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What is this article about?
The pivotal role of Environmental, Social, and Governance (ESG) considerations in the financial landscape within the payments sector for 2024.
Why is this important?
By highlighting key developments such as regulatory frameworks, reporting requirements, and investor trends, it offers a comprehensive view of how ESG factors are shaping financial practices.
As regulations tighten and reporting requirements expand, businesses, especially in the payments sector, may face challenges in balancing sustainability commitments with resource limitations.
The year 2023 was significant for ESG in finance. As COP 28 brought the year to a close, The Payment Association’s ESG Working Group looks ahead to key themes likely to dominate the payments ESG agenda in 2024.
More regulations, standardisation, disclosure and reporting
The EU introduced the Corporate Sustainability Reporting Directive (CSRD) in January 2023, extending the scope of ESG reporting requirements to around 50,000 companies, including financial institutions.
Six months later, the International Sustainability Standards Board (ISSB) issued IFRS S1 and IFRS S2. Then, in November, the Financial Conduct Authority (FCA) published PS23/16 – a policy on sustainability disclosure requirements (SDRs) – which, once the UK Green Taxonomy is implemented, is likely to expand.
Not surprisingly, the ESG Working Group expect regulation and reporting to feature heavily in 2024, with intensified conversation between government and industry and more ambition from rule-setters on what needs to be disclosed and how.
SME challenges but potential opportunities, too
While the increased focus on reporting is generally positive, Algbra’s ESG manager, Marten Möller, cautions that small companies might find this “too resource intensive”.
Möller says: “Given what reporting currently looks like — with a focus on carbon emissions and so on — it might not be as conducive to smaller companies that, despite being innovative and having business models that are inherently centred around sustainability, might lack the resources to report on data in a manner that is becoming increasingly expected.”
For those who are “doing good but don’t have the tools to display that, what consequences might they face in terms of investment opportunities or partnerships?” adds Möller.
Yet this could translate to openings for others. As Charlie Bronks, head of ESG at Crown Agents Bank, observes: “There could be business opportunities for companies to pass on their tools to others”.
Greenhushing – for good or bad
“We will see more organisations being called out for greenwashing” says Möller, “but greenhushing will come as a result too”. This is the practice of organisations opting not to discuss their climate-based achievements to avoid allegations of false claims. “Maybe more companies will be hesitant to report positively around their sustainability progress – which can be a positive and negative thing”.
While companies who downplay their green credentials may be seen as conscientious, this vagueness also creates false positive assumptions while evading scrutiny.
More ESG investor interest
Bronks says, “Investors looking at the ESG credentials of the businesses they invest in will strengthen in 2024”. Companies that embed such principles, rather than seeing them as a “bolt-on”, she argues, are likely to gain more approval — something she has observed in her organisation’s journey to B-corp status. A good ESG track record is becoming a prerequisite for business success.
Continued urgency of the ‘E’ of ESG
Given the climate emergency and UK government 2050 targets, “businesses will continue to prioritise the ‘E’ of ESG,” says Imran Ali, director of payments consulting at KPMG, referencing the KPMG 2023 CEO Outlook report. Many C-Suite execs interviewed “see climate change as a significant risk to business in the next three years and recognise that things need to move faster”, he says. For CEOs, climate change is second only to geopolitical uncertainty in terms of growth risk.
Delayed ROIs…but a recognition of talent
Ali also observes that many CEOs “don’t intend to see any immediate return on ESG investments in the next year”, according to KPMG’s research, but they do expect to see significant return on investment (ROI) in the next 3-5 years due to the fundamental role that ESG now plays in building a respected brand. When asked, “Where do you see your ESG strategy having the greatest impact over the next three years?” 21% responded “brand reputation”.
Meanwhile, “talent, people and skills are coming up again and again,” says Ali. Strong ESG is becoming fundamental to attracting next-generation talent, and over 75% of CEOs believe that gender equity in the C-Suite is essential to growth.
As The Payments Association ambassador Joanne Dewar points out, “neither the E nor the S get a look in unless the G allows them to.” Bronks agrees: “It makes an absolutely crucial difference to have board buy-in, taking ESG seriously”.
Will 2024 be the year of accessibility?
“I believe that 2024 is the year that we achieve a step change in disability, inclusion and accessibility in the fintech space,” says Dewar. Indeed, this is already underway at The Payments Association thanks to Dewar and the working group’s efforts, with a new disability and inclusion award at the Pay 360 Awards and accessible stages at Pay 360. “In 2012, the Paralympic Games transformed perception of disability in sport,” Dewar continues, “and I am very confident that this can be achieved here in 2024”.