Citigroup (C -1.39%) has probably never had the best reputation among environmental, social, and governance (ESG) investors. It was the first "megabank" in the U.S., a concept that turns a lot of people off. The U.S. government also fined Citigroup $7 billion for its role in the Great Recession, alleging the bank knew about and covered up problems with its mortgage-backed securities.
But over the past decade, the bank has made a big effort to become more environmentally friendly, promote sustainability, and hire a more diverse workforce. Most recently, Citigroup announced that senior executive Jane Fraser would become the bank's new CEO when Michael Corbat retires next February. Fraser will be the first woman to lead a megabank.
Although banking often gets a bad reputation, which is not completely unwarranted, is it time for ESG investors to seriously consider Citigroup in their portfolios? I think so. Here's why.
How it meets ESG criteria
Citigroup has taken many actionable steps to prove its commitment to environmental, social, and governance issues. Last September, Citigroup created the role of chief sustainability officer. Earlier this year, the bank released its first-ever ESG report to show the progress it is making on ESG initiatives.
On the environmental front, Citigroup has already spent $100 billion on "environmental finance activities to reduce the impacts of climate change and enable positive environmental impact." The commitment, which was made in 2014, was supposed to be done over 10 years, but Citigroup met this goal in 2019.
Citigroup has also made a commitment to significantly reduce its carbon footprint. It has several goals in order to do this, including using renewable electricity at all of its 7,700 facilities globally, reducing energy consumption by 30%, and reducing water consumption by 30%, among other initiatives. As of 2019, Citigroup said it had achieved using renewable energy at 86% of its facilities and reduced energy and water consumption by more than 35% each. The bank also recently launched an investment banking group dedicated to ESG.
Citigroup is not perfect by any means. At the end of 2019, the bank had more than $19 billion in outstanding loans to the energy and commodities sector, or roughly 2.8% of its total loan book. That's larger than any other bank by total outstanding loans, although not by percentage of total loans, according to the research firm CreditSights.
But the bank does appear to be cognizant of this and is working to reduce its exposure to industries that further exacerbate climate change. Earlier this year, Citigroup pledged to wind down any banking services currently being offered to thermal coal-mining companies by 2030. It's also joined other banks in committing to not finance oil and gas projects in the Arctic.
On the diversity front, aside from hiring the first woman to lead a megabank, lawmakers recently highlighted Citigroup's plan to have women make up at least 40% of its more senior positions, ranging from assistant vice president to managing director, by the end of 2021. The bank still has work to do on other fronts, as Black workers only made up 3.4% of its total workforce in 2018.
It's good for business
Citigroup is certainly not the only bank that has made strides on its ESG efforts. But I think it has done a good job of really ramping up its efforts and showing its commitment to ESG issues, especially after earning a pretty bad reputation following the Great Recession. I'm sure many will argue that a lot of these ESG efforts are simply to save face, and I don't disagree -- showing your commitment to ESG is now truly good for business. Look at what happened at JPMorgan Chase's recent investor day: Shareholders nearly passed a resolution that would have called for the bank to release more information about its credit exposure to companies that accelerate global warming. Like it or not, shareholder demand is usually the driving force of change at a publicly traded company, and I believe Citigroup's recent move to make Fraser CEO shows a real desire to move the needle. So, if you are looking to add a big bank to your ESG portfolio, you may want to consider Citigroup.