The Cost of Living Richly: Citigroup’s Global Finance and Threats to the Environment

by Ilyse Hogue

Flying low over a pristine rainforest region in the remote Urubamba region of the Peruvian Amazon, a helicopter brings supplies to a construction site. As the native birds scramble out of the way, the helicopter sets down on a patch of land cleared of forest as part of the Camisea project, one of Latin America’s largest gas developments.

Across the globe in Papua New Guinea, a pipeline from the Gobe oil fields cuts through the forest land and small farms. Roads built to service the project are opening frontier forests to timber companies, increasing the threat of soil erosion that will load the rivers with silt and kill the country’s offshore coral reefs.

Thailand’s Ratchaburi power plant lies just across the border from Burma’s ongoing human rights nightmare. The plant processes gas from the Yadana and Yetagun gas pipelines that are one of the main revenue earners for Burma’s military dictatorship. The pipeline, much of it built by forced labor, cuts through the largest, richest block of moist forest in Indochina.

In the western hemisphere, the battle continues to rage over some of the last remaining old growth forest in the United States: Headwaters Grove in Northern California. While activists fight Pacific Lumber to save spotted owl habitat, the cutting continues. With it, so does the pollution of nearby streams and rivers, choking the spawning ground of the endangered Coho salmon.

At first glance, all of these projects have one thing in common: they damage what’s left of the world’s forests and, by contributing to fossil fuel burning and deforestation, they contribute to the worsening of global warming. But dig a little deeper and they also share a startling denominator. All were made possible through financing by the world’s largest financial institution, Citigroup.

Cut to billboards around many major U.S. cities.

“Who would you rather impress? Your accountant or your children?”
“Make sure all the pictures in your wallet aren’t of dead presidents.”
“Be independently happy.”

These are slogans from Citigroup’s new $100 million advertising campaign. The tag line is “Citi — Live Richly.” It is the juxtaposition between these two presentations of one corporation that is at the center of controversy over the role that the Citigroup plays in financing the fossil fuel, mining and logging industries.

A growing environmentalist campaign is insisting that Citi’s record of financing the fossil fuel, mining and logging industries around the world is fundamentally incompatible with the company’s massive public relations initiative to present itself as the avatar of personal financial security for consumers. Citi-financed projects, say environmentalists, are promoting environmental insecurity — not only damaging local ecosystems, but undermining the livelihood of communities around the world and threatening the well-being of people across the globe through climate change.

Over the last decade, the flows of private finance to support the Third World have rapidly accelerated. Private foreign finance now plays a much bigger role than public monies — including loans from the World Bank and other development banks, and foreign assistance — in determining what big projects get built in the Third World, whether pipelines, factories, mines or energy plants.

But the private funders, of which Citi is the most prominent, exercise far less environmental and social screening of projects they might fund than does even the much-criticized World Bank. The unfolding campaign against Citi aims to change that.

The Finance-Environment Nexus

There is little dispute now as to the perils of global warming and forest destruction, though much hand-wringing remains over who is responsible and what should be done.

There is near-total scientific consensus as to the reality of global warming, and an emerging scientific consensus that the phenomenon — which threatens to submerge vast stretches of coastal lands and lead to surges of tropical disease, among many other ills — is now underway. The five hottest years ever recorded occurred in the 1990s. In 1998, the hottest year ever recorded, severe weather patterns caused more financial loss than they had during all of the 1980s, killing an estimated 32,000 people, displacing 300 million, and causing $89 billion in damages. In January 2001, the Intergovernmental Panel on Climate Change (IPCC) — the global network of all the world’s leading climatologists — cited “new and stronger evidence that most of the observed warming of the last 50 years is attributable to human activities.”

The world’s forests, which act as giant reservoirs of carbon, are an integral part of the planet’s climate system, both a massive carbon source and one of the planet’s best natural lines of defense against climate destabilization. Forest destruction releases vast amounts of carbon into the air, while at the same time eliminating the planet’s ability to absorb carbon. “Forest protection is a key strategy for confronting global warming,” says Mike Brune, campaigns director at Rainforest Action Network. Forests are key to maintaining local ecosystems and supporting indigenous communities. “Old growth forests are home to over 50 percent of the planet’s plant and animal species and three-quarters of the world’s traditional indigenous peoples,” Brune notes.

Yet according to the World Resources Institute, 78 percent of the world’s original old growth forests have been logged or degraded, and remaining intact forests are highly threatened by logging and development. “In this day and age, destroying old growth forests is like hunting whales to extinction or slaughtering elephants for ivory,” says Brune.

The era of old growth logging seems to be coming to a close. Polls and consumption patterns show that the U.S. public is demonstrating opposition to any more use of old growth forests for wood and paper products. In a national poll conducted by the Los Angeles Times last year, nine out of ten people said it is important that wilderness be preserved. Even in the private sector, hundreds of corporations — many small businesses, but also large companies including IBM, Hewlett Packard and Home Depot — have changed their business practices to stop using products from old-growth forests.

Now it is no longer tenable, say environmentalists, for the global financiers to fund project development while ignoring or giving short shrift to urgent environmental problems.

The connection between finance and global warming is not lost on the insurance industry. Forced to pay out claims, large insurers like Swiss Re and Munich Re have begun to evaluate their exposure to the industry which accelerates global warming: the fossil fuel sector. In the year 2000, the Overseas Private Investment Corporation (OPIC) published a report on its investments in fossil fuels. Environmentalists say this acknowledgement by major financial institutions of their own exposure and contribution to the onset of global warming has the potential to signal a fundamental redirection of capital flows in the energy sector away from destructive projects and towards renewable alternatives.

