Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 288 report information sustainability report Governance review review statements Annual Report 2022 Principal risk management (continued) general market conditions which could Climate Risk Identification Operational Recovery Planning deteriorate under longer term climate From a climate risk perspective, Barclays is An integral part of the firm’s approach to stress. Physical or transition risks may lead exposed to climate change risks in its Operational Resilience. The purpose is to to government fiscal responses that would operations, either directly or via the enable Barclays to minimise the impact of impact market volatility. Building on operations of its suppliers. This exposure is disruption when it occurs, which could be analysis from 2021 exercises, updates caused by climate related events. Barclays predominantly related to physical risks have been made to climate related such as extreme weather events (e.g. maintains and annually reviews recovery categorisation of investments and cyclones, hurricanes and floods), along plans and capabilities. subsequent stress methodologies specific with longer-term changes in weather Climate Risk Assessment to climate risk reporting. patterns (e.g. increased mean Operational Risk continues to identify, temperatures, sea levels, changing rain Fair value private equity positions manage and measure climate risk as part patterns, water stress/scarcity or drought managed by the Principal Investments of the existing operational risk profile conditions). team are most likely to be impacted by through its business as usual activities. stresses to energy markets and carbon The Operational Risk Framework includes These activities include working with transition changes. The future investment risks that are associated with climate Premises and Operational Recovery strategy of the team and long-term change as well as the activities required to Planning Horizontal Owners to identify and revenue of these investments may be identify, measure and manage these risks respond to any new emerging climate risk influenced by changing climate and as part of the operational risk profile. related impacts or regulatory legislative conditions. In line with Barclays’ Operational Risk maintains a taxonomy of requirements, and consideration of strategy, the team has continued to operational risks on behalf of the Group, changes to approach or taxonomy in line increase exposure to new initiatives which includes the operational risks across with regulatory requirements. We continue through the Sustainable Impact Capital Principal Risks (e.g. Conduct risk, Legal risk, to explore different approaches to provide programme. At the same time the Model risk) as well as operational failures a quantification assessment, albeit divestment of legacy natural resource associated with the financial Principal Risks challenges for quantification relating to the investments has accelerated and total (Credit, Market, Treasury and Capital). lack of appropriately granular, business- exposure to the Oil & Gas sector has relevant data and tools remain. Quantifying The Operational Risk Taxonomy forms significantly decreased. operational risk through existing part of the Operational Risk Framework. Accrual Banking Book Net Interest Income structured scenarios would allow us to This framework is reviewed and updated, may be moderately impacted by climate better examine and size the potential where appropriate, on an annual basis. As change through both physical and incremental impact arising from climate physical risk events related to extreme transition risks. Such risks could risks. However, the challenge of weather events could impact Barclays’ materialise through impact on deposit determining scenarios that are business operational capabilities, climate change is levels and lead to potential changes in orientated, sourcing available and relevant already integrated into the Operational composition and performance of asset information to support the effort, and Risk Framework. The risks categories most portfolios, pricing and changes to longer connecting the given scenario to the likely to be impacted by physical risks are term interest rate risk management idiosyncrasies of operational risk, remains Premises Risk and Operational Recovery strategies. In 2021, an assessment was a factor under consideration. Planning. completed focusing on the economic In 2022, a third party organisation Premises Risk impact of potential forced unwind of conducted a climate risk assessment on Ensures that operational risk requirements structural hedges on the deposit base as a our mission critical buildings and data are understood, monitored and mitigated result of significant outflows triggered by centres. The results of the analysis appropriately, and are managed to ensure concerns about Barclays’ climate change identified risks and opportunities. These compliance with relevant legal and credentials. included physical and transition risks such regulatory requirements, including any Climate Risk Management as flooding and market risks and required authorisations, permissions and opportunities such as embedding energy Insights on climate-related risks and licenses. Premises risk is managed under and material efficiency and installing low potential impacts are incorporated as the Group Property Policy and Standards, carbon heating and cooling technologies. appropriate to inform the setting of which outline Barclays’ approach to Furthermore, the assessment identified relevant key indicators and risk limits, addressing environmental risks with the potential average annual loss (AAL) to which are overseen by the Treasury and respect to the availability of operational our operational portfolio following different Capital Risk Committee on a quarterly premises. This Policy defines a low climate scenarios. In a low emissions basis. Barclays’ assessment of capital and tolerance threshold for premises scenario, it was estimated we have an AAL liquidity requirements factors in climate unavailability which covers the risk of the of £40 million and in a high emissions considerations as part of Barclays annual physical impacts of climate change, and scenario it was estimated we could ICAAP and ILAAP submissions. aims to ensure that Barclays’ premises do experience an AAL of £60 million. These not become unavailable and/or do not Operational Risk findings will inform our risk management affect at least one Barclays product/ Definition and decision-making process. service for a sustained period of time. The risk of loss to the Group from Additionally, any potential strategic site’s Additionally, Barclays has a portfolio of inadequate or failed processes, systems, exposure to extreme weather events is structured scenarios that are assessed for human factors or due to external events considered. Similarly, this Policy defines no Group and certain Legal Entities, for which (for example, extreme weather events) tolerance for failures in Barclays Premises Operational Risk coordinates the process. where the root cause is not due to credit that result, or are likely to result, in harm to These scenarios map to the risk taxonomy or market risks. the environment. and cover a range of risks where climate