Strategic Shareholder Climate and Risk Financial Financial Barclays PLC 134 report information sustainability report Governance review review statements Annual Report 2022 Resilience of our strategy (continued) • climate scenario risk analysis requires • severe physical risks emanating from a climate Through detailed research, it has become clear Challenges approaches and tools that are more granular ‘tipping point’, causing widespread impacts to that there is significant uncertainty within the Having undertaken a number of climate scenario (e.g. focus on company level analysis) which physical systems, including sea level rise, scientific community around how major changes analysis exercises, Barclays has gained a greater differs from more traditional stress testing drought and more severe changes in to the environment may impact weather patterns, understanding of the challenges and nuances of exercises which are conducted at portfolio or temperature including colder winter weather given the complexity and interconnections climate modelling and continues to develop new sector level. This creates a need for more involved. In order to calibrate the scenario, the and enhance existing tools for scenario analysis • amplifying affects to the wider economy as following sources have been used: a) academic granular data which Barclays may not typically and stress testing. However, unique and complex physical risk events lead to changes in society, have maintained evidence where available, b) tail events that have features of climate risks, with potential tipping such as declining agricultural production and occurred throughout history, or c) comparable points and non-linearities, represent major • modelling typically occurs over long time increased migration from severely impacted events driven by non-climate factors. However, challenges in terms of accurately capturing the horizons, which are subject to significant regions, potentially leading to severe price we acknowledge the limitations of running a impact of climate risks and effectively using the uncertainty. When modelling large and diverse rises and inflation scenario as outlined above. results of these exercises to inform various portfolios, pinpointing where and when risks • this results in various stakeholders taking The exercise will be used as part of Barclays' business activities. Some of the challenges include: will manifest, and the magnitude of these, mitigating actions, including transition ongoing climate risk management, to better is challenging. • climate change scenarios are often derived action from policy spheres and consumers quantify the impacts of climate change on the using models such Integrated Assessment Planned activity: switching consumption habits to more Bank’s portfolios and balance sheet. This will Models (IAMs), which are complex and require Group-wide climate stress test sustainable practices enable Barclays to improve its understanding of deep understanding of feedback loops and Barclays will be performing a Group-wide climate how climate risks interact with macroeconomic • additional non-financial risk impacts including module interactions. Over long-term time scenario analysis exercise in 2023, to test the stresses and to support Barclays' resilience to legal and conduct risks are explored, to horizons, such scenarios may struggle to impact to Barclays' portfolios from a severe but climate risk. holistically assess the plausible set of events identify inflection points, or periods of plausible climate scenario. This exercise is split that manifest from climate change. Further details on the impact of climate-related risks and heightened volatility caused by physical + across four phases over a five-year time horizon, opportunities on our business, strategy and financial climate risks, and understanding such planning can be found on pages 74 and 76. including paths for Physical, Connected and as events is important for climate Transition risk events: risk management