Barclays Rebuilds CO2 Trading Desk After Decade-Long Hiatus

(Bloomberg) -- Barclays Plc is rebuilding its presence in a market from which it retreated a little over a decade ago: carbon trading.

The London-based bank appointed a veteran of Shell Plc, Oliver Morning, to run the operations, according to people familiar with the hiring process who asked not to be identified discussing job moves they’re not authorized to make public. 

As Barclays’ head of carbon and environmental products trading, Morning will lead the firm into a market that has hedge fund managers, private equity firms and bankers lining up in the hope of scoring significant profits.

“It wasn’t that long ago Barclays wanted out of anything that smelled like a physical commodity, so this hire represents a sea change,” Philip Hardwick, who has held positions in carbon units at both Barclays and JPMorgan Chase & Co., said in an interview. 

A spokesperson for Barclays declined to comment and efforts to contact Morning by phone, IB-chat and LinkedIn went unanswered.

Carbon trading’s ascent within commodities desks is yet another indicator of the shifting reality shaping financial markets. New and increasingly stringent climate regulations are forcing companies to slash their carbon footprints. And as they run out of time to make real emissions reductions, many are turning to external levers such as carbon credits to meet net zero targets.

“Carbon markets and high-quality credits are increasingly being seen as one of the most effective ways to accelerate the net zero transition,” said Camille Petre, chief financial officer at BeZero Carbon and co-founder of the Women in Carbon network. “But carbon credits are instruments of risk, and carbon credit quality is a spectrum.” 

Those risks are getting harder for corporates to navigate, which is creating opportunities for the finance industry. 

There are two main markets when it comes to carbon: compliance and voluntary. For banks, becoming an intermediary in the unregulated voluntary market may have the biggest appeal, according to Hardwick.

Trading carbon may help Barclays access credits to cut its own emissions. But Hardwick, who’s now the chief executive of Hardwick Climate Business Ltd., a London-based carbon project developer and environmental finance adviser, says that what’s even more important for the bank is the fact that it will have the tools to feed growing corporate demand for pathways to net zero.

Bain & Co., the Boston-based consultancy, says carbon markets represent multiple business opportunities for banks. And recent forays into the market include a deal by UBS Group AG, Canadian Imperial Bank of Commerce, BNP Paribas SA and six other banks to provide seed capital for a carbon-credit startup. 

But those who enter the market don’t always stick around.

Barclays is one of a number of major banks to have had an on-again-off-again relationship with carbon trading. JPMorgan sought to build a presence but, like Barclays, ended up backing away when carbon prices tanked in the 2010s, and as post-2008 financial regulations became more stringent. 

In 2011, JPMorgan exited a stake in ClimateCare. A year later, Barclays sold its interest in Stockholm-based carbon-credits business Tricorona AB, and JPMorgan then got out of another carbon asset, EcoSecurities.

Bankers entering the voluntary market will have to contend with a growing pile of risk, thanks to a wave of greenwashing scandals in which climate activists and academics have uncovered a vast array of misleading claims. It’s a development that’s already burned some of the world’s biggest commodities trading houses.

Earlier this year, Trafigura Group, the No. 1 trader of carbon-removal credits, said it suspended a consignment of offsets as it awaits the results of a probe into the forestry project behind the units. Others have also contended with stranded-asset risk. Last year, Dutch trader ACT Commodities Group BV and ACT Financial Solutions, which are both units of SMS Holding BV, wrote off about 1.5 million credits. 

Despite such hurdles, BloombergNEF estimates that the voluntary carbon market may ultimately reach $1 trillion. “Most, if not all” companies with net zero targets “will need carbon offsets to help them get over the line” and meet their net zero goals, according to BNEF analyst Layla Khanfar.

For that reason, “demand for carbon offsets is expected to grow 35-fold between now and mid-century,” she said.

Limiting global warming to 1.5C above pre-industrial levels “requires significant carbon reductions,” Carbon Direct, a carbon management firm, said in its annual report. The voluntary carbon market “is an important tool in bringing carbon dioxide solutions to scale,” it said.

Edward Hanrahan, a carbon market veteran who sold ClimateCare to JPMorgan in 2008 only to buy it back a few years later, says it’s now hard to envisage a pathway to net zero without carbon credits.

“I think we have to accept that carbon markets as a solution will get more and more essential,” he said. 

“It’s unlikely that we’ll see the political will to impose a mandatory price on carbon and force companies to take responsibility for residual emissions,” he said. “So in the interim, the voluntary market will try to bridge the gap, and large market players like the banks will want to get their desks set up and trading.”

(Adds Carbon Direct comment in fourth-to-last paragraph.)

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