Barclays unveils approach to navigating nature-related financial risk

• Barclays shares detailed methodology and key learnings
• Highlights the need for cross-industry action to build rigour and consistency 

Barclays publishes leading approach to assessing nature-related financial risks of large financial portfolios and outlines pragmatic steps to drive progress.

Understanding of nature-related risk and how to include it in economic and financial modelling is nascent. To make progress, Barclays is seeking to drive forward an industry-wide conversation and, in a new publication, Navigating Nature Risk: Applying the TNFD’s LEAP framework, details how it has leveraged the Taskforce on Nature-related Financial Disclosure’s Locate, Evaluate, Assess and Prepare Framework (LEAP). Focusing on a sample of mining and European power companies, Barclays sets out its step-by-step approach to assess and examine nature-related dependencies, impacts and risks from the level of individual operating sites.

Taking each phase of the LEAP framework as a starting point, a cross-bank team, including technical Risk and Nature specialists, developed bespoke data quality assessment frameworks and new nature scenarios and stress tests. Physical and transition risk scenarios were modelled and included analysis of floods, droughts, and policy measures covering water, air pollution, protected areas and minerals recycling.

The year-long analysis of approximately 250 operational mines (linked to circa 30 mining companies) and approximately 9,000 power generation facilities (linked to circa 40 European power companies) identified key insights:

• Data and methodological challenges should not deter action: the availability of industry-wide data is fragmented. Current analysis requires intensive resource, and gaps in datasets limit the scope and accuracy of results. Standardised nature-related impact and dependency metrics, alongside consistent frameworks are needed. Notwithstanding these challenges, there is enough information available to make progress.
• Nature-related financial risks are potentially material: while the challenges above lead to uncertainty in our findings, both samples saw potential cumulative earnings impact over five years, across the modelled scenarios. The quantum of nature risk depends on their sector, production types and site locations.
• Nature and climate alignment are vital: nature and climate are interconnected and their interaction and associated risks must therefore be assessed together. This will require the development of integrated climate-nature scenarios.
• Engagement and collaboration are critical to progress: the development and standardisation of the data, frameworks and guidance to drive progress will require cross-industry collaboration from industry bodies and standard setters, to policy makers, financial institutions and companies.

Marie Freier, Head of Sustainability, Group, Barclays, said: “Nature is as complex as it is fundamental – it underpins the stability of our economies, societies and financial systems. The accelerating loss of biodiversity and degradation of ecosystems are now widely recognised as systemic risks, which are increasingly materialising across our clients’ operations. We hope that in sharing our work we can start an industry conversation that will enable nature considerations to be translated into meaningful and quantifiable insights which can help corporates and financial institutions alike, and ultimately support resilient, sustainable, and prosperous economies.”

Ends

Notes

Barclays analysed a sample of circa 30 mining companies and circa 40 European power companies, using available data and methodologies. Barclays acknowledges the limitations in data and methodological approaches (as highlighted in the Limitations section of the paper). Given the limited scope of the analysis performed (covering one potential scenario), this publication is not an overall analysis of historic or current financial risk, or a forecast of future financial risk, within any sector (including the mining or power sectors) or within any Barclays portfolio. The publication is not designed to estimate or forecast impacts on the industries in focus, rather to highlight the challenges and learnings. This first in-house nature-risk assessment approach will continue to evolve.

About Barclays

Our vision is to be the UK-centred leader in global finance. We are a diversified bank with comprehensive UK consumer, corporate and wealth and private banking franchises, a leading investment bank and a strong, specialist US consumer bank. Through these five divisions, we are working together for a better financial future for our customers, clients, and communities. For further information about Barclays, please visit home.barclays.