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Barclays underwhelms with Say on Climate plan

Barclays has today published a new climate plan, which it will put to a vote at its 2022 AGM. Here’s our response.

Barclays has today published its long-awaited climate plan, which it will put to a vote to shareholders at its 2022 AGM on 4 May.

Lydia Marsden, Senior Research Officer at ShareAction, says:

“Barclays' Say on Climate plan lacks the ambition needed to address the climate crisis. By failing to update its oil and gas policy it can continue to finance Paris misaligned activities such as oil sands and new oil and gas. Investors need to question whether Barclays’ policies and targets truly mark progress or instead enable business as usual for its clients. We call on them to vote against this plan at the bank’s 2022 May AGM.”

ShareAction has analysed the bank’s climate strategy across 4 main pillars (coal, oil and gas expansion, oil and gas policy, and targets) below. It will publish a more in-depth analysis in April.

1. Barclays’ new coal update: Too little, too late

Barclays has today committed to, amongst other things:

  • Phase out from thermal coal mining by 2030 in OECD countries and 2035 in non-OECD countries.
  • Phase out from thermal coal power by 2030 in OECD countries except the US and 2035 in non-OECD countries.
  • By 2023, exclude clients opening new thermal coal mines and/or power plants or undertaking a material expansion (defined as over 20% increase in annual tonnage or capacity) of existing thermal coal mines and/or plants), unless Barclays is satisfied the proceeds of the general corporate purpose finance will not be made available to entities engaged in these activities.
  • Not onboard new clients engaged in thermal coal mining from 2023 onwards.

Barclays’ commitment to phase out from coal and restrict financing to coal developers are welcome, as the world’s largest fourth lender to coal companies. These have historically been two topics of significant interest to ShareAction and investors. The bank has also committed to a 2035 coal phase out for non-OECD countries, which is earlier than a number of their peers.

However, several loopholes remain and the bank’s coal policy continues to lag behind leading practice. We deep dive into a few of them below:

  • Its thermal coal power phase out date of 2030 for OECD countries does not cover the US: While Barclays has committed to a phase out of coal mining by 2030 in OECD countries, in line with widely recognised 1.5C pathways, the bank is intending to phase out coal power in the US only by 2035. The bank will retain exposure to clients deriving 10% or less revenues from thermal coal power between 2030 and 2035 in this country. This is not only behind European leading practice but also the US as even Citi has committed to phasing out financing for OECD coal power clients deriving more than 5% revenues from coal by 2030. While some retirements in the US are planned between 2030 and 2035, this commitment illustrates that the bank has no intention to be a driving force of the transition. It also raises environmental concerns as the US coal power fleet is very old (41 years vs 13 years in China on average).
  • Barclays’ commitment to cease financing for coal developers will take a while to take effect: Barclays has committed to excluding client opening new thermal coal mines and/or power plants or undertaking a material expansion (defined as over 20% increase in annual tonnage or capacity) of existing thermal coal mines and/or plants. However, this commitment only applies from 2023.
  • Barclays will continue to finance groups where entities are expanding coal mining provided that it is “satisfied that the proceeds of the General Corporate Purpose Finance will not be made available to such entities”: Yet, it would be technically impossible for the bank to determine whether it is indirectly supporting thermal coal expansion. Money is fungible and proceeds can be on-lent via intra-company loans. They can also free up liquidity elsewhere within the group. This should be of particular concern for investors as developments are rarely undertaken by the parent company. Barclays and peers have already been criticised in July 2021 for arranging a USD300m Sustainability-Linked Bond to Adani Electricity Mumbai, part of the group behind the highly controversial Carmichael Coal mine.
2. Barclays remains silent on oil and gas expansion despite significant exposure to top oil and gas expanders

Barclays is Europe’s second largest provider of financing to top oil and gas expanders. It has provided US$13 billion in financing to the top 50 upstream oil & gas expanders since committing to net-zero by 2050 in March 2020. This should raise alarm bells to investors given the International Energy Agency (IEA)'s findings that there is no room for new oil and gas fields for a 50% chance of reaching 1.5C.

