Jane Fraser, who took over as Citi’s chief executive on March 1, 2021, wasted no time in putting ESG at the top of the bank’s agenda. On her first day she announced the bank’s commitment to net-zero greenhouse gas emissions by 2050.
In doing so, Fraser was joining many of her peers that have already announced similar goals, but Citi’s target is based on substantial work already done over the previous year, both in terms of its own commitments and also its work in helping clients meet their goals. For its efforts in transforming its approach, Citi wins the award for North America’s best bank for sustainable finance.
Fraser’s quick acknowledgement of the importance of the topic reflects the fact that the bank has lagged in some ESG areas in the past. But the last 12 months have seen a blizzard of initiatives aimed at addressing that. From its 2025 sustainable progress strategy and $250 billion environmental finance goal, to updates to its policies on coal-fired power generation, to the creation of new business groups such as sustainability and corporate transitions, sustainable debt capital markets, and natural resources and clean energy transition, the bank has been busy getting itself into shape.
Citi’s sustainability and corporate transitions group is led by Keith Tuffley and Bridget Fawcett. It was established in May 2020 alongside a sustainability council and the designation of about 100 bankers as sustainability champions throughout the firm. Fawcett argues that the pandemic year made such work all the more important.
“The Covid pandemic has been a tipping point for the importance of sustainability,” she says. “In some ways it has driven US companies to recognize that while they might have needed to deal with short-term financial issues such as ensuring they had enough liquidity and appropriate capital structures under stress scenarios, they have also recognized that investors are increasingly focused on the overall resiliency of business models. There has been a shift in mindset.”
Citi ranked second in the awards period for US dollar green, social and sustainability-linked bonds. It brought the first such deal from a semiconductor firm, a $400 million green bond for Analog Devices in April 2020. It brought $1 billion in green bonds for Xylem (its first) and for Verizon. It led North America’s first sustainability-linked bond, a $900 million issue for NRG, and it issued its own inaugural $2.5 billion social bond in October 2020, which was the largest from the private sector at the time.
The investments necessary to effect the energy transition to net zero are tremendous and companies need banks to help support them in the transition
Bridget Fawcett
But the market has moved on a long way from its green bond beginnings and Tuffley says that one of Citi’s strengths is its reach.
“The team that Bridget and I created is focused on the massive strategic developments that are taking place for clients,” says Tuffley. “Citi’s differentiator is the number of touch points that we have with those clients – it may be through being the M&A adviser or through our corporate banking services or we may have a strong relationship with the treasurer, and of course we have the balance sheet.”
The bank has been active in bringing the European-style sustainability-linked loan to the US market. One leading example was the $4.4 billion revolving credit facility for BlackRock that it closed at the end of Euromoney’s awards period, which ties the cost of the facility to the volume of BlackRock’s sustainable assets under management, its annual growth in female leadership, as well as representation of Black and Latino employees.
In equity capital markets Citi has always been a major player in the Spac segment, but volumes surged during the pandemic year. Citi has made a particular focus of ESG-linked Spacs, whether at the IPO or de-Spac merger stage.
“In the Spac market we have been super active in working with ESG-focused sponsors that are looking to use Spacs as a way to shift capital towards businesses that are driven by sustainability issues,” says Tuffley.
Examples include advising on the $2.2 billion merger of Decarbonization Plus Acquisition Corp with Hyzon Motors, a company making hydrogen fuel cells and the vehicles that use them, and residential solar financing platform Sunlight Financial, which completed a $1.1 billion merger with Spartan Acquisition Corp II.
As always, the circle that many banks must square is how to reconcile their sustainable commitments with the continued financing of polluting industries. Citi remains one of the biggest lenders to the coal sector, although Fraser has made clear that it will scrutinize its relationships with clients that show no signs of a commitment to transition.
Fawcett is in little doubt that even those clients with the biggest challenges need banks like Citi to help them manage change.
“The investments necessary to effect the energy transition to net zero are tremendous and companies need banks to help support them in the transition,” she says. “This is true for those companies in the hard-to-abate sectors and for growth companies bringing new technology solutions.”
