Barclays Bank is to face a shareholder resolution at its May 2020 AGM where 11 pension funds with £130bn under management will call for the company to align itself with the principles of the Paris Climate Agreement by limiting its lending activities to carbon intensive activities. SVM were actively addressing this issue last year prior to selling our shareholding in Barclays when we expressed the following concern to company representatives;
Quote Source: https://home.barclays/statements/barclays-energy-and-climate-change-statement/ 14 January 2019
It is encouraging to see that other shareholders are now taking this issue more seriously as the financial implications for those that fall behind in addressing environmental concerns are becoming increasingly clear. In the same discussions with Barclays we also addressed how environmental analysis of the loan book could be translated into our financial assessment of the bank. Our focus was on the company’s cost of risk which is a quantitative measurement used to determine the quality of a bank’s loan book. We were able to establish that not only was the cost of risk clearly higher for carbon intensive loans than for the average loan exposure but the reverse was true for loans to “green” or environmentally friendly projects making such loans a more profitable proposition for the bank. Increased disclosure from banks on the environmental credentials of their loan books (Barclays for example commits to £150 billion of social and environmental lending by 2025) can therefore contribute to an overall assessment of the relative riskiness of the company’s assets and hence long-term profit expectations. This stresses the importance of the shareholder resolution for Barclays which of course can be applauded in altruistic terms but also has clear implications for the bank’s financial strength and overall shareholders returns.