Green payments, sustainability by design and a more sustainable future | Blog
01 / 11 / 2022
The introduction of climate goals such as those agreed in the Paris Agreement and other international regulations has necessitated global industries to adapt and approach their strategies to minimise the impact on our increasingly fragile world. This, combined with global events, has also reignited the issues of sustainability and environmentalism in the public consciousness, driving demand for greener services, ethical practices and sustainable choices. Within the financial world, beyond their own sustainable practices, banks and financial institutions have increasingly offered green investments and sustainable finance, especially given the rise of ESG (Environmental, social and corporate governance) investing. Now, the range of products on offer that purports to be sustainable and positively benefit the planet is growing. Chief amongst these are green payments and the growing shift towards sustainability by design. But how close to fruition are these concepts, and what barriers remain?
Anne-Claude Tichauer, newly appointed as Head of Transformation, Sustainable Product Design at Worldline, discusses the merits of both and offers insight into how and why they can impact our world.
What can be defined as a green payment?
Digital technology has been described as being both a cure and a poison. A recent study suggests that the digital world currently represents a 7th continent in regard to total water and energy consumption, with another being plastic. Within the digital world, payments are widely used, forming critical links throughout the economy. Digital payments rely on multiple stakeholders fulfilling their individual roles within the value chain, creating complex processes that are difficult to define in their entirety. Therefore, this represents a significant challenge in ensuring that a payment or process can be considered sustainable and 'green' across its entire chain.
A genuine green payment cannot exist until all elements within the chain work at the same level to reduce environmental impact with the same core goal in mind. For instance, this would involve payment terminals, card manufacturers and issuers, device manufacturers and cloud services, among others. Physical parts of the payment chain represent a significant environmental impact. For instance, a recent DNB study reported that POS Terminals and cards represent 90% of the total ecological impact. However, the true scale of carbon impact is difficult to quantify, partly due to a lack of concrete definition, which Anne-Claude suggests. "To my mind, there is not currently a standard definition for green payments. The term 'green' is used for many purposes across many industries, but here the goal is that the payments become more sustainable and form an effective tool in the fight against climate change. At this stage, no strong regulations specifically championing green payments exist, making it difficult to evaluate and analyse the impact of individuals aspects of the chain and the chain as a whole."
As a result of the global shift towards sustainability, greater scrutiny has been placed upon the efficacy of many digital alternatives purported to provide superior ecological benefits. A recent Worldline report explored several studies conducted to identify the impact of digital payments, displaying the increasing level of thought given to this area. Despite appearances, digital technologies do not always present optimised methods of sustainable practice. A green payment maximises the ecological potential of digital payments and processes at every stage of the chain – unlocking the potential of digital technologies to be a valuable asset in sustainable development.
What benefits do they offer? What issues can they address?
If adopted widescale in its true form, green payments will only form a small part of a broader solution to transform the digital world into a sustainable tool for the long-term future of our planet. Currently, the overall environmental impact of payments is difficult to determine precisely.
By adopting a sustainable-by-design approach, which green payments would be, the challenges of the entire value chain or ecosystem can be identified and overcome. While individual companies or individuals can take many approaches to minimise their impact, they have no way of knowing whether their ecological impact is being bolstered by others within their ecosystem or mitigated by a lack of action from others. "Very few actors within the payment industry are present from the beginning to the end of a transaction," says Anne-Claude. "So, for proper calculation of environmental impact, the payments industry needs to be targeted, with all actors working together. Sustainable by design, green payments and other green by design products represent a tangible opportunity for this to happen."
"Having a low carbon footprint or ideally zero impact would be the ultimate goal," says Anne-Claude. "Green payments may not necessarily benefit the consumer, or create additional added value, but rather they represent a holistic approach to instilling trust in the payment world, digital evolution and securing a healthier, more sustainable future."
Clearly, a systemic approach is needed, with open collaboration between stakeholders, including merchants, manufacturers, service providers and organisational bodies. By adopting an approach to green payments, the ecological impact can be reduced across the entire chain, from switching to renewables for production and power, carbon emission reduction (if not carbon offsetting), promoting sustainable design and construction for products and services and investing in programmes and schemes benefitting the environment and global society. Next to this, a need for more regulations that companies need to follow exists, with many being discussed at a European level.
What is the process for widescale adoption? Are there challenges?
