Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 132 report information sustainability report Governance review review statements Annual Report 2022 Resilience of our strategy (continued) Power Utilities Bespoke Assessment • carbon hedging represents a potential mitigant 1.Carbon price 3.Renewable capital costs against carbon tax and further investigation During 2022, Barclays also performed a targeted ($/tCO e) (Index) 2 is needed on the extent of this activity and scenario analysis exercise on Power Utility clients its effectiveness 600 100% to better understand transition risks to the sector over a short to medium term. This • given the short-term nature of the scenario, the exercise was designed to support climate risk exercise assumed that companies would meet 500 96% management and evolve climate risk modelling, their five-year plans as currently disclosed, and with outputs indicating the change in risk would not be assessed or discounted based on 400 profile for the sector rather than quantifying 92% a credibility assessment financial losses. 300 The learnings from this exercise will form a The scenario was informed by the Network for 88% broader power sector deep dive, to be Greening the Financial System (NGFS) Delayed 200 conducted in 2023, which will take into account Transition scenario, and was designed in line with quantitative metrics including carbon intensity 84% the Programme Finance Initiative (UNEP FI) and and client transition plan assessment. 100 National Institute of Economic and Social Whilst the exercise provided insight and learning Research (NIESR) guidance on exploring short- 80% 0 into this sector, the nature of this exploratory term climate-related shocks. The scenario shifts 2022 2023 2024 2025 2026 2027 2028 2029 2030 2022 2023 2024 2025 2026 2027 2028 2029 2030 exercise, along with high model uncertainty, the transition period experienced in the NGFS CapEx Cost EU US RoW n means that there were limitations to the analysis. n n n scenario from 2032 and beyond to today, Key scenario variables include 3) Renewable Investment Cost, For instance, forecasting the exact nature and Key scenario variables include 1) Carbon Price, representing an overall representing greater tail risk from rapid transition a component of capital expenditure where marginal renewable proxy for transition costs applied to companies as an additional cost to timing of government policy is challenging, investment costs fall as the technologies mature. doing business. policies being introduced in a disorderly manner. meaning that estimations must be made as to This was done to ensure the exercise was the format and magnitude these will take. The informative and appropriate for risk management Insights from this exercise 2.Electric capacity mix outputs and insights gained from this exercise purposes. The exercise highlighted key conclusions (GW) will be used to enhance climate risk management The exercise leveraged Barclays' Corporate warranting further investigation and action: processes, including to better quantify the 25,000 Transition Risk Forecast Model. In addition, the impacts of climate change on the Bank's • transition scenarios represent a significant risk exercise involved some key assumptions, portfolio, to improve our understanding of how for Power companies with high carbon-intensive principally that regulated financial entities are less 20,000 climate risks manifest in this sector, and to operations, given the high costs of transition (e.g. sensitive to climate factors, owing to regulatory support Barclays' resilience to climate risk. carbon prices, investment in renewables) support and ability to cover costs. 15,000 • there are existing transition risks in the EU Emissions Trading System that may lead to financial stress for major Power Utilities, and 10,000 current geopolitical issues may accelerate this as EU companies rely further on coal to offset gas supply issues, driving emissions higher and 5,000 further away from legally binding targets • if companies pass through carbon-related 0 costs to consumers, this will likely lead to 2022 2025 2027 2030 consumer affordability issues, the dynamics of Coal Capacity Gas Capacity n n which are being observed today albeit from Nuclear Capacity Renewable Capacity n n different drivers Key scenario variables include 2) Electricity Capacity Mix, reflecting changing fuel types for power generation as economies decarbonise.