Global Citizenship Report 2017

Citi recently collaborated with Cambridge University on a project to analyze potential stranded assets in the energy sector. The project examined the implementation of a carbon tax to curb emissions and evaluated the likelihood for upstream oil and gas assets to become stranded as a result, and the consequences for companies’ valuation and cash flow. We will continue this work, enhancing the granu- larity and scope of the analysis and considering alternatives to the carbon tax as a mechanism to curb emissions. This research is an important input into Citi’s decision-making related to our energy portfolio. Water scarcity is another risk that can strand assets. In our 2016 Citizenship Report, we discussed Citi’s test of the Natural Capital Finance Alliance’s drought stress testing tool to understand how drought affects our credit portfolio. The pilot process developed five drought scenarios for four different countries, gathering information about Citi’s port- folio of clients that would be impacted under each scenario. The exercise revealed a number of data gaps that need to be filled to provide a more rigorous analysis and understanding of drought risk. It also illustrated the significant variation in each country’s vulnerability. In 2017 the Alliance released a summary report that provides further information about the tool and high-level findings. Reducing Credit Exposure to Coal Coal mining is one industry affected by the shift away from fossil fuels and toward low-carbon solutions. In 2016, we updated our Coal Mining Standard to include additional due diligence, and implementing this policy remained a focus for us in 2017. We have committed to reducing our credit exposure to this industry over time, an effort that applies globally to companies generating a majority of their revenues from coal mining activities and to coal-focused subsidiaries of diversified mining companies. To deliver on our commit- ment to credit exposure reduction, we have reduced and are actively measuring and tracking our credit exposure, which is reviewed by senior management in our businesses as well as our Risk and Public Affairs functions. Implementation of this policy has led to more selectivity, in some cases leading us to decline onboarding of new coal mining clients. Enhancing Our Training Each year, we train key risk and banking personnel on our ESRM Policy, including in-depth discussions on environmen- tal and social risks relevant to certain regions and sectors, Equator Principles implementation and Citi Sector Standards. The training also includes emerging risks and guidance to help employees recognize environmental and social risk in transactions — ranging from climate change risks to human rights risks to labor concerns and more. We guide our bankers through screening for environmental and social risks and conduct interactive case studies. During 2017, we conducted ESRM training for 519 Citi employees. WHAT’S AHEAD In 2018, the outcomes from the UNEP FI pilot on TCFD will begin to help inform our approach to managing climate risk, as well as our related disclo- sures. We will put our research on labor rights into action by enhancing our Palm Oil Sector Standard questionnaire with specific questions related to systemic labor risks on oil palm plantations, and we will seek opportunities for our clients’ to implement new labor welfare monitoring technologies to better assess labor practices deeper in the contractor supply chain. We will work to better understand how we can most effectively address deforestation risks in our clients’ activities and champion progress in conserving high conservation value forests. Citi will also actively participate in the Equator Principles update process, helping to design the next iteration of this global standard for banks evaluating environ- mental and social risks. Citi 2017 Global Citizenship Report 59 CONTENTS    INTRODUCTION    HOW WE DO BUSINESS     SOLUTIONS FOR IMPACT    APPENDICES Conduct and Culture    Digital Innovation    Talent and Diversity    Human Rights    Environmental and Social Risk Management     Operations and Supply Chain