Citibank, N.A. Hong Kong / Singapore Branch Environmental Risk Management Disclosure for Discretionary Asset Management

The following disclosure relates to Citibank, N.A., Hong Kong Branch / Citibank, N.A., Singapore Branch’s (“CBNA HK / SG”) business in Citi Private Bank, including specifically the Citi Investment Management business for discretionary portfolio management activities and all assets under its management only (“CIM Business or CIM”) and does not apply to any other branches of Citibank, N.A., nor to any other businesses outside Citi Private Bank, operating through the Hong Kong / Singapore Branch of Citibank, N.A..

CBNA HK / SG are subject to relevant regulatory requirements. The CIM Business provides discretionary portfolio management services and offers a range of core, opportunistic and thematic strategies across asset classes by way of in-house and third-party strategies. Moreover, CBNA HK currently acts as the investment manager (or equivalent) of sub-funds, or components of them, of certain collective investment schemes sponsored by Citigroup Inc and its affiliates.  

CBNA HK / SG are branches of Citibank N.A, and part of the group of companies under Citigroup Inc (“Citi”). Citi approaches climate-related risks and opportunities as defined in Citi’s group-wide 2023 Citi Climate Report and this disclosure should be read in conjunction with the 2023 Citi Climate Report, which provides additional information on the implementation of the Taskforce on Climate-related Financial Disclosures (“TCFD”) recommendations at the Citi (i.e. group) level. The CIM Business is a global asset management business operating through Citi’s multiple legal vehicles and business segments. 

As part of Citi’s global asset management business, the CIM Business seeks to adopt a consistent approach in its strategy and management of client assets, including with respect to climate-related risks and opportunities. 

Good governance is a fundamental principle at Citi, and we strive to be at the leading edge of best practices. We strive to report on our activities with accuracy and transparency and comply with the laws, rules and regulations that govern our businesses. Our corporate governance structures, policies and processes promote a culture of accountability and ethical conduct across our firm.

Please refer to 2023 Citi Climate Report (Part 2) for Citi’s approach to Governance at the ultimate-parent company (i.e. group) level.  

CBNA HK / SG’s CIM Business do not have a dedicated framework for the consideration of climate risks – financially material climate risks are considered within CIM’s overall risk framework and governance alongside other material risks within CIM’s investment portfolios.

At the CIM Business level, there are business risk and control forums which provide senior managers of Citi’s wealth business globally (including CIM senior management) with updates on, but not limited to, ESG-related matters. These forums, however, do not have a specific or systematic framework to monitor specific metrics related to climate-related risks which are instead considered (where appropriate) alongside other relevant investment and portfolio risks.  

At Citi, helping our clients navigate the challenges and embrace the opportunities of our rapidly changing world is fundamental to our mission of enabling growth and economic progress. It’s also vital to our own business and central to how we deliver for our clients and help them sustain their businesses for the future.

At ultimate-parent company level, Citi has a group-wide commitment to achieving net zero greenhouse gas (“GHG”) emissions for operational emissions by 2030 and for certain financed emissions by 2050. Citi’s initial steps toward its net zero goal have focused on its banking activities, setting interim targets for financed emissions from our lending portfolios in six key sectors. Citi also continues to make progress toward meeting its commitment to financing and facilitating $1 trillion in sustainable finance by 2030  .   

The low-carbon transition presents new challenges and unique opportunities for companies which are able to benefit from the transition to a low-carbon economy, which we assess, where relevant, as part of our investment and product strategy. As clients seek to both develop and take advantage of these opportunities, we want to ensure we are positioned to support their preferences. The CIM Business however, have not set any climate-related goals or targets in relation to the metrics monitored, nor does the CIM Business  have products with climate-related investment objectives (albeit a small number of CIM products do promote environmental or social characteristics). As a global business, delegates within the group have a common approach to CIM’s strategy (and noting, for completeness, that CBNA HK / SG  CIM business does not delegate investment management to entities outside of its group, except in the event where a Portfolio Manager Executed SMA is used to manage a portion of a Portfolio allocation, in which case, the non-affiliated Portfolio Manager will be subject to similar levels of due diligence CIM performs for third party mutual funds).  

The CIM Business’s financial forecasting and budgeting processes consider potential regulatory developments impacting the business, and where appropriate and relevant, climate-related opportunities and risks, which may include considerations of market conditions, product development, and asset flows, which are linked to climate-related events or activities. However, given the nature of its business, the CIM Business does not currently expect itself to be materially exposed to climate-related risks, and so it does not assess its resiliency against this specific risk category on a standalone basis. 

We have introduced qualitative and quantitative   climate-related scenario analysis tools, as well as forward looking metrics, including Climate Value-at-Risk (“CVaR”). Scenario analysis based on available third-party climate change model  that considers factors such as Climate Value-at-Risk provide forward-looking and return-based valuation assessments to measure climate related risk and opportunities in an Investment Portfolio  . We currently do not use these metrics or scenario analysis tools systematically as part of our investment decision making processes – but as set out in the Risk Management section below, we consider factors such as Climate Value-at-Risk scores in portfolio risk management. If climate-related risks have been assessed to be material or immaterial to certain types of investment strategies or funds under its management, those are documented and reported accordingly. 

Citi recognises the impact that climate-related risk drivers can have on several of our key risk categories. Such risks can manifest themselves differently across our risk categories in the short, medium, and long term and may be either physical or transition-related climate impacts. These risks are further explained in the 2023 Citi Climate Report (Part 4). CIM only considers climate-related risks in our risk management processes in a limited capacity (as described in the Risk Management section), with transition risk and physical risk metrics available to CIM alongside other traditional risk metrics, which are relevant to assess short to medium term risks, and long-term risks respectively.

