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Barclays: Overnight change to green finance 'just not reality'

➤ Barclays PLC is weighing how to bring its whole lending portfolio in line with Paris Agreement goals

➤ Helping clients transition to low-carbon future is critical in reducing emissions

➤ No end to lending opportunities in green finance, but standards needed to avoid 'green-washing'

Barclays announced a new climate policy at the end of March to bring its lending in line with the Paris Agreement on climate change following pressure from shareholders to phase out its financing of fossil fuel companies. The bank had been singled out as a laggard and was the focus of the first shareholder resolution by institutional investors on climate change at a European bank.

The lender aims to be a "net zero bank" by 2050, meaning its own carbon emissions and financing projects will be at zero by that time. It plans to invest £100 billion in green finance by 2030.

SNL Image

Elsa Palanza, Barclays global head
of sustainability and citizenship

Source: Barclays

Elsa Palanza, Barclays global head of sustainability and citizenship, spoke with S&P Global Market Intelligence about the new policy and how the coronavirus pandemic is affecting the bank's environmental, social and governance strategy.

The following transcript is edited for length and clarity. Listen to audio from the interview on ESG Insider, an S&P Global podcast.

S&P Global Market Intelligence: Barclays announced a new climate plan earlier this year. What are you hoping to achieve with it?

Elsa Palanza: We made a commitment to align the entirety of our portfolio to the goals and the timelines of the Paris Agreement. We are going to start with the energy and power sectors as we do that analysis because they are most material to Barclays and they are the most carbon intensive.

But we will move on after that and look at other carbon-intensive sectors and look at things like transportation and cement, manufacturing. Ultimately if we are going to do this with integrity, it will require us looking at the full breadth and spectrum of our financing activities and what needs to done to bring that alignment to Paris.

How does the plan differ from the shareholder proposal to phase out fossil fuel financing and how do you intend to divest from fossil fuels?

It is important to think about what it means to be "phasing out" or even "divesting" versus the idea of "transition." When we think about what it is going to take for the world to move into a low-carbon future and to decarbonize the entirety of our economy, it is actually this concept of transition that is so incredibly critical. If we were to be able to pivot overnight into a completely green future that would be incredible, but it's just not the reality of how the economy works.

Obviously all our systems [are] built upon technology that was dependent on fossil fuels so every point along that value chain is going to have to be adjusted and changed to account for green and low-carbon technologies. This idea of transition is not just a nice conceptual thing. It is going to require some real creativity and a real focus when it comes to the financing of this activity.

How is your new policy going to change your lending practices? Will you have more energy-efficient loans?

In the case of Barclays, we have a lot of different financing that takes place. The majority of the conversation around banking has happened around lending practices and obviously that is a really important element.

It starts getting pretty interesting when you look at the full breadth of what a bank like Barclays is able to do. We are charting a pathway forward to get our portfolio to align to Paris and there is a lot of work underway to make that happen. It means some strategic decisions being made inside the banking teams about what kind of clients to lean into and support. There is so much opportunity to grow the suite of green products available. In the U.K. we offered the first green mortgages. Sustainability-linked loans are a hot issue and one that continues to expand, when you offer preferential terms based on sustainability metrics.

There's no end to opportunities, but we as a collective industry need to be quite disciplined about how we are quantifying green products. It is tempting to throw a few metrics into something and call it a green product. If we don't uphold the right standards, we are going to see general green-washing.

What signs are you seeing that the pandemic has created a heightened focus on the "S" in ESG?

Any inequality in the economy is probably going to be exacerbated by potential downturns and industry failures. The ramifications of recessions hit the poorest and the disenfranchised the most and that is also true for climate change. You could look at this as if it is all segmented and in its own silos as though climate change and environmental issues are on one side of the chain and then social issues on another. But these are all linked. The E,S and the G are completely integrated. If we are going to build a greener and more resilient future, that doesn't just mean accounting for decarbonization. It also means accounting for peoples' livelihoods, better global health and better access to services.

READ MORE: Read interviews with sustainability leaders at BNP Paribas in France and BBVA in Spain. Listen to interviews with ESG executives from JPMorgan Chase, the largest U.S. lender, and DBS, Southeast Asia's biggest bank. Sign up for our weekly ESG newsletter here, and read our latest coverage of environmental, social and governance issues here.