In its Say on Climate update, Barclays recognised that “many of the companies engaged in new oil and gas projects are large, multinationals” that “are not yet on a 1.5°C-aligned pathway”, and as they “finance their exploration activities from cash flows rather than from project finance (…) it would be impracticable for Barclays to try to impose restrictions on financing specific activities.”

Yet, Barclays has not even committed to exclude financing for new oil & gas projects itself, thereby sending all the wrong signals to its oil and gas clients. Furthermore, it is not asking clients to publish robust transition plans aligned with 1.5C pathways. La Banque Postale has already asked its oil and gas clients to publish transition plans by 2023, clarifying that there should be no room for oil and gas expansion in those plans.

Barclays says that its priority is to “engage with these clients rather than simply exit them” to “ensure a just and orderly transition”. Yet some of the bank’s top oil and gas expanding clients include ExxonMobil, the poster child of climate inaction. Furthermore, the bank fails to explain how and if it is proactively enabling this Just Transition to occur as the world decarbonises, for example by engaging with local governments and impacted communities.

Finally, whilst the bank has set new targets, including for the power and energy sectors (see below), targets lead to a reduction in the carbon emissions or intensity of a portfolio of clients and do not differentiate between companies. In other words, even if the bank has set an absolute target for its energy portfolio, nothing in the bank’s current energy policy prevents it from financing new oil and gas activities and/or material expansion to existing projects.

Barclays has chosen to use the IEA’s 1.5C-aligned scenario to set its targets but ignores one of its most important conclusions – that new oil and gas fields are incompatible with this net-zero pathway.

3. Barclays fails to update its oil and gas policy

As Europe’s largest provider of financing to fossil fuel companies over the period 2016 to 2020, one would have thought that Barclays would have used its Say on Climate plan as an opportunity to update its inadequate oil and gas policy. This has not happened.

We focus here on oil sands and fracking, given Barclays’s important exposure to these sectors. We will include further analysis of Barclays’s position on Arctic oil and gas and ultra-deep water in our April analysis.

A table comparing Barclays’ oil and gas policy to those of Europe’s largest 25 banks is available on p24 of this briefing.

Oil sands

Barclays ranks 1st on oil sands financing among European banks and 7th globally over the period 2016 to 2020. It is the largest non-Canadian financier after JPMorgan. Its financing levels in 2020 were higher than in 2016 (US$ 513 million compared to US$873 million). Despite this, the bank has so far refused to take any meaningful action to reduce its oil sands financing so far – in clear defiance of investors. In April 2021, a group of 17 investors representing more than US$4 trillion in assets urged the bank to restrict financing to oil sands companies and commit to a phase out.

Barclays is among the very few European banks that continues to finance pure play oil sands companies that are still planning to expand production despite high environmental and financial risks. For example, according to Eikon, in January 2021, the bank acted as Joint Bookrunner for a US$600 million bond issued by MEG Energy. Barclays has also put its name on several bonds and loans to Enbridge, the company behind the controversial Line 3 pipeline project.

Barclays and Credit Suisse are now the only European banks that have not committed to exclude financing for oil sands projects. Other banks have started implementing thresholds to filter out clients overexposed to this sector, excluding clients expanding oil sands production and even committed to a phase-out.

Barclays’ policy, published in April 2020, only requires clients to “have projects to reduce materially their overall emissions intensity, and a plan for the company as a whole to have lower emissions intensity than the level of the median global oil producer by the end of the decade.” This commitment completely misses the point for the following reasons:

  • Oil sands are one of the most carbon intensive sources of oil: The industry has already achieved the easiest reductions in carbon intensity and whether they can reduce emission intensity much further would mainly depend on whether they can deploy CCS at scale. This is one of the key pillars of the “Oil Sands Pathways to Net Zero Alliance” and clearly lacks credibility
  • Stranded asset risks are significant: Even if the oil sands sector managed to bring its carbon intensity at par with other sources, it will do so at a very high cost, and assets would therefore be much more exposed to stranded asset risk as the world decarbonises. Furthermore, intensity metrics do not capture the basic fact that oil production must decrease to avert the worst consequences of the climate crisis.
  • Oil sands present important environmental and social risks: The oil sands sector faces important ESG challenges, with the industry being involved in numerous human rights controversies, as well as being accused of causing water and air pollution and biodiversity loss.

