Access to financing Barclays has client relationships across a range of industry sectors and Case study: ESG research impact series Con we have processes in place to manage environmental and social t e considerations. We do not exclude entire sectors; to do so would be Barclays’ Research department launched the first report in its Impact xt and Appr impractical given that many of our larger corporate clients are Series focusing on the effect of Environmental, Social and multifaceted and can have dynamic portfolios of businesses which may Governance (ESG) investing on bond portfolio performance. Jeff Meli, change according to shifts in markets or business model. We prefer to o assess relationships or transactions on a case by case basis, identifying Co-head of Research and Lev Dynkin and Albert Desclee from the ach relevant merits and taking into account material social and environmental Quantitative Portfolio Strategy Team answer some questions about risks and issues. Please see page 46 for further information. the launch of the Impact Series and its first report. Q: How did this initiative start? Financing social infrastructure In October 2016, Barclays’ Social Innovation Facility (SIF) funded the Barclays offers financing solutions for a number of businesses and launch of an Impact Series through the Investment Bank’s Research governments that generate positive social outcomes, including department. This series is designed to explore the impact of Shar supranational agencies, municipalities, health care systems, universities, economic, demographic, and disruptive changes on markets, sectors, ed Gr social housing authorities, and other not-for-profit organisations, among and society at large. o others. In 2016, Barclays acted as bookrunner on over €21.2bn of Q: How is Barclays research approaching ESG themes: wth Ambition financings in 19 separate transactions for the European Investment what are your areas of focus? Bank, EIB. As the European Union bank, the EIB provides long-term Barclays’ Quantitative Portfolio Strategy (QPS) team is part of finance for sound, sustainable investment projects in support of EU Barclays’ Research department and focuses on the quantitative policy goals in Europe and beyond. aspects of portfolio management. As clients’ interest in ESG investing Green Bonds and environmental financing continues to grow, there is a need to better understand the effect of Green Bonds are fixed income securities designed to raise capital to ESG factors on the investment process. Although significant research finance environmental projects. The CIB has been active in issuing green has already been published on the performance implications of an bonds for a variety of clients including municipalities, corporations and ESG tilt in equity portfolios, much less has been published on this Gener topic in credit markets. The QPS research report addresses this void. supranational organisations. In 2016 we underwrote £1.5bn of green It has been released externally as the first publication in the Impact al S bonds (Source: Bloomberg). In addition to corporate issuance including Series, bringing its findings to an audience that is broader than tandar US and European utilities, Barclays also led Green Bond transactions for banks including a US$500m 3-year Green Covered Bond offering for Bank traditional institutional investor clients. d Disclosur of China London Branch. This transaction marks the first green notes Q: What are the key research themes and findings? issued by a Chinese entity that is secured by on-shore qualifying By constructing a US investment grade credit portfolio with a positive climate-aligned bonds that are traded on the China interbank bond ESG tilt designed to replicate the corresponding index, we found that es market. Use of proceeds will fund eligible green projects in renewable this portfolio modestly outperformed a corresponding portfolio with energy, pollution prevention and control, clean transportation, and a negative ESG tilt, as well as the index, over the period of the study. sustainable water management. We also managed a €500m 7-year There was no evidence to suggest that this outperformance resulted Sustainable Covered Bond transaction for Caja Rural de Navarra, a Spanish bank. This was Barclays’ first Sustainable/ESG Covered Bond transaction. in high ESG bonds becoming expensive compared to their peers. Specific S The proceeds will be allocated to existing or new loans financing projects Therefore – no reason to expect that it would be followed by underperformance. focused on creating a social impact in local communities and tandar environmental sustainability. In the United States, Barclays acted as a lead Of the three components of ESG scores, the G – governance score – bookrunner in a US$1.3bn offering, including 3- and 5-year Green Bonds is the main contributor to performance (followed by E and by S) and d Disclosur for Southern Power Company, a wholly-owned subsidiary of The Southern can often be taken as an indicator of management quality. Company which manages long-term contracted generation assets including renewable energy projects. The proceeds will be allocated to Our research finds that strong governance attributes are related to a es solar and wind power generation facilities. Also in 2016, Barclays executed lower frequency of credit downgrades. ESG scores are shown to have a €1.1bn Green Bond offering for Southern Power Company – the first contained information independent of credit ratings over the period Euro Green Bond issued by a US-based corporate. of the study. Please see pages 44-48 for further information on our social and Q: How have investors responded? KP environmental financing product portfolio. The QPS team fielded many questions on the ESG report from MG Assur investors around the globe, as well as through one-on-one discussions with client teams. Interest in this research remains strong with a ance S growing number of investors looking to align their portfolios with their values. In turn, this is forcing portfolio managers to implement ESG ta t factors in their credit portfolio management framework. emen We believe ESG investing is a long-term trend, not only because t investors want to align their investments with their values, but also because the ESG tilt may have positive risk and performance implications on a credit portfolio. At Barclays, we have seen an increase in the number of our asset manager clients starting to offer ESG funds. More broadly ESG attributes are increasingly being considered alongside other financial metrics to form investment decisions. Read the full study and see the infographic at investmentbank.barclays.com/our-insights/esg- sustainable-investing-and-bond-returns. html?icid=ESG_20217_Annualreport home.barclays/annualreport Barclays PLC Environmental Social Governance Supplement 2016 • 09