Commitments and challenges
Of course, announcements without action or accountability are mere words. So what must we do, and how will we know if we are succeeding? Following the money is one way. Citi has committed to providing $1 trillion in sustainable financing by 2030. This commitment includes extending our environmental finance target to $500 billion by 2030, plus an additional $500 billion in areas such as affordable housing, economic inclusion, and gender equity. Along with funding clean energy, green buildings, and sustainable transportation, we are directing funding and advisory services away from those that don’t have a strategy to phase out reliance on coal. Internally, we’re incorporating sustainable finance and climate strategy into the scorecards for our CEO and other senior executives.
Like others, we’re continuing to integrate climate change risks into overall strategy, corporate governance, and risk management practices. The problem? Risk assessment requires robust climate, company, and asset-level data, so data quality and consistency must be improved as we assess the impact of businesses on global climate change and the impact of global climate change on businesses.
Recognizing the need for better data and transparent reporting, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures issued recommendations in 2017 for voluntary, consistent climate-related financial disclosures, but concluded in 2020 that disclosure of the financial impact from climate change remains low. As a result, lenders, investors, and insurers can’t gauge which companies will struggle or flourish amid changes in the environment, the regulatory environment, technology, and customer behavior. Moreover, the task force adds, absent better data, financial markets “may potentially face a rocky transition to a low-carbon economy.”
With regard to transparency, I’m proud that Citi has reported its greenhouse gas emissions for nearly two decades and, in 2018, was the first major US bank to release its initial climate disclosure report, following the task force’s recommendations. Others are doing the same; by late 2020, more than 1,500 organizations had expressed their support for the task force framework.
Banks will help fill the information gap. Citi and scores of others are working through the Partnership for Carbon Accounting Financials to develop global standards to measure and disclose the greenhouse emissions associated with bank loans and investments. In a similar vein, Citi and other banks have been experimenting with the Paris Agreement Capital Transition Assessment tool, open-source software to align bank loan portfolios with climate benchmarks.
As with other crises, we know that climate change will disproportionately affect communities of color and the poorest members of society. Federal Reserve Board Governor Lael Brainard highlighted this disparity in a recent speech, noting that lower-income communities often are in areas that are particularly vulnerable to climate-related risks, including health risks and weather disasters. Steps toward a more sustainable future must include conversations about environmental racism and inequality; these issues are inextricably connected, and to neglect that when undertaking sustainability initiatives would be shortsighted and unwise.
Citi’s 2020 ESG report expressed our support for action to create a just, sustainable future, including through carbon pricing and disclosure of climate risks, and we’ll continue to report on our progress across our many initiatives.
