Investment bank reminds us of a bigger threat than COVID-19

Barclays has announced plans to be carbon net zero by 2050 and cease supporting the most polluting projects

Investment bank reminds us of a bigger threat than COVID-19
Steve Randall

While it’s hard to avoid the human and economic impacts of the coronavirus pandemic, the world’s largest financial institutions remain aware of other serious matters.

While the COVID-19 outbreak is causing worsening market volatility and financial hardship – and the fallout will last long after the disease drops from the headlines – climate change remains a long-term threat to economies worldwide.

On Monday, the investment banking arm of Barclays Bank vowed to become carbon net zero by 2050 and to only lend to those projects that align with the goals of the Paris Climate Agreement. Shareholders will vote on these proposals at the bank’s AGM in May.

This, says corporate finance expert John Tobin, professor of practice at the SC Johnson College of Business at Cornell University, is recognition of the risk to financial services firms for years to come.

“While our collective attention is focused on the pandemic now, and is likely to be in the coming months, the climate change issue is unfolding at a completely different time scale. The short-term impacts of the pandemic on the real economy are going to be severe, but in a year or two the economy will be licking its proverbial wounds and we will look back at this as a terrible episode,” he said.

“But the long-term challenges posed by climate change and biodiversity loss will still be with us. Barclays’ actions simply reflect the fact that financial institutions recognize that the climate issue is critical and is long-term,” added Tobin.

Activist action
The decision of Barclays to make the pledges it has, is in response to demands from activist investors.

These investors, led by a group called ShareAction, has been calling for financial institutions to phase out all financing activities for the most carbon-intensive companies.

The group’s director of finance sector strategies, Wolfgang Kuhn, welcomed the upcoming vote at Barclays.

“Voting for both these resolutions will cement the bank’s new high-level climate commitment while at the same time insisting on the near-term ambition needed to deliver the results everyone wants. A climate strategy cannot be considered complete without recognising that transition necessarily means phase-out when it comes to fossil fuels, particularly the highest carbon fuels where Barclays has significant exposure,” he said.

Asset managers
Earlier this month, ShareAction said that six of the world’s largest asset managers – BlackRock, Vanguard, State Street, Fidelity Investments, Capital Group, and JP Morgan Asset Management – are the worst performers in terms of the ecological and social harms of their investments.

Although the group’s study is based on October 2019 data and therefore does not include action taken since, including BlackRock’s pledge to scrap investments in companies that have high sustainability-related risk.

“ShareAction’s most ambitious study yet reveals who is really walking the talk on environmental and social issues, and who is dragging their feet in the asset management space. While many in the industry are eager to promote their ESG credentials, our analysis clearly indicates that few of the world’s largest asset managers can lay claim to having a truly sustainable approach across all their investments,” said Felix Nagrawala, ShareAction senior analyst.