Sustainability in Payments
Ronald te Velde and Diana Raicu
Connective Payments, September 2022
Listen to “Sustainability in Payments”:
The pursuit of greater sustainability will transform many companies in the coming decades. Regulations have come into place to force businesses around the world to change their behaviour. Most of us are well aware that mitigating climate change and the depletion of the Earth’s resources is of the utmost importance for ourselves and for future generations. But acting on it is something else.
On a global scale, organisations contributing to the transition from a linear to a circular economy will not only “do the right thing”, but also benefit from increased customer trust and loyalty, increased revenues and competitive advantage. Consumers are increasingly making decisions based on their environmental impact and choosing companies that share these concerns. So reputation is at stake.
This article focusses specifically on sustainability in connection to the payments industry. We present a “Sustainability in Payments” framework comprised of three layers, “Comply”, “Act” and “Excel”, aimed to help financial institutions assess possible sustainability approaches. In this first article on sustainability in payments we specifically focus on one of those approaches, the “Act” layer, and we discuss a number of sustainability solutions that are available in the market.
The global movement towards increased sustainability may be assumed to be known: in September 2015, all United Nation (UN) Member States adopted the 2030 Agenda for Sustainable Development, with the 17 Sustainable Development Goals (SDGs) at its core. In December the same year, the Paris Agreement was adopted by 196 parties, a legally binding international treaty on climate change which entered into force in November 2016.
The EU has launched the European Green Deal, aimed at achieving climate neutrality by 2050. With regards to the financial industry, the EU is promoting sustainable finance principles.
The Commission published its ‘Strategy for financing the transition to a sustainable economy’ in July 2021. See the text box for a summary of the EU Legal Framework specifically relevant to the European payments industry.
EU legal framework in brief
All in all, the payments sector needs to take account of the following legal framework under the EU’s sustainable finance framework:
- The Taxonomy Regulation (in force) – establishing a classification system that would indicate which economic activities throughout a wide range of industries, are environmentally sustainable.
- The Sustainable Finance Disclosure Regulation (SFDR) (in force) – imposing disclosure requirements in relation to environmental, social and governance (ESG) on financial market participants, with the aim to protect investors from greenwashing concerns.
- The Corporate Sustainability Reporting Directive (CSRD) (Proposal) – requiring many large companies and companies with listed securities on the EU regulated market to disclose a wide range of information in relation to ESG.
- The Green Bond Standard (EUGBS) (Proposal) – encouraging the issuance of and investment in green bonds to help finance the transition to low carbon in Europe through setting a voluntary standard for green bonds to safeguard sustainability and investor protection. It also aims to reduce greenwashing.
At the same time, the EU is countering “greenwashing”, the practice in which companies make claims, mainly for marketing, that they are doing more for the environment than they do in practice. The European Securities and Markets Authority (ESMA) published the ‘Sustainable Finance Roadmap 2022-2024’ in which one of the priorities is to tackle greenwashing and promote transparency.
Sustainability in payments
Environmental impact is not the first thing that comes to mind when you think about payments. Nonetheless, all methods of payment have their related environmental costs. Specifically in physical payments such as cash, PVC payment cards and paper receipts. The underlying costs come from production methods such as in the production of paper money and coins, where water, electricity and fuel are required, including material inputs (ink, cotton, foil); and post-production in transportation, storage and cleaning (1).
But of course digital payments also have an underlying environmental impact, based on their operations, from the use of land, energy, production methods, travel and other underlying factors.
Physical and digital payments leave their mark on the environment, and it is therefore safe to say that climate change itself, consumer pressure and regulatory compliance are serious reasons to consider sustainability a major concern for payments institutions. Consequently, companies are adapting their business processes to comply with existing regulations; new ‘green FinTech’ companies emerge, as well as companies offering sustainability as a service (SaaS) or product.
Sustainability in Payments as a service or product
For payments companies that want to act beyond simply complying with the legally imposed regulatory framework, there is a growing number of sustainable payment products and services on the market. We have selected a number of characteristic ones. This is for indicative purposes only and by no means an exhaustive list. We also did not test the actual environmental impact against the commitments made by the relevant companies. However, this list gives an impression of the aspirations of payments and other companies to respond to the need for products and services that are climate neutral or even good for the planet.
