Barclays to Halt Direct Financing of New Oil, Gas Projects

(Bloomberg) -- Barclays Plc plans to halt the direct financing of new oil and gas projects, as the UK bank expands the scope of assets that will find it harder to gain access to capital in future.

The plan entails restrictions for new and non-diversified oil and gas clients engaged in expansion, according to an emailed statement. Barclays said its new policy sets out “clear expectations of transition strategies and decarbonization requirements for energy clients.”

The announcement comes not long after Barclays said it was establishing an energy transition team inside its corporate and investment bank, which Bloomberg News has reported will comprise more than 100 bankers. That’s as the finance industry seeks to benefit from the commercial opportunities represented by the transition from fossil fuels to low-carbon energy sources, a shift that BlackRock Inc. has identified as a “mega” force steering the global economy.

Barclays’ lending to oil and gas made up about 2% of its total loan book and 2.6% of its capital markets’ business, according to its 2022 annual report. It provided $4.9 billion in loans to the fossil-fuel industry in 2023, compared to an average of $7.2 billion over the preceding seven years, data compiled by Bloomberg show. 

The UK bank has been stepping up environmental lending and underwriting faster than its peers, according to a December analysis by BloombergNEF that looked at the ratio of green finance to fossil finance. Barclays was at 1.55 at the end of 2022, meaning that for every dollar it provides to the fossil-fuel industry — either via direct loans or debt underwriting — it allocated $1.55 to green projects, the BNEF analysis showed. 

Laura Barlow, Barclays’ head of sustainability, characterized the financing switch needed to address climate change as “complex.” She also emphasized that the bank will work with energy clients to reduce their carbon footprint in “a manner that is just, orderly and addresses energy security.”

Barclays’ decision on oil and gas mirrors similar moves from UK and European peers. Societe Generale SA said in September it’s planning to halt lending to some new oil and gas projects, which followed restrictions from BNP Paribas SA and HSBC Holdings Plc. 

Its historic ties to the fossil-fuel industry have long made Barclays a target of climate activists, with protesters frequenting its annual meetings and office buildings. The bank has also faced shareholder resolutions on winding down its lending to the oil and gas sector.

Against that backdrop, Barclays’ newest restrictions on fossil finance won measured praise from climate activists.

“ShareAction welcomes the publication of Barclays’ policy update. It contains some positive commitments from the bank including its decision to set basic climate tests for its oil and gas clients, alongside its promise to stop financing new oil and gas projects directly,” the UK nonprofit said in an emailed statement on Friday.

“However, the strategy could have gone so much further,” ShareAction said. “Barclays’ intention to request decarbonization plans from its oil and gas clients is the right one. But for it to have teeth, the bank must demand clients stop engaging in activities that increase the climate crisis such as oil and gas exploration.”

Barclays has set itself a target of facilitating $1 trillion of sustainable and transition finance between 2023 and 2030. Its latest restrictions on oil and gas finance will help the bank achieve that goal, it said.

The new curbs unveiled by the lender include no project finance, or other direct finance to energy clients, for upstream oil and gas expansion projects or related infrastructure. It will also impose restrictions for new energy clients engaged in expansion.

Non-diversified energy clients engaged in long lead expansion also face restrictions, Barclays said. And there will be additional curbs on unconventional oil and gas, including Amazon and extra heavy oil, it said.

Energy clients will be expected to have 2030 methane reduction targets that encompass “a commitment to end all routine / non-essential venting and flaring by 2030 and near-term net zero aligned Scope 1 and 2 targets by January 2026,” Barclays said.

The bank’s clients will need to produce transition plans or decarbonization strategies by January 2025.

“Barclays will continue to support an energy sector in transition, focusing on the diversified energy companies investing in low carbon and with greater scrutiny on those engaged in developing new oil and gas projects,” it said.

(Updates to add more context.)

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