Citigroup, one of the world’s largest banking and financial services companies, launched its new five-year sustainability strategy last week. Its new commitments are a major step forward, specifically when it comes to shifting global capital towards low-carbon development.
Citi’s strategy is comprised of three pillars:
A $100 Billion Environmental Finance Initiative to lend, finance and facilitate $100 billion towards environmentally friendly and climate-relevant solutions over the next 10 years;
A commitment to expand Citi’s environmental and social risk management approach, including conducting portfolio reviews for high-risk sectors; and
Goals to continue reducing Citi’s operational footprint, including reducing its greenhouse gas emissions by 35 percent by 2020 and 80 percent by 2050 against a 2005 baseline.
$100 billion is a big number. And it’s a number that should be put into context.
For one, it represents Citi’s expanded commitment to sustainability, building on the company’s 2007 $50 Billion Climate Initiative, a 10-year goal that the company met three years early. In its 2013 Global Citizenship Report, for example, Citi reported $8.7 billion towards the $50 billion commitment, including more than $2 billion for solar and more than $1 billion each for wind and energy efficiency financing, as well as other achievements like helping to launch the Green Bonds Principles and innovating in the energy efficiency finance market. The new finance commitment will be met by harnessing key business units across Citi, including alternative energy finance, municipal securities, export and agency finance, and many others.
Where else have we seen a $100 billion commitment?
As part of the UN Framework Convention on Climate Change (UNFCCC), developed countries have committed to mobilize $100 billion annually by 2020 to support climate mitigation and adaptation activities in developing countries. To be clear, this commitment and Citi’s are unrelated, and they can’t be directly compared for many reasons. Nevertheless, voluntary private pledges such as this one and the commitments made at last September’s UN climate summit to green more than $200 billion in investments can help build ambition towards meeting the UNFCCC goal.
How does $100 billion stack up against the need for environmental and climate finance?
According to analysis from the New Climate Economy project, the global economy will require a cumulative $89 trillion of investment by 2030, with an incremental investment of $14 trillion over that same time to achieve low-carbon growth. According to other estimates, approximately $700 billion of additional investment is needed annually in the energy sector alone to keep global warming to within 2 degrees Celsius, thus preventing some of the worst impacts of climate change. Yet according to the Climate Policy Initiative, only $331 billion of climate finance was mobilized in 2013. The world needs many more commercial banks – and policy makers and public financiers – to step up with commitments and complementary policy measures if we’re to bridge the gap between the investment needs and current climate finance levels.
What will it take to shift more private sector finance toward sustainable development?
Successfully addressing climate change requires increasing finance for low-carbon activities while phasing out investments in high-carbon sectors. Nevertheless, conducting business with emissions-intensive sectors remains profitable for the banking sector. While its $100 billion initiative is welcome, Citi was the top investment bank in the oil and gas sector in 2014, based on revenue. According to Bloomberg, Citi provided more than $1.7 billion in funding for the global coal sector in 2013.
A variety of policy and regulatory actions will be critical to making the fossil fuel business less attractive to the financial sector, including putting a price on carbon and removing fossil fuel subsidies. In addition, there are emerging initiatives to change financial institutions’ approach to portfolio risk management—and accordingly, business decisions—by evaluating risks from carbon-intensive assets, including forthcoming guidance from WRI and UNEP-FI. For its part, Citi has committed to conducting portfolio reviews of high-risk sectors, which presumably include emissions-intensive sectors.
Shifting finance away from emissions- intensive sectors toward low-carbon, climate-resilient investments will remain a challenge for banks and other players in the financial system. There is much more to do. Citi can build on its commitment by looking at ways to finance more adaptation-related projects, better integrating carbon and climate risk and financing more clean energy projects in emerging markets. This won’t be easy, but Citi’s $100 billion initiative is a strong step forward. We look forward to seeing more such commitments from the company’s peers.
Disclosure: Citi is a WRI donor. This piece was written independently, and only reflects the views of WRI.