Nature loss could cut mining, power earnings by a quarter, Barclays finds

By Virginia Furness

LONDON (Reuters) -Company earnings could fall by as much as 25% over five years due to nature degradation, Barclays said, as rising input costs and operational disruptions driven by policy changes and worsening environmental conditions begin to bite.

According to an exploratory stress test conducted by Barclays Bank on a portfolio of mining and power companies, transition risks, such as higher water prices, stricter pollution controls and the expansion of protected areas, along with droughts and flooding, increasingly pose a risk to operations.

Barclays analysed 250 operational mines linked to 30 mining clients and around 9,000 power generation facilities from 40 European clients, and found both sectors faced notable earnings declines over five years.

The mining sector was hit harder, with earnings falling by around a quarter, driven largely by transition risks. Power companies saw a smaller impact of about 10%, mainly due to physical risks such as droughts and floods, which are more severe in degraded landscapes.

Barclays said the accelerating loss of biodiversity and ecosystem degradation are now widely recognised as systemic risks.

"These risks are increasingly materialising across our clients' operations," said Marie Freier, Barclays' group head of sustainability.

While over half of global GDP depends on nature, efforts to quantify the benefits it provides, from pollination in food systems to water supply, remain in their infancy.

Barclays said the associated financial risks are poorly understood, making its work novel.

The bank built its own methodology for calculating nature-related financial risks across large portfolios, using the Taskforce on Nature-related Financial Disclosures’ LEAP framework as a starting point.

A cross-bank team of technical risk and nature experts spent a year analysing clients’ impacts and dependencies, including land use, water use and air pollution.

Barclays said its nature work would also help it identify financing opportunities with the biodiversity financing gap estimated at $700 billion annually.

(Reporting by Virginia Furness, Editing by Louise Heavens)