Citi must get rid of fossil fuel investments and help tackle the climate crisis
- Citigroup was overwhelmingly bailed out by US taxpayers because it failed to manage major financial risks.
- The bank is exposed to enormous risk of assets stuck in fossil fuels.
- Citi’s new CEO, Jane Fraser, must show global leadership and grasp the energy transition.
- Tim Buckley is Director of Energy Finance Studies, Australasia at IEEFA.
- This is an opinion column. The thoughts expressed are those of the author.
In September 2007, with a mortgage crisis clearly on the horizon, Citigroup CEO Charles Prince III met with his senior executives to understand whether the bank – then the largest in the country – was at risk. The consensus was no.
How wrong they were. Within a year, Lehman Brothers collapsed, causing a global financial collapse. Citigroup lost 90% of its value and 75,000 employees, and ultimately needed US taxpayers to bail it out.
From that low point, the bank has worked hard to rehabilitate its image, but not its ability to understand and manage the main global financial risks.
This month, Citi was named Joint Lead Managers for Suek, Russia’s largest coal miner, and owner of 17 gigawatts (GW) of coal-fired power plants. The proceeds from this bond issue will help finance an additional 1.6 GW of coal-fired electricity and an additional 28 million tonnes of new coal export port capacity per year.
This agreement is in direct contradiction with the Paris Agreement and the conclusions of the recent Net Zero by 2050 roadmap of the International Energy Agency (IEA), which could not be clearer, according to which for to avoid an impending climate catastrophe, there must be “no investment in new fossil fuel supply projects, and no other final investment decisions for new, unstressed coal plants.” “
It also contradicts the spirit of Citi’s commitment to Net Zero by 2050, announced by CEO Jane Fraser on her first day on the job. As a result of this engagement, Citi joined the Financial Services Working Group of the Sustainable Markets Initiative, the Net-Zero Finance Alliance chaired by Mark Carney, put in place a strengthened but still flawed coal exit policy and a deployment of $ 1 trillion of capital as part of a promise of low carbon solutions.
What good are the commitments and promises of action in the distant future when there is a climate emergency today?
Banking on climate change
Citi remains one of the biggest global climate laggards, ranked by the Rainforest Action Network as the second largest fossil fuel funder in the world in the five years leading up to 2020 (second only behind JPMorgan Chase). The bank has funded a staggering $ 237 billion in total, many multiples of the nearest Chinese mega-banks.
As a former CEO of Citi, I want to see the bank succeed. But a crucial change is expected after two decades of continued market underperformance. From my days at Citi, I have worked primarily in the energy technology arena, tracking the role of global finance and assessing stranded asset risks and climate investment opportunities. At IEEFA, we have followed 180 globally significant financial institutions with formal coal exit policies. To date, in 2021, we have seen 68 new or improved coal policies – a 33% increase over the execution rate in 2020, which in turn was 60% higher than in 2019.
And with the growing number of zero-emission commitments at 1.5 degrees Celsius, we are witnessing an accelerated global flight of the monumental risk of “stranded assets” in investments in fossil fuels, especially coal, oil and gas. , Arctic drilling and oil sands. As Wood Mackenzie reported in August 2021, “the pool of investors who will invest agnostically in the oil and gas sector, indifferent to the energy transition, will continue to shrink.”
When it comes to the climate, US banks are lagging behind European and Asian banks. But with President Joe Biden’s decisive climate leadership and increasingly clear climate risk guidance from the US Department of the Treasury and the Network for Greening of the Financial System, now is the time for Fraser to pull away from the pack. and show the way.
Fraser must shy away from the pride of former Citi executives and show clarity of vision to see the obvious global financial risks for what they are. A start would be to make a more detailed pledge at COP26 next month, a pledge that rejects activities such as funding giant Russian coal companies and similar projects that the world will soon be forced to abandon.
Citi must also commit to setting a clear end date beyond which the bank will not provide financial assistance in connection with its advisory, debt, equity and capital market services, to any business that continues to develop oil, gas and coal operations (including associated facilitation of rail and port infrastructure).
These kinds of massive policy reversals are possible. BlackRock, the world’s largest financial institution, has grown at breakneck speed from also lagging behind on global climate in 2019. In 2021, CEO Larry Fink enthusiastically beat the drums on the sheer scale of opportunity investment implied by climate change. The company has set records on new zero-emission infrastructure, private equity in emerging climate technologies and ESG capital raising. Those records were then broken when Brookfield and TPG followed suit, catching up with innovative global financial leaders like the Macquarie Group.
Citi should carefully assess the substance of BlackRock’s backbone. The mega-bank can align its investments with the IEA’s net zero guidance, thereby improving its risk-return profile.
To counter the rapid growth in global emissions, the world needs financial leadership to move away from old fossil fuel companies and start delivering the multitude of commercially viable technological solutions today.
Fraser should focus on the huge opportunities to provide financial services to the zero-emission global leaders of tomorrow, and turn the bank’s sad past into global leadership.