Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 287 report information sustainability report Governance review review statements Annual Report 2022 Principal risk management (continued) Climate Risk Assessment • the scenario is meant to test the bank’s preparation. The climate related risks are ability to absorb a large shock by identified using severe yet plausible Market risk arising from climate change is climate related scenarios to provide combining Transition and Physical risks. measured by applying a range of stress qualitative and/or quantitative impacts on, scenarios, that stress the core risks Stress losses arising from this scenario or in addition to financial risk drivers. susceptible to climate change over long measure and aggregate climate-related and short-term horizons to individual risk Climate Risk Assessment risks, and are calculated quarterly. factors. Treasury & Capital Risk have focused on Climate Risk Management Initially a Climate Internal Stress Test building awareness of how the areas within The pattern of stress losses arising from (Climate-IST) was run in 2020 to further our risk oversight may be impacted by the stress scenario is used to estimate and inform understanding of climate risks. physical, transition and connected risks, set ongoing limits, consistent with the and calibration of key indicators for regular Market Risk performed an assessment of Board-approved maximum stress loss the impact of a disorderly transition to a reporting and monitoring. The function has capacity for Market risk, under which low-carbon economy on the market risk continued to build upon our understanding Barclays monitors and controls Market risk portfolios across Barclays Group. of climate risks, including through Barclays’ arising from climate change. These limits participation in CBES and the addition of In addition to the main Markets portfolios, are reviewed on an annual basis and must climate risk elements to internal stress Cross Markets and Commodities include consideration of potential portfolio tests. portfolios were also included. This risk impacts arising from climate-related risks. assessment was enabled by Capital Risk Furthermore, climate-related Market risk is enhancements in system technology Barclays’ capital position is indirectly managed through ongoing monitoring that allowing the exploration of climate change subject to climate risk through Group-wide is reported through the existing risk impact on less-climate risk exposed exposures across all risk types. Treasury & committee structures so that key risk sectors. Capital Risk oversees the bank’s capital indicators are monitored and escalated as management and planning activities and Market Risk continues to run such required. use the output of Group-wide climate Climate-IST scenarios every quarter, and Treasury and Capital Risk stress tests to inform our understanding has further refined the existing sector/ of how capital management may be Definition country taxonomy to reflect the climate impacted. Further consideration to climate risk sensitivity. Although Market Risk was Capital Risk risk has also been incorporated into the out of scope of the 2021 Bank of England The risk that the Group has an insufficient Group’s ICAAP narrative. Climate Biennial Exploratory Scenario level or composition of capital to support (CBES), the existing Market Risk scenario Pension Risk its normal business activities and to meet analysis has been more closely aligned to its regulatory capital requirements under Pension exposures are subject to climate the CBES scenarios. normal operating environments or stresses impacting market conditions. Market Risk Climate Scenario Narrative stressed conditions (both actual and as Pension holdings are primarily affected by defined for internal planning or regulatory interest rates, inflation and credit spreads The scenario is designed to explore a testing purposes). which may be impacted by longer term disorderly transition to a low-carbon climate change effects. To identify key economy until 2050, assuming insufficient Pension Risk areas of focus pension scheme assets progress in climate policy changes until The risk that the Group's capital and/or have been categorised based on their 2030. distributable earnings are reduced due to country and industry risk through the lens In 2030, the climate policy changes are put changes in the value of the Group's of climate change. in place at speed in order to meet the defined benefit obligations or the assets Liquidity Risk global climate targets by 2050 which funding these defined benefit obligations. causes global macroeconomic shock and Barclays proactively reviews its approach Liquidity Risk adverse market reaction in 2030, followed to managing funding and liquidity risks that The risk that the Group is unable to meet by markets recovery in 2031 (no other risk- may arise from certain physical risks such its contractual or contingent obligations or off episodes until 2050): as extreme weather events, or transition that it does not have the appropriate risks such as a move to a low-carbon • severe and prolonged global recession, amount, tenor and composition of funding economy. An enhanced risk assessment elevated risk premium, rise in and liquidity to support its assets. has been performed during 2022 to unemployment and borrowing cost, Interest Rate Risk in the Banking Book explore the potential vulnerabilities to sharp drop in global demand and in (IRRBB) certain industries and asset classes that economic activity, housing market The risk that the Group is exposed to may be subject to a lack of available slump capital or income volatility because of a liquidity under a climate stress scenario. • supply disruptions alongside currency mismatch between the interest rate Additional scenario analysis has been weakness and trade war causes sharp exposures of its (non-traded) assets and carried out during 2022 to further explore increase in inflation. Central Banks liabilities. specific climate related liquidity risks. attempt to contain rising prices by hiking Further consideration to climate risk has Climate Risk Identification the Bank Rate by several percentage also been incorporated into the Group’s Climate change may lead to additional points. This causes the usual “safe- ILAAP. levels of risk within Treasury & Capital Risk havens” such as Treasuries, Gilts or Interest Rate Risk in the Banking Book through physical, transition or connected Bonds to sell off along with Equity and (IRRBB) climate risks. Climate related risks within Credit markets Treasury & Capital Risk are identified as Fair value positions such as those within part of the climate risk register the Liquid Asset Buffer are exposed to