Barclays team handed guidelines to ratchet up transition finance

AFTER assembling greater than 100 bankers in a brand new transition finance group, Barclays is now setting parameters for tips on how to broaden the enterprise with out being accused of greenwashing.

The new group throughout the company and funding banking unit, which is able to organize monetary merchandise and offers supposed to assist shoppers scale back their carbon footprint, is among the many first at a serious financial institution to be handed a definition of so-called transition finance.

Already a buzzword in local weather finance, transition is meant to convey the notion of reworking an asset from brown to inexperienced. But because the finance trade constructs a multitrillion-dollar enterprise across the idea, regulators have but to explicitly outline it. The concern is that when a regulatory definition lastly arrives, the finance trade shall be on the flawed facet of it.

“There’s a real need to define transition finance,” Daniel Hanna, Barclays’ international head of sustainable finance for its company and funding financial institution, stated.

Across the finance trade, the time period “transition” is presently being utilized to every little thing from photo voltaic panels to coal vegetation, as long as a case will be made that the capital offered helps make the world greener. In the case of coal, for instance, capital may very well be allotted whether it is used to assist homeowners transfer away from the planet’s dirtiest fossil gas and over to one thing much less carbon intensive, similar to fuel. Coal can also be typically listed as a transition asset if homeowners have dedicated to the early retirement of vegetation.

“An important chunk” of transition finance entails placing carbon-intensive sectors similar to oil, fuel, aviation and agriculture on the highway to internet zero greenhouse fuel emissions, Hanna stated. “The challenge is to do that in a way that is robust and can withstand scrutiny,” and with out elevating “concerns that by putting capital to work in some of these hard-to-abate sectors you’re effectively greenwashing”.

Barclays can also be stepping up strain on power shoppers to regulate their enterprise to allow them to be handled as transition belongings. Last week, the financial institution introduced it’s going to halt the direct financing of recent oil and fuel tasks, and stated power shoppers shall be met with “clear expectations of transition strategies and decarbonisation requirements.”

Climate activists stay sceptical. Lucie Pinson, director of French local weather non-profit Reclaim Finance, stated it’s “good to see” that Barclays is now requiring shoppers to undertake transition plans. However, the financial institution has “failed to address the most urgent issue of halting oil and gas expansion,” she stated. And Barclays has not dedicated to cease financing present oil and fuel shoppers after 2025, “even though these companies cannot claim to be in transition if they are developing new fossil fuel projects”, in keeping with Pinson.

Laura Barlow, Barclays’ head of sustainability, characterised the financing swap wanted to handle local weather change as “complex”. She additionally emphasised that the financial institution will work with power shoppers to cut back their carbon footprint in “a manner that is just, orderly and addresses energy security.”

Hanna says Barclays primarily based its transition framework on situations outlined by the International Energy Agency and the United Nations’ Intergovernmental Panel on Climate Change. So the financial institution’s phrases are “very much informed by the decarbonisation levers referred to in some of the 1.5 degrees Celcius no-overshoot scenarios,” he stated.

Barclays can also be listening to what governments are signalling by way of the place “they want capital to move”, each with regard to the European Union’s inexperienced taxonomy and the US Inflation Reduction Act, Hanna stated.

Barclays’ lending to grease and fuel made up about 2 per cent of its complete mortgage guide and a couple of.6 per cent of its capital markets’ enterprise, in keeping with its 2022 annual report. It offered US$4.9 billion in loans to the fossil-fuel trade in 2023, in contrast with an annual common of US$7.2 billion over the previous seven years, information compiled by Bloomberg present.

In the UK, the place Barclays relies, the Transition Plan Taskforce lately unveiled a framework for firms to make use of. Michelle Scrimgeour, chief government of Legal & General Investment Management, stated again in October that the TPT will assist piece collectively the information traders have to assess whether or not corporations are making “credible progress” round their transition claims. And on a worldwide degree, the Financial Stability Board has stated it’s analysing the relevance of transition plans for monetary stability.

Hanna stated the shortage of a definition and a extensively agreed upon taxonomy is “one of the big impediments to putting more capital to work” for the power transition.

“I’ve had conversations with investors who have expressed an interest in putting more capital to work on the transition,” he stated. But they’re “quite concerned about being accused of greenwashing given the lack of agreed standards.”

Barclays has pledged US$1 trillion of sustainable and transition finance by 2030. Hanna stated the intention is for the general public now to “look at our definition and comment, criticise and improve it.” BLOOMBERG