In November 2021, Visa announced the “Visa Eco Benefits” Sustainability Bundle to “Empower Issuers to meet Climate-Conscious Consumer Demand’. This enables users to calculate the carbon footprint generated by their Visa transactions and access options for carbon offsetting or charitable donations from their bank’s website or app. Therefore, this helps Visa cardholders understand how their day-to-day payments impact the environment.
Visa’s carbon offsets portfolio includes spanning its geographic regions and represents subjects that include reforestation, renewable energy, clean cookstoves and forest preservation.
Visa’s sustainable commerce strategy includes the following measures:
- Sustainable payment cards – commitment to help bring alternative card materials forward to reduce the environmental footprint associated with first-use PVC plastic – launched together with CPI Card Group ‘Earthwise’, a payment card made of up to 98 percent upcycled materials.
- Sustainable accounts – working through the Visa Fintech Partner Connect program to bring its financial institution clients “sustainability-as-a-service” offerings in consumer carbon ‘footprinting’, context-based education and access to high-quality carbon offsets.
- Sustainable consumer behaviour – working with transit agencies around the world to support public transit use through digital payments acceptance and usage; also supporting the global transition to electric vehicles (EV) – including by partnering with the largest operators of EV charging stations with Visa contactless cards; and helping advance sustainable travel and tourism through its founding partner role with Travalyst and other travel initiatives.
- Sustainable consumers – multi-year design partner in the GloveScan Healthy & Sustainable Living study of consumers spanning 30 markets.
- Inspiring lifestyles – using brand presence to support efforts to inspire sustainable living among consumers – founding partner of Brands for Good – an industry initiative to make sustainable living more attractive, rewarding and attainable.
The founders created ecolytiq to encourage action for climate change by empowering people and rethinking the role that retail banking has to play in this. The company offers Sustainability as a Service (SaaS) which covers environmental impact calculations, content & context, behavioral change, as well as footprint offsetting and ESG investment.
As an example, the Rabobank Carbon Insights innovative feature was developed in collaboration with ecolytiq. It provides Rabobank with the Dutch Co2 values per euro and spending category using Open Payment Standard, which means that anybody can look at the calculation methods and provide feedback for future improvement.
In 2020, ecolytiq joined the Visa Fintech Partner Connect program in Europe, which enables ecolytiq to help banks to seamlessly implement their sustainability strategies using payment data.
Mastercard says it is committed to protecting the environment with measures that involve reducing its carbon footprint and offering consumers the opportunity to do the same.
Mastercard offers various solutions to financial institutions for their customers. This is done, among others, through:
- Sustainable card program – reducing first-use plastic in payment card production by developing standards used by more than 100 financial institutions for recyclable, bio-sourced, chlorine-free, degradable and ocean plastics, which will include a badge on cards to signal its sustainable production.
- Carbon calculator – allows consumers to view the estimated carbon footprint of all their purchases and therefore providing a clear insight into the effect of their day-to-day footprint on the planet.
- Priceless Planet Coalition – commitment to restoring 100 million trees globally by prioritizing projects and geographies with the greatest potential for positive impact on climate, community and biodiversity.
As an example, Mastercard partnered with bunq to offer a metal Mastercard, introduced in November 2019, which is produced in an environmentally friendly way from packaging to production and with which a tree is planted for every 100 Euros spent.
Another example is TreeCard:
TreeCard has developed a wooden credit card with the goal not only of eliminating plastic, but also reforesting the planet. It uses 80% of the interchange fees to plant trees. TreeCard comes with an app that lets users track spending, split bills with friends and monitor how many trees have been planted as a result of user spending. Operating over the Mastercard network, and using back-end card processing services from Synapse, TreeCard acts as a fully fledged debit account, able to receive top-up from a user’s regular bank account, with support for chip and PIN, contactless transactions and mobile payments. The product is currently only available in the US.
GREENPAY by IDEMIA is an offer that includes products, services, processes and offsetting programs to support financial institutions in their ecological transformation. They offer eco-friendly card body solutions, advanced card related services like eco-designed packaging, on-demand printing of PEFC/FSC certified card carrier, digital alert and e-documents among other services that enable financial institutions to deploy their sustainability transformation. According to its website, it offers the payment card with the highest concentration of recycled PVC on the market.
