Paying it forward

Improvements in hardware and software are one of the most direct ways that payments companies can achieve sustainability goals. But there’s a rich vein of opportunity in leveraging their position in the economy to help others make better decisions. An area that has attracted particular attention is providing consumers with information about the environmental impacts of their purchases and helping them either make better choices or mitigate the impact of emissions.

"With open banking you can get ‘carbon information’ that is linked to the payment being made,” says Nick Maynard, VP of Fintech Market Research at Juniper Research, “and then you can give the user more awareness of the implications of what they’re doing.” Since payments are a common denominator for all economic activity, payment companies are well placed to offer consumers a holistic picture of their carbon impact.

For example, one climate-focused fintech company¹⁴ offers a plugin that can be embedded into a bank’s proprietary smartphone app, or a merchant’s online checkout page, to offer customers information about the carbon emissions of what they’re purchasing. The customer is then offered a simple option to pay for an offset. Elsewhere, carbon mitigation is being built into the product directly: one French neobank¹⁵ offers a current account which attaches a carbon cost to each purchase and directly makes a donation to a climate-focused conservation project in response.

Naturally, given concerns around greenwashing, best-in-class executions are led by objective research. The Science Based Targets Initiative, for example, provides trusted, informed guidance on approaches to offsetting. There are also payments-specific research projects such as Åland Index, which provides carbon footprint estimations for bank transactions in different categories like food, fashion or travel. This combines high-level data on emissions with a methodology vetted by a leading professional services company. When the Swedish impact fintech Doconomy created an API called the Carbon Calculator for Mastercard, it used the Åland Index. The API looks at the four-digit merchant category codes¹⁶ assigned by Mastercard to different merchants depending on what they sell, matches this to the carbon estimates on the Åland Index, then combines this with local adjustment factors to return an estimate for that purchase’s carbon emissions and water use. “The greatest challenge we face in regards to the climate crisis became quite obvious 10 to 15 years ago. But there was a lack of climate literacy: what is the climate crisis? How do I measure the climate crisis? How do I measure my contribution to the crisis?” says Mathias Wikström, founder and CEO of Doconomy. Financial services, he says, needed to alight upon a standardized way of measuring the per-dollar impact of spending on the environment to empower consumers to make the right choices for the planet. If a customer can see the impact of spending $250 in a fast fashion chain, for example, or of buying tickets for a short-haul flight, it makes it real.

There’s a business incentive for financial services to offer this kind of information, Maynard points out: “If you are a bank—and the retail banking market is pretty competitive—if you can show that your solutions can actually enable customers to have a more environmentally friendly approach to their life, that is a differentiator.”

Yet Doconomy isn’t only focused on the consumer. While Mastercard offers its Carbon Calculator product to its client banks, Wikström suggests that some of these banks might not ever incorporate it into their retail banking products. Rather, he says, the calculator can be used to calculate carbon footprints for ESG reporting using bank transaction data. “You can just use it to calculate the carbon intensity score of your complete consumer credit portfolio. So you get an average CO2 emissions impact per euro spent by your retail client.” Legislatures around the world are discussing making this reporting mandatory, Wikström notes, pointing to existing laws in California¹⁷ that will require banks to calculate and disclose the carbon emissions tied to their lending. “Over time, I think it’s fair to think that the banks will need to report on this out of a consumer perspective, as well.”

One limitation of current schemes for assessing carbon footprints via payments is the lack of granularity. “If you’re shopping in a supermarket,” says Maynard, “then how do you provide an accurate carbon assessment? It will vary wildly depending on whether you’ve bought bananas from the Caribbean or strawberries from Essex – there’s an element of uncertainty.” The introduction of the new global payments messaging standard ISO 20022 has led some to speculate that a solution may—some day—emerge. This new standard embellishes payment messages with extra metadata fields with drop-down menus of options. “There's going to be a product description field, a country field—you'll have a much better understanding of the data that's there,” says Ciarán Byrne, Head of Global Clearing Product and Transformation within J.P. Morgan Payments. In the future, he posits, it’s possible in theory that sustainability-specific data could be added as a field in itself.

Thomas Verhagen, Senior associate at the Cambridge Institute for Sustainability Leadership (CISL), agrees that there is blue-sky potential. But he makes the caveat that even ISO metadata isn’t yet standardized. “ISO doesn’t stipulate the exact data that’s being used. I can see how the [payments] industry, working with neutral outside parties to align on what needs to be communicated and standardized, can lead to a surge of new services and new value-add features, both on the B2C as well as on the B2B side. But you need to come to some kind of definition of what that commons looks like before you and anybody else can draw on it.”