Environmental, Social and Governance (ESG) issues have become essential considerations for financial services companies – and indeed all companies – in the last few years. So leading experts asked what this means for Ireland’s growing payments and e-money sector at our recent European Women Payments Network (EWPN) Ireland event in Dublin.
The session began with a panel discussion featuring:
- Alison Donnelly, Director at fscom and EWPN Ambassador for Ireland
- Aedín O’Leary, investment and ESG consultant and co-founder of the Green Team Network
- Ann Shiels, Financial Services, Regulation and Sustainability at FinLexSus
- Louise Hogan, Financial Regulation Associate at A&L Goodbody LLP
- Eoin Leonard, CEO and founder I3PT Certification
The origins and development of ESG
Our panel started by looking into the origins of ESG – which dates back long before the acronym was coined in the UN-backed ‘Who Cares Wins’ report in the mid-2000s! It was pointed out that sustainable investing has a long history, including charitable investors screening out ‘sin’ stocks of armaments, tobacco and mining out of their portfolios in the 1960s.
But it was agreed that there has been an acceleration in recent years. Governance scandals and social problems in the 2000s focused more attention on S and G issues, while the mounting scientific evidence for the damage we are doing to the planet has thrust the E into the mainstream.
While ESG isn’t a new consideration for investors, there has been a real shift from the earlier focus on simply ‘doing no harm’ towards ‘doing no harm and also doing good’. Today, ESG is a set of criteria which is part of the risk management process for boards and organisations.
We heard how ESG has dramatically changed the behaviour of investors in the last two or three years. Climate risk is now seen as an investment risk, and ESG is at the top of investors’ priorities. This has a big impact on businesses, whether in financial services or the ‘real economy’ or – like payments firms – somewhere in between.
The drivers of the rise of ESG
Our panel agreed that government regulation has been a major driver for the rise of ESG. The EU’s taxonomy, which came into law in January 2022, provides a standard against which to evaluate corporate claims to sustainability. We have since seen financial providers accused of greenwashing and offices being raided. Although one panellist noted that the taxonomy is still voluntary, other than the requirement to report sustainability performance, and doesn’t cover every sector.
Another reason is the evident commercial value of an ESG focus. Consumers, investors and employees want to work for financial services companies that behave responsibly, or they will go elsewhere. There is mounting evidence that an ESG focus can improve your bottom line and your reputation, and help to recruit and retain staff.
Finally, and reassuringly, it was noted that more firms are looking at ESG because it’s the right thing to do. Of course, these three factors are not mutually exclusive. Whatever the reasons, ESG is now at the top of the agenda!
ESG’s implications for the payments and e-money sector
There aren’t specific regulatory requirements for the payments and e-money sector around ESG, as there are for banks, insurers and asset managers. But the clear regulatory expectation is that all regulated financial services providers should show leadership in this area.
We heard that ESG is particularly important for payments firms who are seeking investment. Investors in your company are going to ask about how you are embedding diversity and other ESG factors in your organisation.
The panel then asked what lessons can be learned from payment service providers who have tried to embrace ESG. One provider offers a calculator for consumers to work out the carbon footprint of their transactions. Others have improved inclusivity of access to banking by, for example, letting users use a national ID number or phone number to carry out payment transactions.
Another firm plants a tree whenever consumers carry out a certain number of transactions. Although there was a vigorous discussion of whether that does more harm than good – does it not simply encourage more consumption? This debate is a useful reminder of the need to really think through your ESG strategy, not do it piecemeal!
How payments firms should approach ESG
This led into a discussion of how a small or medium-sized payment firm should start thinking about ESG. This can seem overwhelming when so many are simply focusing on survival.
Our panellists had lots of advice. All agreed that firms should start with an ESG strategy, which must support their business strategy. If ESG initiatives are unaffordable, firms will just have to drop them and that’s the worst of all worlds.
The UN’s Sustainable Development Goals (SDGs) are a good starting point – firms can read through the 17 goals and identify which are the best fit for their organisation and the priorities of its customers, employees and shareholders. While the E, S and G are all important, your firm will likely be able to have most impact in one area.
If a payments firm focuses on the E, they can point to the carbon benefits of digitalised transactions. But our panel warned that they should then think about the environmental impact across their value chain. Crypto mining and data processing centres have a high environmental impact. Firms should ask how they can have an impact within their value chain and influence clients and third parties to do better.
There are hundreds of ESG initiatives firms can sign up to, and lots of peers in the sector that will be happy to give advice. ESG shouldn’t be a competitive matter – one panellist used the term “coopetition”, which was new to most of us! But it all starts with identifying a clear strategy and finding the areas which your firm can best support.
The future is E, S and G
After the panel discussion, attendees asked some incisive questions. One was how to get boards to buy into the ESG message. Our panel agreed this is critical because an ESG strategy cannot succeed without a positive tone from the top. Ideas included finding a board member to be a sustainability champion, and making the case for ESG’s impact on bottom line, talent attraction and retention, reputation, and risk management.
Another attendee asked what information a firm needs to assess ESG performance and that of its value chain. Our panellists pointed to consultancies, software systems and other websites which compile data. But the crucial point was that, unless the regulator has asked for a report, firms should focus more on influencing others to do better. Ask the right questions about what your suppliers are doing and apply pressure over time to ensure they make improvements.
Finally, the participants broke into four groups to discuss major questions about ESG:
- How does (or could) your company motivate your end customer to ‘act in line with ESG’ and create bigger impact?
- What part do the different levels in any payments business have to play in promoting (or insisting on) an ESG agenda? How can employees, senior managers, board and shareholders play their part?
- Is promoting an ESG agenda harder or easier for fintech/paytech/payment services companies? What works well and where do difficulties lie?
- Should government and/or the Central Bank take an active role in pushing the ESG agenda within the financial services sector? What should the government/Central Bank do or not do?
The groups came up with a wealth of ideas, fuelled by relevant experiences from within their own companies. We all left with a conviction that ESG is here to stay in the payments and e-money sector and financial services more widely – and that this is a good thing!
You can listen to our recent EWPN event on “Bringing the E, S & G to Payments in Ireland” in full through our recorded podcast below. Click to listen now.
