Citigroup: a report on CSR policy and practices November 2004 W ith a case study on Indonesia Am sterdam , 2004 Contents Contents ................................................................................................. 2 Introduction of the research ........................................................................ 3 1.1: Citigroup: an introduction .....................................................................6 1.1.1: History ................................................................................................ 7 1.1.2: Corporate structure and activities ..............................................................11 1.1.3: Rankings .............................................................................................14 1.1.4: CSR ratings ..........................................................................................15 1.2: Citigroup and CSR: policy, implementation and commitments......................... 16 1.2.1: CSR Policy............................................................................................17 1.2.1.1: Corporate G overnance ...................................................................................19 1.2.1.2: Corporate Citizenship ....................................................................................30 1.2.2: N ew elem ents in Citigroup’s CSR policy ........................................................40 1.2.2.1: Corporate governance ....................................................................................40 1.2.2.2: Corporate citizenship.....................................................................................41 1.2.3: Citigroup’s CSR com m itm ents ....................................................................43 1.3: Citigroup and controversial CSR issues..................................................... 43 1.3.1: Corporate governance issues .....................................................................43 1.3.2: Corporate citizenship issues ......................................................................51 1.4: G eneral analysis and assessment of Citigroup’s CSR policy and practice ............. 62 PART 2: Citigroup in Indonesia .....................................................................65 2.1: M ethodology ................................................................................... 65 2.2: Citigroup in Indonesia; an introduction .................................................... 65 2.3: Citibank Peka .................................................................................. 67 2.4: Issue areas in the Indonesian financial sector ............................................ 69 2.5: The case of LonSum........................................................................... 74 2.5.1: Palm oil industry-related problem s .............................................................74 2.5.2: LonSum and Citibank...............................................................................76 2.6: CSR policy and practice in Indonesia: Conclusion and recommendations............. 80 Annex 1: U N EP Statem ent by Financial Institutions on the Environm ent & Sustainable D evelopm ent ..........................................................................................82 Annex 2: Equator Principles ........................................................................83 Annex 3: The G CIB Environm ental and Social Risk M anagem ent Policy ....................85 Citigroup: a report on CSR policy and practices 2 Introduction of the research SO M O (the Centre for Research on M ultinational Corporations) is a Dutch N on- G overnmental O rganisation which carries out different kinds of research for civil society use. O ur company research in particular focuses on Corporate Social Responsibility (CSR) policies, and how these are applied in practice by the firm under investigation. In the period 2003-2004, SO M O has turned its attention to the financial sector, and has conducted research on two financial firms, the U .S. company Citigroup and the Dutch company IN G G roup. In the case of Citigroup, SO M O thought it was interesting to focus our research on the Asia Pacific region, and we selected researchers in Indonesia to conduct local investigations. The research was carried out as part of our 4-year program ‘Sector Research and Corporate Social Responsibility’, and has been cofinanced by the Dutch M inistry of Foreign Affairs. The other financier of the research was N ovib (O xfam N etherlands). The distinguishing factor of SO M O ’s research is that we often include case studies on the practice of CSR in our reports. For these case studies, SO M O has an extensive network of researchers in countries of the global South. SO M O also strives to maintain direct contact with those H eadquarter employees which are responsible for CSR policies and practices in countries of the South during all company research. Citigroup seems to have a comprehensive policy to incorporate CSR principles into its corporate culture and its daily operations. This SO M O report aims at identifying Citigroup’s CSR policy and to assess how this policy is put into practice worldwide, and especially in Indonesia. In Part 2 of this research paper, Citigroup’s involvement in Indonesia is studied in depth. This case study is conducted by Business W atch Indonesia (BW I). BW I is an Indonesian N G O that was set up in 2002 to promote democratic economic governance. The research on Citigroup in Indonesia was conducted by BW I’s own personnel, with the help of experienced Indonesian journalists. The report is based on desk research and on various telephone, e-mail and face-to-face interviews with Indonesian business analysts, social analysts, LonSum management and Citibank management and employees, which were conducted in the fall of 2003. Citigroup: a report on CSR policy and practices 3 0 lossary Throughout this report, some words are underlined when they are used for the first time. These are the words that are explained in this glossary1. • Bonds: A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate. • Broker: An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. • Debt swap / debt to equity swap: A transaction in which a corporation exchanges newly issued stock for existing bonds. The debt holder gets an equity position in exchange for cancellation of the debt. • H aircut: The difference between prices at which a market maker can buy and sell a security. • Investment bank: financial institution that is in the business of raising capital for corporations and municipalities. • IPO : The first sale of stock by a private company to the public. IPO s are often done by smaller, younger companies seeking capital to expand their business. • Laddering: The promotion of inflated pre-IPO prices for the sake of obtaining a greater allotment of the offering. • M utual fund: A security that gives small investors access to a well diversified portfolio of equities, bonds, and other securities. Each shareholder participates in the gain or loss of the fund. • Predatory lending: Any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices. M any of these practices are illegal, while others are legal but not in the best interest of the borrowers. • Security: An instrument representing ownership (stocks), a debt agreement (bonds), or the rights to ownership (derivatives). • SEC (Securities and exchange commission): A government commission created by Congress to regulate the securities markets and protect investors. • Shares (also called stock or equity): Certificates representing ownership in a corporation. • Shareholder: Any person, company, or other institution that owns at least 1 share in a company. • Spinning: The practice of brokerage houses exchanging IPO shares with top executives for reciprocating business from their companies. • Subprime loan: A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. 1 Sources: www.investorwords.com, http://economics.about.com/od/economicsglossary/index.htm www.investordictionary.com, www.investopedia.com, www.thefreedictionary.com, 23 June 2004 Citigroup: a report on CSR policy and practices 4 • Syndicate: A group of bankers, insurers, etcetera, who work together on a large project. • U nderwriting: The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). Bankruptcy: The legal process in which a person or firm declares inability to pay debts. Brokerage firms: Financial services firms involved in the securities markets. They act as brokers, dealers, and investment bankers. Financing: N ew funds provided to a business, by either loans or purchase of debt securities or capital stock. H edge fund: A private investment fund or pool that trades and invests in various assets such as securities, commodities, currency, and derivatives on behalf of its clients, typically wealthy individuals H olding company: A corporation or other entity that owns a majority of stock or securities of one or more other corporations, thus obtaining control of the other corporations. Balloon payment: A final loan payment that is considerably higher