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Breakingviews

Breakingviews - Citi’s new CEO can lead on ESG if not returns

Workers are seen in at Citibank offices in the Canary Wharf financial district in London, Britain, November 17, 2017. REUTERS/Toby Melville

NEW YORK (Reuters Breakingviews) - Citigroup’s decision to choose Jane Fraser as its next chief executive shows that it is becoming the U.S. banking industry’s ESG leader. Granted, that’s a relatively low bar on environmental, social and governance criteria alike. But the $109 billion lender stands out from the crowd. Cementing that advantage will be one of Fraser’s tasks – but so will boosting the lender’s long-term earnings drag.

When Fraser takes the reins from Mike Corbat next February, she’ll be the first woman to run a top-10 U.S. bank by assets. Corbat had already set a goal of women accounting for 40% of more senior staff by 2021. Rivals aren’t standing still –Marianne Lake and Jennifer Piepszak are contenders to succeed JPMorgan Chief Executive Jamie Dimon. But Fraser’s promotion is the most obvious sign of improving gender equality – and when she joins the board almost half the directors will be women.

Citi was already a leader on governance, splitting the chairman and CEO roles more than a decade ago, a separation that will continue. JPMorgan, Bank of America, Goldman Sachs and Morgan Stanley combine the jobs. Moreover, Citi has done a good job of preparing the CEO change. Fraser was anointed Corbat’s successor last year – a far cry from the 2012 boardroom coup that ousted his predecessor, Vikram Pandit.

And the bank has been making strides on addressing climate change, too. Just this week it was one of the firms to approve a Commodity Futures Trading Commission-backed report highlighting the dangers to the U.S. financial system of global warming. In July it pledged, along with BofA and Morgan Stanley, to detail the emissions risks embedded in its loan and financings books. And it’s the only U.S. bank to sign up for the United Nations Principles for Responsible Banking.

There’s still more for Fraser to do – Citi is still a major financier to the fossil-fuel industry, for example. But she also has to tackle Citi’s longstanding profits lag to peers. Corbat’s overhaul – and U.S. tax cuts – helped bring return on equity above 10% last year. But that was lower than rivals. And at 54% the total shareholder return was way behind the roughly 200% showing at BofA and JPMorgan. Becoming a leader on profitability as well as ESG would be a coup for Fraser.

Breakingviews

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