Global Citizenship Report 2017

Higher-risk, project-related transactions receive in-depth reviews against applicable standards by independent environ- mental and social consultants. If gaps are found between a client’s environmental and social plans, policies or practices and international standards, we develop an Environmental and Social Action Plan (ESAP) to fill the gaps. As a condition of financing, we require the client to implement the ESAP, and we monitor progress over time. The application of our ESRM Policy helps us identify additional risks beyond traditional credit risks, guides decisions for how to evaluate future transactions related to companies or projects within high-risk sectors, and presents opportunities for us to advise clients on solutions to thematic risks. To learn more about our ESRM Policy, including Areas of High Caution, sector-specific standards and policy prohibitions, visit our Environmental a nd Social Policies and Standards webpage and our Environmental and Social Policy Framework. Monitoring the Changing Risk Landscape The ESRM team uses a number of methods to proactively scan the changing risk landscape for both new, emerging risks as well as risks with increased prominence and preva- lence. We continually evaluate these risks for both specific clients and projects, and more broadly in high-risk industries and stakeholder areas of concern. Using a systematic, data-driven approach, we’re able to flag emerging issues of concern, fine-tune our risk management, raise awareness within Citi about new issue areas to watch, shore up our approach to specific sectors, update policies if warranted and provide advice to our clients. In 2017, we flagged labor welfare as a growing concern that is receiving increased attention. As a result, we conducted research and engaged our clients to explore new technologies that might help them track and monitor labor welfare among their employees, thereby increasing transparency to lenders regarding compliance with social requirements in loan agree- ments. We also organized and led a webinar series with the Roundtable on Sustainable Palm Oil focused on labor welfare on palm oil plantations in Malaysia and Indonesia. Our risk monitoring feeds into our ESRM Watchlist process, rolled out in 2017, through which we flag individual companies based on their track records, sensitive or controversial assets, third-party analyst scores and/or negative news. Banking relationship managers are proactively notified of their clients’ ESRM Watchlist status. Once a client is flagged, ESRM specialists review any potential transactions for these clients (including general corporate purposes transactions) and identify oppor- tunities for client engagement to understand what steps these clients are taking to address challenges and implement improved practices where needed. UPHOLDING INTERNATIONAL STANDARDS WITH FINANCING DECISIONS While implementing our ESRM Policy, we sometimes come to the conclusion that we need to decline a transaction that doesn’t meet accepted standards. For instance, during 2017, Citi bankers in early discussions with a company about a large hydro project in Africa contacted the ESRM team for an early ESRM screening of the project. Our research identified that the project would negatively impact a World Heritage Site, a Ramsar wetland and wildlife habitat and migration corridors. Given these impacts, we determined we were not comfortable with the magnitude of the potential risks and it was unlikely the project would be able to meet international standards. As a result, we declined to continue discussions on the project. 56