Earth Day on April 22 is “a day of action to change human behavior and create global, national and local policy changes”.1 As payments take center stage in the world economy, it is timely to consider what is driving sustainability in the payments industry, exploring the current challenges and preparing for a more sustainable future for payments.
In providing the fuel and rails for the modern economy, the potential for payments to impact on sustainability cannot be underestimated. As rapid, global digitization continues to transform all aspects of our lives, payments are pivotal: almost every digital activity relies on a payment system.
As a result, there is a responsibility incumbent on payment providers in funding and increasing awareness to sustainability.
Amongst both businesses and consumers, there is also a greater awareness of the role of sustainable finance, which is playing an increasingly critical part in influencing investment decisions. ESG (Environmental, Social and Governance) initiatives undertaken by payments can play a huge role in influencing these decisions.
Why is a sustainable payments industry important?
Firstly, necessity. The pandemic has significantly changed the structure of the economy, causing a decline of physical cash and digitizing businesses – all contributing to the reduction of reliance on carbon emitting processes.
The second reason is consumers. Regardless of industry, consumers are increasingly choosing businesses that share their environmental goals.
Consumers are also influencing investor pressure. Businesses are now looking to invest in environmentally friendly ways: two out of three French and German retail investors say they will invest in sustainable ways even if there is cost involved 2. This is also visible in the green bond market, in 2022 green bond issuance has increased 49% year-on-year, with the market set to hit $1 trillion globally in 2021 3 .
The third reason is regulatory. Increase in regulations, especially within Europe, is driving transparency in this space, with change being brought about thanks to the Paris agreement, COP 26 and other targeted regulations.
Challenges in the sustainable payments industry
How is J.P. Morgan making payments environmentally sustainable?
The payments scope is wide – stretching across every conceivable industry. As a common denominator between these industries, we have undertaken a program of workshops and client meetings to recognize and support ESG needs, which vary considerably between industries. Environmental efforts are concentrated for technology, media and telecoms as well as consumer and retail, diversified industries and natural resources. However, healthcare, utilities and public sector, alongside Financial Institutions, are targeting their focus on social and governance concerns.
Our approach to ESG management includes having robust governance systems, risk management and controls at a firmwide level. Equally important for us in J.P. Morgan is the social aspect - investing in our employees and cultivating a diverse and inclusive work environment, and working to strengthen the communities in which we live and work. At J.P. Morgan, we are advancing sustainable solutions for our clients and within our operations in several ways:
$2.5 trillion over 10 years to advance climate action and sustainable development, including
$1 trillion for green initiatives.
Specific to payments, we are developing financial solutions that drive action on climate change and generate other positive environmental impacts. In sustainable Supply Chain Finance in particular, our compelling alliance with Taulia and Ecovadis provides a sustainable SCF program that assesses sustainability of suppliers and offers tired pricing based on rating.
Based on our conversations with multi-national corporates in Europe, it is clear that sustainability sits at the heart of their corporate strategy for the future.
Every company has become a climate company in its own right, as we all work towards a common goal of limiting the impact of climate change. At J.P. Morgan, we would like to reiterate our commitment to supporting our clients, communities and colleagues by working towards a new frontier of sustainable payments where we not only invest in our platforms but in our planet.
How is your company managing sustainability? Explore how you could measure your ESG ratings
Oil & Gas: intensity reduction from 2019 baseline (operational 35%’ end-use 15%). Electric power: 69% reduction (115.4 kg CO2 / MWh). Auto manufacturing: 41% reduction (92.3 kg CO2 / km). Currently evaluating targets for Aviation and Pulp & Paper sectors (tba by end 2022).
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of J.P. Morgan, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed to be reliable. Neither the author nor J.P. Morgan makes any representations or warranties as to the information’s accuracy or completeness. The information contained herein has been provided solely for informational purposes and does not constitute an offer, solicitation, advice or recommendation, to make any investment decisions or purchase any financial instruments, and may not be construed as such.
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