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May 09, 2011
Citi Adds ESG Cash Collateral Management Option to Securities Lending
    by Robert Kropp

The bank partners with Sustainalytics to provide a sustainable investment option for its securities lending cash collateral investment program.


The practice of securities lending, which, according to a 2009 Standard & Poor's report, "is an over-the-counter market that involves the borrowing and lending of securities predominantly for the purpose of covering short-sale positions," began to receive increased regulatory scrutiny in the aftermath of the financial crisis, when the ensuing credit crunch led to losses for institutional investors.

The securities lending program of the
California Public Employees’ Retirement System (CalPERS), for instance, lost $634 million in a one-year period that ended in March 2009.

Acknowledging that what was formerly considered the relatively low-risk practice of investing otherwise dormant assets can be anything but in a period of severe liquidity challenges, the Securities and Exchange Commission (SEC) announced in late 2009 that it would consider new regulatory restrictions on securities lending.

"For a long time, securities lending was regarded and described as a relatively low risk venture, but the recent credit crisis revealed that it can be anything but low risk," SEC chairwoman Mary Schapiro said at the time.

In response to increased risk management concerns, as well as the likelihood of increased regulation, Citi announced last week that it has added a sustainable investment option to its securities lending cash collateral investment program. In partnership with
Sustainalytics, a provider of environmental, social, and corporate governance (ESG) research and analysis, Citi will now allow securities lenders to invest cash collateral according to ESG considerations.

According to a press release, "Citi's commitment to integrating social and environmental responsibility into its global operations is long-standing." Citigroup, the bank's holding company, is a component of the
Dow Jones Sustainability World Index (DJSI), and in 2010 it became the first major US-based bank to join the United Nations Global Compact.

Citigroup received $45 billion in government aid from the Troubled Asset Relief Program (TARP), $20 billion of which it paid back in December 2009. The firm was criticized by former New York Attorney General Andrew Cuomo for awarding $5.3 billion in bonuses in 2008, despite the bailout and losses of $28 billion.

Michael Jantzi, CEO of Sustainalytics, stated, "Sustainalytics is excited about working with Citi to support its pioneering ESG cash collateral management offering. Our organizations share a common commitment to innovation and creating solutions that allow clients to integrate ESG into a broad range of their investment activities."

 

 
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