Barclays Rebuilds Carbon Trading Desk after a Decade Long Hiatus

Barclays Plc has re-established its presence on a market that it left a little more than a decade earlier: carbon trading.

According to sources familiar with the hiring procedure who declined to identify themselves because they were not authorized to discuss job changes, the London-based bank hired Oliver Morning, a Shell Plc veteran, to lead the operation.

Morning, as Barclays’ head of carbon products and environmental trading, will lead the firm in a market where hedge fund managers and private equity firms, along with bankers, are all lining up to make significant profits.

In an interview, Philip Hardwick said that Barclays had previously stayed away from anything that smelled of a physical product. This hire is a significant change.

Morning was unable to be reached by phone, IB chat or LinkedIn. A spokesperson from Barclays refused to comment.

The rise of carbon trading within commodities desks is another indication of the changing reality that shapes financial markets. Companies are being forced to reduce their carbon footprints by new and more stringent climate regulations. As they are running out of time for real emission reductions, some companies turn to external levers like carbon credits to achieve net zero targets.

Carbon markets and high quality credits are seen as a way to accelerate net zero transition, said Camille Petre. She is the chief financial officer of BeZero Carbon. Carbon credits are risk instruments, and the quality of carbon credits is a spectrum.

These risks are becoming harder to manage for corporations, creating new opportunities for the financial industry.

Carbon markets are divided into two categories: voluntary and compliance. Hardwick says that for banks, the most attractive option is to become intermediaries in the unregulated voluntary markets.

Barclays may be able to access credits by trading carbon. Hardwick is now the chief executive officer of Hardwick Climate Business Ltd. in London, which develops carbon projects and provides environmental finance advice. He says the most important thing for Barclays to do is to have the tools necessary to meet the growing demand from corporations for net zero pathways.

Bain & Co. is a Boston-based consulting firm that claims carbon markets offer multiple business opportunities to banks. Recent forays include deals by UBS Group AG and Canadian Imperial Bank of Commerce. BNP Paribas, SA, and six other banks have provided seed capital to a carbon credit startup.

But the people who first enter the market are not always there.

Barclays has had a rocky relationship with carbon trading. JPMorgan also tried to establish a presence, but like Barclays, they backed away as carbon prices plummeted in the 2010s and financial regulations tightened after 2008.

JPMorgan sold its stake in ClimateCare in 2011. Barclays then sold their interest in Stockholm’s Tricorona AB. JPMorgan then got out another carbon asset, EcoSecurities.

A wave of “greenwashing” scandals has exposed a wide range of misleading statements. This is a trend that has already caused some of the biggest commodities trading firms to go bankrupt.

Trafigura group was the number one trader of carbon-removal credits. , the world’s largest trader in carbon-removal offsets, announced that it had suspended a shipment as it awaited the results of an investigation into the forestry projects behind the units. Other companies have faced the same problem. Last year, Dutch traders ACT Commodities Group BV, and ACT Financial Solutions (both units of SMS Holding BV) wrote off approximately 1.5 million credits.

BloombergNEF estimates, however, that the voluntary market for carbon may eventually reach $1 trillion. According to BNEF analyst Layla Khanfar, “most, if they are not all,” companies with net-zero targets will need carbon offsets in order to reach their goals.

She said that the demand for carbon offsets will grow 35-fold by mid-century.

Edward Hanrahan is a carbon market veteran, who sold ClimateCare in 2008 to JPMorgan, only to purchase it again a few year later. He says that it’s hard to imagine a path to net zero with carbon credits.

He said: “I believe we must accept that carbon markets will become more and more important as a solution.”

He said that it was unlikely we would see the political will necessary to impose a price on carbon, and to force companies to be responsible for residual emissions. In the meantime, the voluntary market is expected to fill the gap and the large players in the market, such as the banks, will be eager to set up their trading desks.