Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 135 report information sustainability report Governance review review statements Annual Report 2022 Resilience of our strategy (continued) In the No Additional Action scenario, the world • greater confidence, action and awareness Resilience of our strategy, Macro-dependencies and objectives would experience heightened physical risks in the among consumers in wider society could taking into consideration different longer-term. Without any additional policy facilitate private investment into the conduits We consider that, at a high level, the following climate-related scenarios support to incentivise the transition, the gap where it could have the most impact to change areas represent some of the macro- between our ambition to transition to net zero behaviour. This includes the need for dependencies that may impact our clients, As described above, we use scenario analysis to and the emissions reductions observed in the households to see sufficient return on customers and suppliers, and thus our ability to help us assess and quantify potential impacts of economy would increase. While we might see investment in low-carbon products to create deliver our climate strategy: climate change. less transition risk in this scenario, Barclays would incentives to act Based on the stress tests undertaken to date, need to consider the implications of such • policy clarity is needed across the real • improved access to client sustainability- our current best understanding of the resilience divergence and manage increasing exposure to economy, sector by sector, and country by related risk and impacts data would allow for of our business is that the impacts of the climate physical risks faced by certain segments of country, to ensure shared expectations and better assessments of Scope 3 emissions, scenarios we have so far explored, even over the customers and clients we serve. aligned objectives. Without clear milestones and therefore allow full integration of these long term, are more benign than the scenarios that lead to full decarbonisation, there is We recognise that we have more work to do in factors into decision-making. Government we generally use to test the resilience of our uncertainty around where finance should flow order to reach a more comprehensive and and regulators should recognise that business. Under the CBES exercise, our business to support economy-wide decarbonisation deeper understanding of the resilience of our corporate and financial sector reporting will remained resilient under all scenarios. Under the business under various climate scenarios. We improve over time, with some challenges • a comprehensive carbon-pricing scheme ECB exercise, we did find that the Barclays also aim to more fully integrate climate scenario likely to persist over the coming years due to could be an efficient way to support the Europe portfolios (as a sub-set of the Barclays' analysis into our strategic and financial planning data gaps. transition to net zero. Barclays Research Group exposures) were vulnerable under the over time as our capabilities in the area of shows current prices (avg $6/tCO ) are 2 long-term scenarios given their exposure to Further details on our assessment of material existing and scenario analysis evolve further. + insufficient to achieve 1.5°C or 2°C targets emerging risks, including climate risk, can be found from power and gas utilities. page 273. Under the CBES exercise, we found that Barclays’ • many technological innovations and wider existing strategic plans to manage emerging In addition to the risks arising from our clients' activities needed for the net zero transition climate risks and to align our financing to the and suppliers' transitions, we are also dependent need to become more attractive to lenders goals and timelines of the Paris Agreement in on wider market and geopolitical developments through improved risk / return ratios. part mitigate some of the risk in at least two of outside our control. For example, progress may Currently, technology solutions such as the three scenarios – the Early Action and Late be impacted by geopolitical developments that carbon capture or hydrogen are yet to achieve Action scenarios. result in energy supply pressures, such as the full commercial scalability, limiting access to conflict in Ukraine, or by the varying pathways less expensive forms of capital. Larger The Late Action scenario indicated greater that individual companies take as a result of the amounts and less costly capital could be disruption compared with the Early Action technologies available to them to transition. unlocked via blended finance scenario due to the delay in policy incentives, which amplified the transition risks faced by our • a wide variety of sector-specific, supply-side clients. In this scenario, there would be a greater challenges need to be addressed on a case- need and opportunity to support our clients to by-case basis. For example, the UK is adapt, where they are in sectors most vulnerable encountering a skills shortage in the to transition risks. However, our strategic plans construction sector which will impact to transition our portfolio reduces our risk retrofitting of housing stock exposure in both these scenarios.