Corporate Social Responsibility – Citi Group

Sitting on his table is a green building proposal, Bruce Schlein, the Director of Corporate Social Responsibility (CSR) at the Citi Group and an Adjunct Professor at the School of Advanced International Studies (SAIS) of the John Hopkins University, is pondering the pros and cons of the green building, weighing the measurable and immeasurable impact of the project if it goes through.

Pros going through his minds are the energy savings, increased employee happiness and satisfaction from working in a green building, and better company image and branding.

Cons include but not limited to the huge initial investment, long breakeven period, lack of disposal market if Citi wants to part with the green building in the future.

Obviously, there are a lot of measurable impacts that can help Bruce to make his decision easier, but there are also many immeasurable factors that he needs to carefully consider.  This is a typical project proposal that Citi’s CSR team receives regularly from all its global offices.

Operations

Environment Sustainability has been a very important initiative at Citi.  Operationally, it was the first bank to announce a greenhouse gas (GHG) reduction target in 2006.  In 2010, Citi announced new footprint goals for 2015, all against a 2005 baseline of 25% GHG reduction, 40% waste reduction, 20% water reduction, and 15% of the buildings portfolio Leadership in Energy and Environmental Design (LEED) certified.

Environmental and Social Risk Management (ESRM)

Citi's ESRM Policy serves as a model of non-traditional risk management.  To mitigate the risk involved in CSR projects as part of the ESRM, Citi helped creating the Equator Principals (EPs), the Carbon Principals (CPs), sector standards for forestry, palm oil, nuclear, and Mountain Top Removal (MTR) coal mining. 

The EPs, considered the golden rule for ESRM, are a voluntary set of standards of credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions.  There have been 433 transactions received ESRM review in 2011.

Citi was also one of the early developer and strong supporter of the CPs, climate business guidelines for advisors and lenders to power and utilities companies in the United States.  CPs are created to evaluate and address carbon risks associated with the financing of coal-fire projects.

MTR coal mining is a surface mining method mostly used in the Central Appalachian region of the United States.  Although Citi does not finance any MTR extraction projects directly, it does have banking relationships with clients with MTR extraction activities.

Via Citi’s Sustainable Forestry Sector Standard, Citi conducts risk assessment and promote sustainable initiatives on forestry projects.

Citi Environmental Policy Framework

With the forth mentioned operation and risk management practices, Citi is actively developing structured solution to aggregate and scale up energy efficiency.  Citi also coordinates Municipal Securities, Global Transaction Services, Community Capital, Microfinance, and consumer and Commercial Banking in the area of alternative energy.

Having established itself as a pioneer in CSR, especially in the finance industry, Citi sets up an example for all other companies who yet to have a strong effort in CSR.  What’s more impressive is that Citi’s strong push for CSR in the developing countries despite the fact that it might have put itself in a cost-disadvantage position.  It would be great to see other global countries follow suit and employ a global CSR approach.

China’s Air Pollution Problem

While this problem is nothing new, it is getting worse day by day and not taken care seriously.  It should be the top concern for the Chinese and the international communities.

Check out the BBC video on China's Air Pollution below:

Air pollution does not only bring into the Green House Gas problems, which subsequently introduces acid rain that contaminates the water, and soil.  Air pollution damages health 10 times more than water pollution does.

According to Chinese government statistics more than 500,000 people die from heart disease and lung cancer directly related to air pollution.  Beijing’s air quality was 10 times worse than New York’s in 2007, and it had grown to 16 times last year.

The photo of a typical day at the forbidden city at Beijing, China:

There have been countless articles on the internet that talk about what kind of air pollutions that China has, what kind of diseases they can bring to human beings, and what consequences they would leave for many generations to come.  This blog will focus more on the reasons and solution.

The obvious reason is China’s rapid industrialization process without any regulation on air pollution.  The main pollutant is the particles from burning coals, which is the cheapest way to generate power in China.  It is because of the exact reason why renewable/clean energy cannot blossom in China as the way they do in Europe.  The world’s average cost of electricity is about $.20/KW, USA’s is at $0.10/KW, and China’s at $08/KW without any government subsidies.  80% of China’s electricity is generated through coal burning, with the rest from Hydroelectric Power plants and other sources.  It is obvious that no electricity generator has the motivation to switch from coal because of the low cost.  Not surprisingly, many new coal-burning stations are still being built up to satisfy the ever growing appetite for electricity.

The decision to not interfere with the coal-burning way of generating energy is myopia.  The health problems, lower IQ scores and long-term effect that brought by air pollution are substantial and could take even more to recover in the future.  It’s not enough for the rapid industrialization has to offset.  It would be great to see the Chinese governments, NGOs with a focus on air quality and health care, and international institutions should work together to fight the air pollution problems at the cost of slower industrialization, but with the benefits of our healthier future generations.

Capitalism in the 21st Century – Creating Shared/Sustainable Value (CSV)

Capitalism in the old days focused entirely on maximizing shareholder equities, which should still be one of the top priorities in the 21^st century; however, creating shared value should be the number one priorities of society nowadays.  CSV is defined as creating value that meets social needs instead of the conventional economic needs.

In the last century, businesses grew at the expense of the communities they reside in.  NGOs survived by attacking businesses.  Communities did not enjoy having the large businesses around the neighborhood.

As capitalism evolves into the newest stage, all parties are becoming aware of the fact that they should work together to creating shared value to grow sustainably. 

NGOs are considering new ways to operate – cooperate with the businesses by giving them advises instead of attacking them, getting the businesses more involved in the communities rather than asking them directly for financial contributions.

Large MNCs (Multi-National Companies) should start thinking about the BoP (Bottom of Pyramid) and environmentalist as opportunities.  Because most of the developed countries are already saturated and the bulk of the growth of the world’s economy is coming from the developing countries, it would be a misstep for the MNCs to not focus on the BoPs. 

Communities are very welcome of this kind of new change and embracing this evolving type of relationship.

One of the key roles among all these parties is the businesses.  It is the businesses’ vision and ability to create shared values that would benefit all members of the society.  They should not be confused by the CSR (Corporate Social Responsibilities) and think that doing CSR is adequate.  Other the overlapping ground of ‘doing well by doing good’, CSV is actually very different from CSR.  CSR is about responsibility while CSV is about creating value. 

Companies must be leaders in bring the communities and businesses back together.  If a business can invest in setting up a vision in creating shared and sustainable value, it can become the leader of tomorrow, otherwise if it stays status quo and continue to operate in the old way, it is very possible that it will miss the next big wave of growth by losing the faiths in the communities.

Essentially, whether MNCs believe in global warming, CSV is vital for companies to survive and grow in the long run.  To develop a comprehensive strategy for CSV, it is important to target the BoPs.  As resources are getting scarcer and only companies that develop long-term sustainable solutions are positioned to grow in the new trend of the market place.