Thinking net-zero – FinTech Futures

As COP26 draws to a close, it has been interesting to observe just how active the business community has been.

ESG is where the action is going to be happening for the next decade and beyond

In fact, I would say that this has been a key takeaway for me. Front and centre is the financial services industry.

A highlight was Mark Carney’s announcement that the Glasgow Financial Alliance for Net-Zero (GFANZ), a consortium of over 450 financial firms across 45 nations, have committed to aligning their businesses, including their lending and investments, to net-zero goals.

All have committed to making disclosures under the recommendations put forward by the Task Force on Climate-related Financial Disclosure (TCFD). It is a big deal and an eye-catching headline.

But first things first, what does net-zero mean? The UK’s Institute for Government defines it as:

“Achieving a balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere… achieved by reducing existing emissions and actively removing greenhouse gases.”

It points out that a gross target would mean reducing all emissions to zero, which is an impossible goal, so net-zero recognises the need for offsetting.

So, when a country such as the UK or a company such as HSBC pledge to be net-zero by 2050, the aim is that the carbon they produce will be cancelled out by the amount removed. It is worth noting that HSBC’s ambition includes financed emissions, i.e., customers as well.

This pledge will profoundly impact us all, and it is going to be extremely difficult to achieve.

Take the UK, which so far is ahead of the rest of the G7 in cutting emissions. Emissions produced on UK soil fell 38% between 1990 and 2018, equating to an average drop of 1.4% per annum.

To reach net-zero by 2050, this will have to increase to 3.1%. Everyone and everything will need to play their part, and that includes you and me! Thankfully, it seems that consumers are very open to doing “what” they can.

According to research carried out by YouGov Mastercard, 85% of adults are willing to take personal action to combat environmental and sustainability issues in 2021. But what are they up against? According to Carbon Independent, the average UK household carbon budget is 14.1 tonnes (compared to 6.2 in China, 1.8 in India, and 0.3 in Mozambique). To achieve net-zero, the UK figure needs to come down to 4.5 tonnes in 2030 (The Committee on Climate Change) and 2.4 by 2050.

And within-country disparities also need to be considered. According to the Institute for Fiscal Studies, the spending of the highest-income tenth of households has a carbon footprint that is, on average, more than three times as large as that of the lowest-income tenth of households.

Just one last thing worth noting, the UK’s commitment to net-zero is legal, so the role of citizens will be baked into law.

Honestly, as the penny has dropped for me, I have begun to realise that the way I live my life will have to change dramatically. Almost everything I do will need to have a carbon lens.

Every time I shop, I will have to decide is it worth the carbon? Everything from: “Do I really need an avocado flown in from faraway places, or would a carrot from a local farm do? How green are my investments? Should I own a car? Shall I tumble dry my clothes or put them on the washing line? Can I justify flying halfway around the world for a two-week beach holiday?”

You get my point.

Some see offsetting as the only solution, but that is far from realistic. It is a part of the solution. Offsetting is riddled with complexities and opportunities for misuse. Consider this: if you offset using a tree planting scheme, you are offsetting against the tree’s lifetime. Who is there to guarantee that that tree won’t be eaten by deer, attacked by pests, or burnt down?

Fundamental behaviour change must be the primary objective.

Visa and The University of Cambridge launched an interesting report at COP26 which identified a key role for payments solutions in this regard, including:

• Empowering citizens through product and service innovation
• Providing data-driven (payment) insights
• Collaboration and partnerships (creating new products and services with others)

Applying these principles to areas where the payments industry can have the most significant impact, they have identified the following areas of focus: sustainable transport, the sharing economy, sustainable retail banking, and data-driven sustainability services.

What does this mean in principle? The sharing economy, Visa believes, starts to move us away from the “take, make, waste economy”, which is estimated to contribute 50% of global emissions. Moving consumers to a re-used, recycled, and rented economy can make a significant impact.

Payment networks have a significant role in achieving this “leasing” model for commerce. They see payment networks as having a role to play in sustainable retail banking products and services. According to Visa’s research, up to 1/3 of consumers in some EU countries would switch to a bank with a more robust product and service offering in sustainability.

One thing I am realising is that going beyond the headlines is important. As I have removed my head from the sand and started looking around, I see that companies are beginning to try to make sense and develop areas of focus. I also conclude that every bank, fintech, and financial institution will have to prioritise this. This is where the action is going to be happening for the next decade and beyond.

This week’s homework. Calculate your carbon footprint. There are a number of handy calculators online, including one from the WWF. I guarantee it will make you think.

About the author

Dave Wallace is a user experience and marketing professional who has spent the last 25 years helping financial services companies design, launch and evolve digital customer experiences.

He is a passionate customer advocate and champion and a successful entrepreneur. 

Follow him on Twitter at @davejvwallace and connect with him on LinkedIn.