard-to-abate sectors become clearer.
4. Recognising the commercial opportunity
The transition to a low-carbon economy is today’s defining opportunity for innovation and growth. There is a significant opportunity for Barclays to play a leading role in helping to meet the demand for climate change related financing to support the transition.
5. Supporting negative emissions technologies
We will take steps in the short, medium, and long term to facilitate the development of negative emissions technology and markets. This could include investing in early-stage innovation and research in the near term, providing capex lending to project development in the medium term, and helping to sell generated credits on voluntary markets in the long term.
6. We expect to need negative emissions technologies to offset any residual gap-to-net-zero
We expect to use some level of negative emissions to offset any residual gap-to-net-zero, although our approach is principally focused on emissions reduction.
Our approach to Paris-alignment
There is no commonly accepted or widely used approach to aligning the portfolio of a bank like Barclays to the Paris Agreement.
To deliver on our commitment to align all of our financing to the Paris Agreement, including our capital markets activity, it was necessary to create a methodology that builds on and extends existing industry approaches. This better reflects the breadth of our support for clients through our investment bank.
We’ve decided which financial services to include by looking at the level of emissions that our provision of financial services enables, the availability of data to track those emissions, and our ability to influence them.
That leads us to an approach that includes all corporate lending, debt and equity capital markets activity, and will, over time, also include mortgage lending. These services comprise the bulk of our lending and financing activity by both volume and revenue.
We are not currently including in our approach services that do not lead to material emissions (e.g. research), or which do in theory but we cannot influence or measure their emissions impact. A good example of this second type of activity is credit card lending, where we cannot easily account for or directly affect what consumers choose to buy with their credit card.
The Greenhouse Gas (GHG) Protocol provides comprehensive global frameworks to measure and manage greenhouse gas emissions, across what are known as three ‘scopes’.
- Scope 1 emissions are those that result from an organisation’s immediate operations.
- Scope 2 emissions are those that result from the electricity and heating purchased by an organisation.
- Scope 3 emissions are those that result from an organisation’s value chain – the emissions from other organisations that produce its inputs or consume its outputs. Scope 3 emissions for a bank are the emissions of the client activity it finances – so-called ‘financed emissions’.
Barclays’ own operational emissions (Scope 1 and 2) represent an incredibly small proportion of our overall emissions, with the vast majority coming from our financed emissions (Scope 3).
Find out more about how we’re aligning our financing to the goals of the Paris Agreement using our BlueTrack™ methodology.
Managing the transition in sensitive sectors
The earth’s atmosphere does not differentiate between different sources of carbon dioxide. What matters is limiting carbon dioxide emissions in aggregate, not just emissions from any given source.
Our ‘carbon limit’ approach does this. It gives the flexibility to retain a combination of the cheapest and least emissive fossil fuel sources as long as needed to balance the social and economic consequences of transition, while transitioning more quickly away from the most expensive and most emissive fossil fuel sources.
Where specific sub-sectors risk environmental damage in addition to their effect on the climate – for example, Oil Sands and Arctic drilling – we have already implemented a set of restrictive policies.
Find out more
1 IPCC, 2018: Global warming of 1.5°C. [V. Masson-Delmotte, P. Zhai, H. O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J. B. R. Matthews, Y. Chen, X. Zhou, M. I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, T. Waterfield (eds.)]. In Press.