The payment sustainability revolution

Financial services, to put it simply, is going green.

In the past few years, change has swept the industry and brought a new focus on sustainability. This is often taking the form of environmental, social and governance (ESG) criteria which were previously barely considered. Financial institutions such as banks, insurers, investment firms and others are now looking at ESG and putting this increasingly close to the heart of their businesses. And importantly, this isn’t just about ethics or doing the right thing but also makes sense from a corporate perspective. A recent study found that companies achieve better growth and profitability than their peers when improving their sustainability and ESG qualities.

This shift is coming from two directions. First, regulation is requiring financial institutions around the world to satisfy a growing list of rules about how they act. Second, today’s consumers are more conscious than ever before. People want to know their consumer choices have a positive impact, or at the very least don’t contribute to negative practices. This has led to an increase of investments in funds specifically targeting ESG or sustainable assets. In the second quarter alone of 2024, $4.3bn globally was invested in sustainable funds – with assets in these strategies standing at $3.1trn.

A sweeping trend

This is placing financial services in an interesting, and exciting, position. A transition is occurring from simply financial metrics being used, to the inclusion of non-financial considerations. For instance, a company might be a good investment for a bank on paper and therefore qualify for a loan. But if that company pays its staff poorly, has a non-diverse leadership team or is proven to pollute the local environment, should it still qualify for the same loan? A bank championing sustainability may disagree.

Sustainability, and more specifically ESG, means these kinds of considerations are increasingly dictating financial decisions. A significant number of financial services companies are committed to net zero, with 675 firms from over 50 countries joining the UN’s Net Zero Financial Service Providers Alliance in recent years. Through investment decisions, these companies are united to the goal of meeting global net zero greenhouse gas emissions by 2050 at the latest.

Changes are also being made in the diversity makeup of financial services. A traditionally male industry, lacking racial and orientation diversity, new initiatives are being made to increase representation at all levels in these companies. Uncomfortable truths are being confronted, to make financial services more accessible for a wider proportion of society and more representative of the consumers it services.

The payments challenge

Change may be sweeping financial services in general, but what is happening specifically within payments?

First, more payment firms are taking steps to be responsible over their impact on the world. Payment giants like Visa and Mastercard have joined other financial services heavyweights in setting net zero targets, setting the example for others to follow. Second, payments is attempting to become more inclusive. Financial inclusion is a challenging issue for many populations, and payment firms are revisiting their propositions and to see how they can encourage better engagement and support more people make the transactions they need to make. This also extends to diversity and representation, evident in the creation of Cardaq’s PridePay.

In an exciting development in the UK, The Payment Association (TPA) is carrying out groundbreaking work to establish a decarbonisation framework for payments. Until now, it has been impossible to know how environmentally harmful payments potentially are. Paying for your morning coffee with a contactless card payment may not seem significant, but if millions of people every day use the same payment method what impact does this have in terms of energy? With billions of transactions being made every day worldwide, and huge electricity-intensive servers supporting these, there is a growing imperative to understand the ESG cost of payments.

The rise of sustainability has shown that aligning environmental, social, and governance (ESG) criteria with business success is not only possible but essential. This period of change is driving the financial services industry forward, with the payments sector leading the way.

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