In our introductory blog on ESG, we briefly debated ESG principles in the payments industry.
In the US, ESG-focused funds are now valued at USD 51.1 billion, almost 10 times as much as the USD 5.4 billion recorded in 2019. Closer to home, sustainable fund assets nearly tripled to USD 36.7 billion in March 2021 in Asia, excluding Japan, compared to the same period in 2020.
As always, we cannot speak for other industries, but what are financial institutions, financial service providers and fintech companies doing to meet ESG goals? We explore this in more detail.
Environmental
- Global payment leaders Mastercard, Finaro and Goto have joined forces to promote ESG initiatives in the industry by aiming to plant 1 million trees by 2025.
- Some banks started issuing credit cards made from sustainable materials, replacing PVC plastics to reduce greenhouse gas emissions. For example, HSBC cards will purportedly be made from 85% recycled plastics, with the eventual plan to reach 100% recycled plastic use. It is part of the bank’s strategy to achieve net carbon zero by 2030.
- Cambridge University’s Centre for Alternative Finance’s data suggested that Bitcoin mining consumes about 145 terawatt hours (TWh) of electricity per year, which is about the power consumed by Sweden, according to the International Energy Agency. A new mining mechanism that aims to reduce the carbon footprint of blockchain technology has been introduced. In 2021, less than 40% of the bitcoins verified by Proof of Work were mined with renewable energy sources, such as solar and hydro.
Social
- Fintech innovation has helped promote financial inclusion by delivering connectivity, resulting in a massive drop in the unbanked population from over 60% worldwide to about 30% in 2021. There are now more options than ever to enable money flow from economies.
- Blockchain-enabled payment rails are being used to reduce cross-border remittance fees further. While transfer costs have gradually reduced over the years, the world average is still more than double that of the United Nations’ Sustainable Development Target of 3%. But cross-collaborations have resulted in reductions in recent years. For example, since Tranglo and Ripple began working together, the cost of transfers has reduced to less than 0.5%, compared with the industry average of 3%-7%.
- GameFi innovatively combines decentralised finance and non-fungible tokens to create blockchain-based online games. This enables new economies to sprout - for example, Filipinos turned to Axie Infinity, today’s most popular game, to make income during the pandemic, lifting many out of poverty.
Governance
- The United States Securities and Exchange Commission has proposed that companies make climate-related disclosures. In addition, the SEC published proposed rules in May 2022 to change the “Names Rule”, which requires companies to disclose additional information about their ESG investment practices.
- In the UK, extending the Senior Managers and Certification Regime to all financial services at the end of 2019 heralded the dawn of more accountability and transparency in the sector.
*Editor’s note: This is the second article in our 3-part series on ESG. Sign up for our newsletter (free!) to get our insights straight into your inbox.
