In 2003, Citi’s Markets and Banking (CMB) division developed an Environmental and Social Risk Management (ESRM) Policy to help address environmental and social issues from both a credit risk perspective and a reputation and franchise risk perspective. The CMB ESRM Policy’s core elements are based on the Equator Principles, a set of environmental and social guidelines adopted by Citi's project finance business and based on the policies of the World Bank’s International Finance Corporation (IFC).

The ESRM Policy applies a rigorous environmental and social review of certain financial transactions where the use of proceeds is known. Once identified, each ESRM Covered Transaction must be reviewed and receive the appropriate ESRM risk category, which is based on the IFC’s environmental and social risk categorization criteria (see box). The policy is a culmination of Citi's increased attention over the past four years to integrating environmental and social considerations into its financing business.

Category A transactions, or those with sensitive environmental and social risks, require elevated review and approval from senior credit officers who have been appointed as ESRM Approvers.

The ESRM Unit, which is led by a director and includes a vice president and analyst, serves as a technical resource and counsel for ESRM Approvers. The group is also responsible for review, advice, and consultation on new transactions across CMB; internal ESRM training; communications and policy implementation tracking and reporting; and partnering with Corporate Environmental Affairs on external outreach with NGOs, SRIs, other EPFIs, and the media. ESRM Champions in the Europe/Middle East/Africa and Asia regions were also appointed in 2006 to assist the ESRM Unit and regional ESRM Approvers on internal outreach and tracking of projects.

In March 2006, CMB issued a refined and updated ESRM Policy. With this most recent update, ESRM Covered Transactions include:

The ESRM Policy also covers Citi's commitment to not make loans to companies that we know to be in violation of local or national laws regarding illegal logging. The March 2006 ESRM Policy update also included issuance of a more robust procedure for Citi’s investment in the forestry sector, including requirements for independent certification of certain forestry transactions (see our Forestry page).

Recognition of these innovations did not go unnoticed. In June 2006, our ESRM Team was awarded a Special Commendation “for exemplary leadership in integrating best-in-class environmental and social policies across the global operations of the group” by the judges in the inaugural Financial Times Sustainable Banking Awards.

These new policy initiatives reflect Citi's awareness of, and concern for, environmental, social and sustainability issues globally. In developing them, we have consulted widely with clients, NGOs and experts; evaluated the environmental policies of other companies; and engaged many employees within Citi. We will continue to learn from implementation and update our approach accordingly. For more details on our ESRM Policy implementation (including our implementation of the Equator Principles), please see the tables below and pages 36-37 of our 2005 Citizenship Report.

2006 Transactions Receiving ESRM Review
	Total	Category A
Project Finance (subject to the Equator Principles)	8	20
Project Finance Advisories	39	17
Corporate Loans	208	26
Other*	105	7
Total	438	70