This is a company which offers sustainability as a service. For financial institutions, the offer includes:
- tracking the environmental impact at transaction level;
- a composite carbon offset portfolio;
- custom branded program;
- third-party certification (by Ernst & Young, for carbon offsets);
- tailored program attributes to address emissions (making statements or providing material for annual sustainability reports);
- reporting and marketing support.
The company was acquired by PDI (global provider of enterprise management software for retail and petroleum industries) this year to offer more retailers loyalty-based carbon offset programs.
Stripe Climate is a service through which businesses can finance technology projects dedicated to carbon removal. With this service, companies can contribute a fraction of their revenue to fund permanent carbon removal technologies. Stripe directs 100% of the contributions to carbon removal. For participating companies, it offers a badge that is automatically updated on Stripe-hosted registers, receipts and invoices.
This is a digital bank that provides impact data services for individuals and corporations to help educate, engage and reduce environmental impact. It offers the Åland Index API, which, according to Doconomy, is the world’s leading climate impact index. It calculates impact based on the sector using merchant category codes (MCCs), invoice, or similar – facilitating all customers to understand the environmental impact produced from any digital transaction. It is a cloud-based impact as a service for CO2 and H2O calculations for all digital financial transactions. Clients include Klarna, Nordea and BNP Paribas.
Aspiration is a bank that focuses on reforestation and building an alternative retirement system. With every payment, a portion goes to planting trees. It offers “Sustainable Impact Services” to businesses which include:
- understanding carbon footprint (measuring scope 1,2 and 3 emissions and showing what it would take to become climate positive);
- science-based approaches and cost effective access to nature-based carbon removal at scale;
- partnership to create sustainability programs that engage and empower customers and employees to take action.
One way in which companies can offset their carbon emissions is through investments in sustainability. However, that usually requires a dedicated function. For this, Ecologi provides a solution: to compensate the carbon footprint by funding climate projects and facilitating the setting of “eco goals”. It supports the best in climate action such as the SDGs and the Verra standard.
Taulia and EcoVadis
The two companies announced their partnership this year with the goal to help build sustainable supply chains. Taulia is a leading provider of working capital management solutions and EcoVadis is a business sustainability rating provider. EcoVadis will provide ESG ratings for Taulia’s Sustainable Supplier Finance solution. This solution allows businesses in all industries globally to identify the most responsible and sustainable suppliers and at the same time encourages suppliers to improve ESG performance with financial incentives.
This solution uses a peer-to-peer (P2P) business loan platform to power solar energy projects with individual investors being able to invest from 25 euros. It is headquartered in Sweden and offers both private investors and companies the possibility to invest on the platform.
Miris is Norwegian initiative which established the Green Finance Framework. This is a method for electing, tracking and reporting the flows of funds in various financial projects. It is in line with the Green Bond Principles that the ICMA Association created. It located funds and invests them into renewable energy, clean transportation and other similar projects.
Sustainability in Payments: a conclusion
All in all, there are multiple companies that offer sustainability solutions as a product or a service so that other companies can realise their goals. Many businesses already offer sustainability services for the benefit of their customers. From today onwards, we see companies having sustainability as a top priority. Consumers are asking for nothing less than sustainable products & services to support their lifestyle and make the world a better place.
From a business perspective, providing products and services that support sustainable behaviour provides a new edge to your competitive position. At the same time, it offers the opportunity to change your business model and create the desired impact.
How can Connective Payments help you
Connective Payments can help you identify your customers’ preferences, comply with regulatory requirements and implement your sustainability projects. We can select the best sustainable solutions in the market for you and create strategic partnerships with leading technology providers. To do so, we have developed a framework to help you structure your priorities and decide which actions could and should be taken. In short, this Sustainability in Payments framework consists of three layers:
Connective Payments supports financial institutions on all three layers: to become compliant with existing regulations, to act towards your clients and to excel in the market as a leader to make the world more sustainable. If you are interested in further discussing this framework and how we use Design Thinking to help you develop and implement your sustainability strategy, we are ready to talk.
This Article is not sponsored by any of the vendors listed. This information is purely for the benefit of our readers.
(1) In relation to this, the Dutch Central Bank (De Nederlandsche Bank ‘DNB’) conducted a study which showed that cash payments have a higher impact on the environment than debit card payments.