In an opinion column published on CNN, Citi CEO Michael Corbat highlighted the positive impact the financial sector could have in the fight against climate change, including leading efforts towards a sustainable post-COVID-19 recovery, helping to finance the transformation of the world’s energy systems, and working with companies to improve their sustainability profiles. Corbat also stated his belief that financial institutions must be prepared to turn away from businesses that are not aligned with emission reduction goals.

One of the key focus areas for Corbat is the need for financial institutions to set standards to measure and disclose the environmental impacts of companies and their operations. Corbat underlines the importance of these initiatives, as they are fundamental to the ability of companies to understand their own impacts, and to investors and other stakeholders in assessing the risks and opportunities of businesses. Corbat writes:

“This transparency, in turn, will help insurers, credit rating agencies, lenders and other investors better evaluate and price those risks and opportunities. It will also give companies an incentive to disclose, take action on and address their environmental impacts.

“I’ve always believed that you can’t manage what you can’t measure, and that’s especially true with a warming planet. It’s imperative that banks like ours continue to develop tools to understand the consequences of climate change across our lending portfolios.”

Corbat continues by calling on financial institutions to engage with clients on their sustainability efforts, and ultimately to be selective in the business they pursue. According to Corbat:

“We must be willing to have frank conversations with our clients about what they need to do to reduce their emissions — and if we aren’t aligned on the need to make this transition, then we must have the courage to walk away.”

While the Citi CEO acknowledges that some investors and sustainability-linked organizations have called on major financial institutions to exit their fossil-fuel related businesses, Corbat argues that a blanket ban on the industry would have a devastating economic impact, and prefers to continue financing the sector, while engaging with companies to improve their carbon impact:

“So while we recognize that the fossil fuel industry must drastically reduce its carbon footprint over the coming decade, we believe in working with them, not against them. For example, some energy producers are already taking steps to address their emissions, such as reducing methane leaks from their production processes, and the largest among them have the R&D capacity we need to develop new technologies and unlock new paths to a low-carbon energy future.”

ESG Today notes that several banks and financial institutions have taken concrete steps to distance themselves from the fossil-fuel industry. Las month, Deutsche Bank announced that it will end its global business activities in coal mining by 2025, and that it was launching a systematic review of all its global business activities in the oil and gas sector this year, with the aim of subsequently setting limits for its overall business activities in the coming years. Credit Suisse recently committed to substantial restrictions in its financing of coal-related businesses, and announced that it would reposition its oil & gas business by reducing exposure to traditional business in order to align resources to support clients in their ongoing energy transition, while exiting all financing business related to offshore and onshore oil & gas projects in the Arctic region. Societe Generale has also recently published a new thermal coal policy, committing to no longer service companies generating over 25% of their revenues in the thermal coal sector and which do not have a credible exit strategy from the coal sector, or those developing new mining, power plant or infrastructure projects related to thermal coal.

Corbat highlights some of Citi’s own accomplishments and commitments toward driving a sustainable transition. The company was 4 years early in its recent achievement of its 10-year goal to finance and facilitate $100 billion in environmental activities, and has now announced a new 5-year target to support a further $250 billion in environmental activities.