Some institutions have moved to take action, including several prominent European banks. In late 2001, the top Dutch Bank, ABN/AMRO, instituted a policy that prohibits the financing of extractive industries and projects that degrade old growth forests. ABN/AMRO’s statement asserted that ABN Amro will “no longer finance projects or operations which will result in resource extraction from, or the clearing of, either primary or High Conservation Value forests.” The bank will consider exceptions only “where extraction is part of a carefully planned, responsible national forest management program or where the company is FSC [Forest Stewardship Council] certified for operations in that forest.” The policy applies to all sectors that might affect forests, including logging, pulp and paper, mining and oil & gas development.

Herman Mulder, head of ABN/AMRO’s Risk Management division, believes that the new credit practice will be widely adopted quickly. “Companies that manage their environment poorly will suffer financially,” he told the Dutch publication Volkskrant. “Clients and shareholders walk away, employees will seek another boss.”

The industry leader, Citigroup, has yet to adopt this point of view, however. According to Bloomberg Financial Services Analytic in 2001, Citi is the number one funder of oil drilling and new pipelines, with 28 percent of the global market share. Citi is also the top funder of new coal mining, holding 51 percent of the global market share, according to Bloomberg. Citi ranks as third largest funder of forest products and paper production. Citi dominates the financing of projects in sectors that promote global warming and destroy the ecosystems that could offset adverse impacts of climate change.

A survey of Citi’s fossil fuel portfolio makes the company’s strategy abundantly clear: in an age when global warming and forest destruction are widely recognized as global threats, Citigroup chooses to be the top financier in the exploration for new oil and gas and the industries that get those fuels to market. Citi claims to be a global leader, but it is leading in the wrong direction, say environmentalists.

The Bottom Line

“We understand that conducting business in an environmentally responsible manner is an ongoing process, and we are committed to taking a leadership role in the financial industry through our efforts in community, environmental and social initiatives,” reads Citigroup’s statement on its environmental commitment. “We are committed to protection of the environment and the health and safety of our employees and the communities in the more than 100 countries in which we conduct business. We recognize that environmental impact and sustainable development are among the most important issues affecting business today.”

But this rhetorical majesty is not matched by meaningful policies, according to environmentalists. Notably, Citi has refused calls to commit to comprehensive environmental and social criteria in its investment decisions.

“It is difficult to make sense of Citi’s stated commitment to the environment in light of the sampling of projects they fund just in the Amazon Basin,” says Atossa Soltani, director of Amazon Watch, a non-profit organization that works with indigenous and environmental organizations in the Amazon Basin to defend the environment and advance indigenous peoples’ rights. “The OCP pipeline in Ecuador, the CVRD mines in Brazil, the Camisea Gas Field in Peru; these are all projects with enormous environmental and social consequence. They are also projects that are financed by Citi.” The OCP pipeline in Ecuador has recently generated massive protests in Ecuador.

Citi insists it is a leader among financial institutions in incorporating environmental considerations into its lending and other operations, and that its participation in projects leads to better environmental outcomes.

“We have a long history of focusing on environmental concerns and developing policies and procedures that address the kinds of issues that are being raised with these kinds of projects,” says Citigroup spokesperson Christina Pretto. “In fact, Salomon Brothers, one of our predecessor companies, was the first financial institution to implement an environmental affairs program, and the program now covers our whole organization. We think that, given our history and the real infrastructure that’s in place to deal with these issues substantively, to work with our sponsors and get them to address the concerns being raised by people makes our involvement ultimately a positive thing.”

Another concern raised by environmentalists is Citigroup’s failure to capitalize on environmentally beneficial lending and investment opportunities. “Solar panels and small wind turbines have the potential to be the cheapest form of energy for millions of Americans across the country,” explains Phil Radford, executive director of PowerShift, a group working to promote renewable energy technologies. “Citibank has neglected to take advantage of the $4 billion U.S. market in solar loans. This bank is missing the opportunity to help stop global warming by phasing out fossil fuel investments and promoting clean energy now. The irony is that if Citi financed solar for people’s homes, solar energy could be made immediately affordable for millions of Americans today.”

Responds, Citibank’s Pretto: “We are the number one underwriter of state and local government debt in the United States. That is a multibillion dollar market. That financing goes to schools, public transportation, water and sewer projects – all of which are mandated by the Clean Air Act and Clean Water Act. So we have a public finance business that’s focused on underwriting projects that make a real difference in people’s lives. To ignore that would be a real distortion of the role we play in the marketplace.”

Citigroup’s heavy reliance on its consumer base and the public perception of its brand make it highly vulnerable to a campaign that uses public leverage to catalyze change. Tens of thousands of individuals have heeded a call from the Rainforest Action Network to cut up their Citibank credit cards and sign pledges not to do business with Citi until it satisfactorily addresses environmental issues. Many students around the United States have pressured their universities to sever ties with Citigroup, and students have been at the forefront of the pressure for Citi to transform its lending and trading practices.

“As long as Citi is bankrolling rainforest destruction, global warming and the displacement of indigenous peoples,” says Vanessa Pierce, a student leader at Iowa’s Grinnell College. “Students will join together to say ‘Not with my money’ to the world’s most destructive bank. We will continue to ask the tough questions of Citi, like ‘Who is living richly, and at who’s expense'?”

Ilyse Hogue is a global finance campaigner with the Rainforest Action Network.