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Barclays shares slide amid update on net zero ambitions

Shares at British multinational investment bank Barclays (LON:BARC) have slipped almost 2% on Monday morning after the London-based firm released an update on its strategy and targets to combat the climate crisis.

Earlier this year, the bank announced it would limit its funding to fossil fuel projects after pressure from investors forced Barclays to realign its portfolio with the climate-conscious impetus of shareholders. The new resolution included a pledge to achieve net zero carbon emissions by 2050.

Monday’s update saw Barclays group chairman Nigel Higgins restating its commitment to ‘help address the climate challenge’ and ‘align all our financing activities with the goals of the Paris Agreement’, although warned that the economic impact of the coronavirus pandemic had ‘not made it easy to progress the work beyond what we indicated in March’.

He added that the bank was still ‘committed to continuous improvement in our response to the climate challenge’, even in the face of significant financial and logistical obstacles.

What are the details of Barclays’ climate pledge?

Barclays today confirmed that it is so far on track to reduce ‘CO2 intensity’ across its portfolio by 30% by 2025, as part of the company’s two-tiered approach to measure its carbon production; ‘CO2 intensity’ being ’emissions per unit of output’ and ‘absolute emissions’ being the more comprehensive unit of measurement.

Higgins outlined why the firm has decided to adopt this unconventional approach:

“[…] 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 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,” Higgins added, “although this is likely to continue to evolve and be further refined over time”.

The bank has continued to engage with a ‘number of industry initiatives’ throughout the year as part of its decarbonisation process, including the Two Degrees Investing Initiative’s Paris Agreement Capital Transition Assessment (PACTA) and the Partnership for Carbon Accounting Financials (PCAF). Barclays is also a member of the ‘Financing a Just Transition Alliance’ led by the Grantham Research Institute at the LSE. 

It has also committed to ‘acknowledge’ the role that Barclays plays in financing carbon-emitting projects, and has stated it will ‘take a proportion, generally one third, of the emissions linked to Barclays’ financing ‘against’ our own targets’ to ‘account for the underwriting of equity and debt securities, which generally leave Barclays with no residual exposure’.

Regarding the bank’s energy sector, Barclays has adjusted its initial pledge back in March, which will now ‘target a 15% reduction in absolute emissions by 2025, rather than in CO2 intensity’. 

Higgins explained that the amendment ‘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’.

What happened with Barclays’ share price?

Shares at Barclays slipped somewhat on the news, down 1.84% to 136.94p at midday on Monday 30/11/2020. The bank has so far enjoyed a positive month overall, with its share price bouncing almost 8% in response to better-than-expected Q3 results released last week.

In the three months to the end of September, Barclays reported a pre-tax profit of £1.1bn – almost double analyst expectations, with income at the corporate and investment bank growing by 24%, while markets income surged by 52%.

During the initial crash during March when the UK government first imposed a series of strict lockdown measures, Barclays shares slid to a mere 80.24p, but have since regained considerable ground since the summer and now seem to be oscillating largely within the realm of 110p to 150p – still a far cry from its annual peak of 192.99p in December 2019, but at least it has weathered the second lockdown with some resilience.

Barclays has a dividend yield of 2.18% and a P/E ratio of 9.76.