Barclays is Europe’s largest financier of fracking companies and the world’s fourth largest. It has significant exposure to the US fracking sector and to fracking pureplays.

Concerningly, its fracking policy seems designed not to impact its client base as it focuses on projects and companies involved in fracking in the UK and Europe, whereas it has significant exposure to the US. Carbon Tracker has shown that shale companies – including Occidental Petroleum Corp, EQT Corporation, and Concho Resources, all clients of Barclays - are most at risk from the energy transition, with most of them seeing production fall by over 80 per cent by the 2030s in the IEA Net-Zero Emissions scenario. These companies face important transition risks even in the less ambitious IEA Sustainable Development scenario.

Investors should call on the bank to restrict financing to new fracking projects, phase out from unconventional oil and gas (including fracking), and introduce restrictions for fracking companies.

4. Barclays shows some improvement on targets, but questions remain

Barclays has today published new 2030 targets for the energy, power, steel, and cement sectors:

  • Energy: 40% reduction in absolute CO2e emissions – including methane - by 2030 compared to a 2020 baseline.
  • Power: 50% to 69% reduction in CO2 intensity by 2030 compared to a 2020 baseline, with scope 1 emissions and CO2 in scope only.
  • Cement: 20-26% reduction in CO2e intensity compared to a 2021 baseline. It includes all greenhouse gases and covers scope 1 and 2 emissions.
  • Steel: 20-40% reduction in CO2e intensity compared to a 2021 baseline. It includes all greenhouse gases and covers scope 1 and 2 emissions.

Similar to the 2025 energy and power targets that the bank had set in 2020 following a shareholder resolution by ShareAction and investors, these targets cover lending and capital markets. This move was strongly welcomed by ShareAction and investors at the time, given that the majority of financing to the fossil fuel sector is in this form. Barclays remains one of the few banks to include these activities in its targets and should be praised for that.

The bank had been under pressure to update these targets as they used the IEA Sustainable Development scenario – consistent with net-zero only by 2070 - as a baseline. The bank has not updated its 2025 energy and power targets, but, in its ‘Say on Climate’ update, the bank has claimed that its new targets now use the IEA Net-Zero Emissions scenario (IEA NZE) as their baseline. This is not quite the case. The bank has applied the IEA NZE to its energy target, but it has not set a precise target for the Power, Cement and Steel sectors. Rather, it has set a target range for these sectors. The higher ambition end of the range is in line with IEA NZE. However, the lower end is not and instead reflects the bank’s current view of the sector and its clients’ commitments.

It therefore begs the question of whether the lower end of their target departs in any way from business as usual.

Lydia Marsden adds: “It is concerning that despite recent grave climate warnings from the IPCC, Barclays still resists fully committing to 1.5C. Barclays has set an emission range for its 2030 Power, Cement, and Steel targets – with the upper end being the IEA NZE and the lower end of the range being Business as Usual for its clients. Yet, BAU is clearly not an option for a liveable planet and even the IEA NZE only has a 50% chance of reaching net-zero by 2050.. We therefore call on Barclays to use the IEA NZE as a minimum standard to properly reflect the climate risks it is exposed to, as Europe’s second largest provider of financing to top oil and gas expanders”.

HSBC – a direct peer of Barclays - has set an emission reduction of target of 75% by 2030 for its power sector. Whilst this target only covers the bank’s lending activities, HSBC has committed to updating it by Q4 2022 following engagement with ShareAction and investors.

Barclays has also for the first time included methane in the scope of its 2030 energy target, and included all greenhouse gases for its cement and steel targets. This is a welcome improvement. However, the bank failed to update its 2025 energy target, whose scope continues to be limited to CO2 – an important omission given Barclays’ exposure to and financing of gas activities.

Barclays has said it will aim to report the absolute financed emissions for Power, Cement and Steel from the full year 2022. As it has set intensity targets for these sectors, accompanying absolute emissions disclosures are essential to provide full transparency on whether intensity targets reflect absolute emissions reductions in the real economy.

It will also set targets for Automotive, Manufacturing and Residential Real Estate in time for the 2022 Annual Report, which will take into account both lending and capital markets financing. These activities make up a significant proportion of Barclays' elevated climate risk exposure in its credit portfolio and should be integrated with haste.

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