7 minute read
Green shoots of change
Just the start:
Green hedging currency exchange could be an on-ramp for companies wanting to decarbonise
Green shootsof change
Alex Lawson from Western
Union Business Solutions
and Sarah Leugers of the
Gold Standard Foundation
believe payments and financial services can and should help save the world
Initiatives like the Paris Climate Change Agreement are pushing firms globally to instate zero-emissions drives at the heart of their business strategies.
The urgent need to prevent further damage to Earth is now at the forefront of most minds, given the steady flow of stark statistics about the destruction to vital ecosystems. Payments, and the financial industry in general, have not necessarily been the first thought when considering our planet’s biggest problems. However, they’re far from exempt.
The power required by vast data centres to process the kind of information now inherent in the rapidly increasing flow of financial transactions worldwide, is huge, and will grow again with the implementation of the ISO 20022 messaging standard, which requires the revenues generated to a partner organisation, which could invest them into environmental projects, with carbon offset outputs,” says Lawson.
Western Union Business Solutions charges a small premium, of 0.1 per cent of the amount to be traded, equating to an additional cost of $1,000 on a $1million transaction. This amount is inconsequential to the companies concerned, it can sometimes be offset by constantly shifting exchange rates anyway, explains Lawson. But the amount diverted towards ESG projects as a result, can have a hugely positive impact, especially as WUBS matches whatever is raised. Its customers can also choose from six project options in return for a carbon offset certificate for the full amount – which could equate to 200 tonnes or more of carbon offset with a $1million transaction.
The collaboration with the Geneva-based Gold Standard Foundation, which was founded 20 years ago to maximise the impact of climate intervention, gives the initiative credibility and, Lawson hopes, will serve as a ‘jumping-on point’ from which organisations will go on to do more. “We wanted to be ambitious in who we partnered with, and Gold Standard sets the benchmark for the whole world,” he says.
additional context – i.e. computational power – for every payment made.
But financial players also have unique potential to catalyse positive change by offering environmental, social and governance (ESG)–weighted solutions, like the Green Hedging Product forged from a partnership between Western Union Business Solutions (WUBS) and global ESG benchmarking organisation the Gold Standard Foundation. It’s aimed at helping organisations large and small to change the world, little by little.
Alex Lawson, director of hedging for UK and Europe at Western Union Business Solutions arm, explains: “We wanted to see how we could enable business customers to start taking steps to address climate change through transactions they’re doing anyway.”
So, it embedded potential carbon offsets into hedging against the currency risk inherent in cross-border payments, where the market can shift in the period between ordering and paying for/taking delivery of goods. Purchasing a hedging product can fix the rate of exchange to an agreed future date, reducing or eliminating that risk.
“Customers importing or exporting goods and services have to do this all the time. So, we decided we could harness this and use such transactions to divert some of
Lawson adds: “Our customers worry, at board level, whether they should just be offsetting using this WUBS solution, or doing more. Yes, they absolutely should, but they shouldn’t let a fear of being called out for greenwashing stop them from doing anything.”
Sarah Leugers, Gold Standard’s director of communications, explains how important initiatives like this are to the organisation’s overall goals: “These funds will support efforts to expand our project activity, such as community-based activities throughout Sub-Saharan Africa. There, people who were cooking over open fires are transitioning to clean energy solutions, which has a positive climate impact by reducing emissions and changing people’s lives, day-to-day, because they no longer have to inhale toxic fumes and spend hours fetching firewood – it’s transformative in places that are most vulnerable to climate change already.”
Making it easy for firms to initiate change is key, according to Lawson.
“Simplicity and ease of use are the reasons why we generated this. Any business could set this up themselves, send money directly, invest in particular projects, but where do they start? There are hundreds of carbon offset projects, so how do they know if they’re reputable and the money is going to the end user, as desired? It’s a minefield. So, we’ve made it easy and done the due diligence for them, by partnering with a very reputable
“Through our partnership with Gold Standard and other resources, we also provide links to information on calculating and reducing their own carbon footprint, to help customers along this journey,” says Lawson. He believes it will be particularly useful for smaller businesses facing no less pressure to comply than their large-scale corporate counterparts, but without the resources to figure things through.
“While the rules coming down from government are currently looking at large companies, they will eventually filter down from scope one to scope two and three emissions, because bigger companies need to measure scope three emissions from their supply chains. A small company could be making a part for something produced by one of these big companies, and they may already be asking what they’re doing about reducing their own carbon footprint.”
What, exactly, do businesses waking up to the net-zero drive, need to get ready for?
Leugers explains: “The North Star for net zero is the Paris Climate Change Agreement, which aims to balance carbon emissions with carbon sinks by the middle of the century. Following that global aim, there are an increasing number of initiatives and regulatory frameworks that are relevant for business. One is the Task Force on Climate-Related Financial Disclosures (TCFD), introduced several years ago to improve reporting of climate-related financial risk. Their recommendations are largely voluntary, but moving towards regulation; the UK, for example, has already announced it’ll be the first G20 country to make TCFD-aligned requirements mandatory for Britain’s largest organisations.
“The first step is knowing the impact of business on climate change, and, the other way around, the impact of climate change on business, and publicly disclosing that.
“But, beyond just calculating and disclosing, the next step is actually doing something, driving change. Again, there are voluntary initiatives and increasing compliance regulations for businesses.
“For example, the Science-Based Targets initiative, which helps companies set their decarbonisation pathway in line with the net zero Paris ambition. We’ve seen more than 2,000 companies setting such targets, and they’ve recently launched guidance for the financial sector, which is what a lot of people had been waiting for.”
Leugers adds: “We’re also seeing regulation around carbon pricing, where polluters have to pay for their carbon emissions, hitting their bottom lines. The financial sector, in particular, has an opportunity to get ahead of that legislation, build it in, future-proof businesses and help customers do the same.”
Lawson stresses that SMEs are not exempt from these goals. “Our traditional customers are more SMEs and smaller corporates, and these guys might be thinking that it’s not something they need to worry about yet. But soon net zero targets will involve everybody,” he says.
“The largest bulk of businesses in the UK, is SMEs – they’re going to need to do their part. Sooner or later, regulations are coming, but it’s way better to get ahead of the game, start managing that risk early and have a plan in place.”
We wanted to see how we could enable businesses to address climate change through transactions they’re doing anyway
Alex Lawson, Western Union Business Solutions
organisation whose projects address a minimum of three of the United Nations’ Sustainable Goals for Global Development.
“It’s not going to make an organisation carbon neutral in one go, but it’s more than just ‘we’ve planted a tree in the car park’.”
Businesses can choose to invest the gains in a project category that resonates most with their organisation, from clean water provision to reforestation projects and clean energy solutions like solar or wind power, or emerging green technologies.
Lawson adds that the financial services industry needs to take its responsibility, as well as its power to act, seriously.
“It’s ubiquitous, we’re transacting with every part of the economy, and often the size of the transactions going through is substantial, too,” he says.
“The payments industry, and the finance industry in general, can help make this easier for businesses to take those first steps.”
Leugers adds: “The financial services sector enables the future we’re going to build, whether we’re locking in fossil fuels, unlocking clean energy that helps countries be energy independent, or providing cleaner air and water for their citizens. Embedding climate risk and impact into its decisionmaking, products and services, is where it really has an opportunity for driving change.”
“The direction is fairly clear,” concludes Lawson, “and now it’s about who’s going to be getting there first, and who’s going to be left behind.”
