Global Citizenship Report 2017

Environmental and Social Risk Management (ESRM) is one pillar of our Sustainable Progress Strategy , 5 and our ESRM-related activities and policy help us and our clients navigate a constantly evolving risk landscape and make responsible decisions. Our ESRM Policy Citi finances billions of dollars in transactions with a wide variety of companies and projects, many of which have poten- tial environmental and social impacts. We carefully evaluate and consider these risks when making financing decisions on individual, project-related transactions, during annual company reviews and when assessing entire portfolios. Our ESRM Policy, summarized in our Environmental and Social Policy Framework, is the foundation of our risk assessment process. The policy covers a broad scope of financial products and sets standards for how we assess client impacts on local communities, labor, climate change, biodiversity, air quality, water quality and other environmental and social issues. We established our comprehensive ESRM Policy in 2003 — the first U.S.-based financial institution to do so — and we continue to evolve our approach in response to emerging risks and new product development. For example, in 2017, we updated the Areas of High Caution related to Indigenous Peoples and human rights in our ESRM Policy in response to what we learned as one of the banks that financed the Dakota Access Pipeline (DAPL). In accordance with the Equator Principles, we assess project risks against applicable standards — either national law in high-income OECD countries, or the Environmental and Social Performance Standards and Environmental, Health and Safety Guidelines of the International Finance Corporation (IFC) for projects in emerging markets. Since DAPL is located in the U.S., we referred to U.S. regulations and permitting processes during our initial assessment of the project. However, as Native American opposition to the project grew, our deeper dive into the issue made it clear that international standards for consultation with Indigenous Peoples had evolved beyond U.S. law, creating a gap in expectations. DAPL lenders engaged a human rights expert to further elucidate this gap and develop recommendations for how banks can work with U.S. clients to go beyond minimum legal compliance in their engagement with Native Americans. We updated our ESRM Policy to clarify the need to exceed the requirements of national law, even in high-income OECD countries, to align with international best Environmental and Social Risk Management Large energy, infrastructure and extractive projects carry the potential for environmental and human rights impacts. At the same time, there is increased attention globally on social and environmental justice issues, especially as they relate to climate change, creating both an expectation and an opportunity for sustainable finance. At Citi, the financing decisions we make, and our assessment and management of environmental and social risks, are integral to acting responsibly as we enable growth and economic progress. 5 For performance against our Sustainable Progress Scorecard, please see the Appendi ces of this report. 54