The fact that no widely agreed upon definition exists poses challenge enough, especially regarding developing and implementing regulations and industry standards. With digital technologies enabling fast transactions and collaboration between international businesses and individuals, the level of complexity can make discussion difficult and change seemingly insurmountable. "Regulation can partly aid with this, but only so much," suggests Anne-Claude. "It can certainly act as a driver. However, I believe that it's really up to all actors within given industries to gather, discuss and collaborate on how they can adjust and contribute together. It needs to be a team effort."
To succeed, all stakeholders must be able to recognise and understand their impact on the broader value chain and be aware of the causal effect that their activities may have. The level of complexity is exacerbated by the fact that the actions of some more influential stakeholders may, in turn, shift part of the problem to another party or unwittingly contribute to a more significant problem.
The required level of coordination and collaboration within the payment ecosystem poses a challenge. Most companies in the payment industry currently focus on their environmental impact, with little insight into the complete ecosystem and no oversight on biodiversity impact, which Anne-Claude recognises as a significant obstacle to overcome. "The payment industry must focus on a systemic approach. No single company can tackle the issue alone, which is why collaboration is vital. It needs to be end to end. That is the most significant challenge."
This requires a change in attitudes and approaches. Sustainability by design is a concept that many entities are currently incorporating into their corporate strategies and environmental commitment plans. It's about being proactive and recognising failings and opportunities to improve and change immediately.
What is sustainability by design?
Sustainability by design incorporates actions and strategies that take a proactive approach to sustainability and minimises or eliminate any need to compensate against the processes and actions of a company. For example, a common carbon offsetting method utilised worldwide is planting trees and supporting sustainable woodland to offset the carbon footprint of business activities such as production and travel. This approach is not sustainable by design as it cannot offer a full solution to the overall carbon footprint of a company.
"Being sustainable by design," Anne-Claude explains, "is initially choosing the most ecologically friendly option. For instance, sending employees on business trips by train rather than by plane or switching entirely to renewable systems. Making these choices on a large scale means that those trees used for carbon offsetting do not need to be planted in the first place."
Sustainability by design requires that sustainability and ecological impact are assessed and incorporated into every stage of developing a new product or service. Whether calculating return on investment, value for consumers, production costs or development, sustainability must be critical in every decision. "You're essentially pre-empting the ecological impacts, states Anne-Claude. "This isn't limited to the financial industry. Green payments form part of the solution for being sustainable by design on a large scale, but beyond payments and finance, the same points can be applied to any push for sustainability.
How can sustainable payments impact our future?
The concept of a circular economy is a hot topic designed to reduce environmental impact and contribute to a more sustainable world. The introduction and uptake of green payments and sustainability by design within the financial world would form part of a wider circular economy. "This can have substantial economic and social impacts," suggests Anne-Claude. "Within an economy, at each stage, payments are involved, be they at a corporate, consumer or producer level. If the payment landscape evolves in line with the trend towards a circular economy, it can have a vast impact ecologically."
By definition, the circular model promotes, among other aspects, sharing of and maximising the potential of existing materials and processes and widescale recycling. Digital technologies have immense potential in cutting waste and carbon output associated with a traditional linear economy approach - it's just a case of unlocking this value.
Anne-Claude also suggests that sustainable finance can also play a role in influencing and changing the habits of businesses and society, especially if marketed and promoted correctly. "Payments are everywhere and most around the world use digital payments in some way. People are also more aware of the current benefits of digital payments than ever before; think of the effects of global lockdowns during the COVID-19 pandemic - society adjusted rapidly to an online or digital world for purchases, events and appointments. As people become more aware of the payments they make and the impacts they can have, increased scrutiny on the 'behind the scenes' impact can be of enormous value to sustainability efforts.”
The challenge for businesses is to meet both the needs of their customers and the planet's needs. By embracing greener and more sustainable approaches to payments, the financial industry can continue to create added value for customers while aiding in the global effort to combat climate change. Many companies are currently making their own efforts to minimise their impact and lay the route for joint efforts. For instance, Mastercard has analysed the material make-up of plastic cards to aid issuers in offering more eco-friendly alternatives, forming the Greener Payments Partnership in 2018. Additionally, Worldline delivers eco-designed payment terminals to its customers. This represents a good first step, but the whole industry will become truly green only if all actions are in sync via interactions and inter-dependencies.
These two initiatives represent just two parts of the payment process. With all players on board and aligned, payments can become an effective and efficient tool in the efforts to quell climate change.