In relation to the assessment and identification of climate-related issues and opportunities, we understand that sustainability issues are closely related to business and investment issues and may pose material risks which can result in financial impacts, such as business disruptions caused by extreme weather, or regulatory fines related to non-compliant business practices. To mitigate such risks, CIM looks into understanding how companies have future proofed their businesses models to consider climate-related risks.

Certain products managed by CIM (Citi Global Equity ESG Focus Portfolio, and Citi Global Fixed Income ESG Focus Portfolio)   apply the following fossil fuel-related exclusions (alongside other exclusions) aimed at restricting investment in companies that do not meet widely accepted ethical, regulatory, or environmental standards:

Exclusion of companies that have greater than 10% revenue in a company’s prior fiscal year from either production or distribution of the following fossil fuel categories:

1. Thermal Coal Generation
2. Shale Gas Production
3. Shale Oil Production
4. Oil Sands
5. Arctic Oil and Gas

Citi continues to integrate climate-related matters into the overarching risk management framework and processes and collects and analyses relevant data to support this effort. Tools to identify, assess and manage climate-related risk and scenario analysis capabilities continue to be explored, developed and enhanced.

Citi’s approach to managing climate-related risk is detailed in the Climate Risk Management Framework (“CRMF”) set out in the 2023 Citi Climate Report (Part 4). 

We consider climate-related risks in our investment processes in a limited manner. We monitor climate-related risks as components of broader ESG risk ratings (from third parties), individual securities’ physical and transitional risk alongside other financial metrics and CVaR. Details on how we consider those risks are described below:

The CVaR metric has been developed by an independent vendor (MSCI) to provide forward-looking and return-based valuation assessments to measure climate related risk and opportunities in an investment portfolio. CIM will run the scenario analysis of certain investment strategies by comparing its CVaR against the benchmark. In the event the portfolio risk is higher than the benchmark, CIM reviews the materiality of the risk and may address it as deemed appropriate.

CIM integrates climate-related risk through broad sustainability risk assessments into its investment selection process in the following ways, depending on the asset class concerned. These risk ratings assess sustainability factors broadly, with climate-related risks a component of the rating alongside other risks, as per CIM’s Sustainability Risk Procedure. Climate-related risk is one of a number of risks that this business may consider and such risk forms part of its overall risk management process. However, climate-related risk is not an overriding risk indicator when Citibank, N.A., Hong Kong / Singapore Branch’s discretionary asset management business researches, constructs and manages its portfolios. Citibank, N.A., Hong Kong / Singapore Branch’s discretionary asset management business does not apply any absolute risk thresholds to determine materiality or applicability of climate risks to an investment or managed portfolio.  

For individual equity and fixed income securities, CIM obtains an ESG risk rating, if available, from a specialist third party data provider. The ESG risk rating includes climate-related risks, if applicable for the entity, and also reflects the investee company’s exposures to material ESG risks and the company’s preparedness and track record in managing its exposures to these issues. It is considered by the analyst team alongside other financial metrics (such as historical performance, expected performance, valuation, and credit rating) to reach an assessment of the merits of the investment. The results are reviewed by the investments team at CIM’s Investment Strategy Review Meeting, and where CIM considers it appropriate, incorporated within the investment process.

For ETFs, CIM obtains an ESG risk rating, where available, from an ESG specialist third party data provider. The third party data provider’s methodology to assess ESG risk relies on individual scores attributed to the ESG risks for each underlying investment of the ETF, aggregated at the ETF fund level.

For third party mutual funds, the CIM due diligence teams assess the level of sustainability risk (which would generally include climate risks as a component) in a fund via a proprietary methodology. This methodology seeks to capture and quantitatively weight responses to a set of due diligence questions regarding sustainability risk that are raised with the relevant manager. Responses to such questions allows CIM due diligence teams to assign a sustainability risk rating to the particular fund. This rating may be considered along with other traditional financial metrics when assessing whether to add a particular strategy to the CIM platform.   

Broad Sustainability training content are provided, which includes climate-related matters, in order to better equip our employees in risk, opportunities, regulations, and on product offerings. Citi has also offered our enterprise-wide training module on climate risk which is available on a voluntary basis to employees and has conducted targeted foundational training for frontline banking teams.

Our portfolio management team routinely monitors companies and Holdings to ensure that they remain appropriate and aligned with our investment mandates. We engage with investee companies through our proxy voting preferences executed via third party service vendors, which may direct votes to issues aligned to some climate risk and opportunity matters.

Meetings may be held with companies to discuss specific results or events as well as more informal dialogue incorporating site visits and other research initiatives. These meetings may cover a range of topics from corporate strategy, risk management, corporate governance, board composition and remuneration issues, and may cover climate-related risks and opportunities, though CIM does not prioritize climate matters, nor set climate-related goals.

Third party managers utilised in investment strategies may engage on matters relating to climate risk and opportunity as well as enhancements or clarifications to company analysis or process improvements, as described further below. If we are to become aware of any material issues, either financial or non-financial, we would review the investment thesis to see if this had affected the investment rationale. CIM, however, has limited engagement abilities as its holdings as a wealth manager are unlikely to on their own be significant enough to influence companies’ decision-making.  

We currently do not produce nor use emissions metrics (carbon emissions, footprint, and weighted intensity) systematically as part of our investment decision making processes since those are not systematically integrated into our strategy and/or in the investment processes of the portfolios we manage, and therefore these metrics are not available at this time.  

We do not, and have not, set any targets in respect of climate-related risks and opportunities in relation to our managed portfolios or total AUM given their non-materiality to the overall strategy and the portfolios we manage. Our processes have not, and do not specifically or systematically integrate consideration of any of the climate-related metrics disclosed in the report as part of our investment processes.