The Green Finance Podcast Ep. 16: What’s the environmental impact of payments?

We've covered many areas in this podcast, apart from one very crucial sector in banking and finance - and that is payments.

In our journey of reducing our carbon footprint, it turns out that it’s not only what we buy that can make the difference -- how we pay for things can play a part, too.

According to a GoCardless study, using alternative payment methods like ACH can help consumers lower their carbon footprint by generating zero carbon emissions.

This comes in comparison to credit cards, which in 2021 generated an amount of CO2 so high it was the equivalent of driving a diesel car around the Earth approximately 43,000 times.

Considering that consumers are actively looking for more ways to reduce their environmental impact, how should we think about payments? How can this sector decarbonize, and what impact can that have?

To help us answer these questions, I've invited Ben Knight, Head of Environmental Sustainability at GoCardless, a direct bank payment solutions company. Ben's diverse experience paired with his passion for sustainability and the fact that he's just this great person to talk to, resulted in a really fun conversation.

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The following excerpts were edited for clarity.

Hi Ben, could you share with us a little bit about your background and how you ended up working in sustainability?

My journey into sustainability probably wasn't the usual path. When I was in college, I was into things like music production and sound engineering, but I also was into astrophysics and philosophy and things like that. After university I ended up working in construction, real estate, which was, I guess, where I first got into a bit of awareness around environmental practices, like where materials are coming from and the impact of waste. 

Then I then ended up in the space sector, which was kind of an interesting jump. I worked for a company called OneWeb, which is kind of like the UK equivalent of SpaceX, launching a constellation of satellites to provide broadband across the planet. I suppose I really first started getting into sustainability there. I was measuring the carbon emissions from rocket launchers to the embedded carbon in satellites, and where the materials are coming from and things like that. And that was absolutely fascinating, because there wasn't really much background work done in that previously in order to measure the emissions from a rocket. And what we had to do was to go to the rocket manufacturer, get the data sheets and the user manual for a rocket, and work out how much kerosene and fuel was being used in them, or work the emissions out from them. So, that was a really, really interesting sort of time. 

Then last year, I then moved across to GoCardless, a FinTech payment provider. We've got around 80,000 customers, globally, we moved about $30 billion each year. And I think for me, the real draw of coming across GoCardless was that I was interested in the impact of the finance sector. And I guess that that two, pronged approach of green finance and financing green, which probably most of you have heard the phrase now. And I thought the real potential impact of doing good via GoCardless as a FinTech platform was massively impactful, whether that sort of working with our AC 10,000 customers to help them on their own path to sustainability, or potentially using the product to create a positive impact on climate, or nature or communities, as well.

We generally have the impression that emissions only come from tangible sources, like heavy industry, but there is so much to uncover about financial services, and that includes money movement. What does a typical payment process look like now and what are the implications of each step? 

Yeah, I think it is a really good point that you make there, actually. I guess people can generally understand now if a car goes past or a plane goes overhead, or they see a rocket launch, for example, you can, you can kind of visibly see the emissions from that. And it's quite easy to understand. Whereas I think the digital sector or the tech sector is probably a bit more, I guess, an abstract theory. 

But I think probably the really important point on this is that actually the tech sector, as a whole, now creates more emissions than aviation. And that's essentially in a lot of parts through energy use. So if you're using a cloud hosting provider, or all the way through to building a website, and people accessing your website, everything uses energy, and depending how energy is created, that generates emissions. 

It was interesting for me, coming from the rockets and satellites, which is pretty much all physical stuff, to moving into payments, which was pretty much all digital stuff. That was a really interesting sort of switch for me. But something that we actually looked at was, how do we measure the impact of overpayments because as part of our overall reporting, we have to report on our product, so how our customers are using our product is part of our own emissions. 

Our main thing is moving money from A to B, so we wanted to report on what are the associated emissions of that, because that's essentially our product. Although the energy associated with that is not huge, it's really important for us to get an understanding of what that looks like, I guess one of the old adages is that you can't reduce what you don't measure in the first place. We started off looking at this, in quite, I guess, quite broad terms. 

One of the analogies that I use for carbon accounting, or the environmental sort of measurements is kind of a bit like sculpting – you start off with a rough outline and then chisel away over time and improve and improve, improve. So until we could actually get actual data on how much data is involved in a payment, we just had to make an assumption of what the rough size of a payment was. 

We just assumed that it'd be the same size as an email because we thought, well, an email is generally I think, if I remember rightly, around 75 kilobytes, so we sort of said, okay, let's, let's assume a payment is also the same. We then worked out, if we're processing, say, 138 billion of these payments each year, what energy does it take to move that amount of data, and then once we can work out the energy involved in that, then we can calculate the emissions. So that was the first sort of, I guess, stab at it. We've actually now improved on that, this year. So we worked with Pay UK who gave some really good data, where they actually measured the actual kilobytes of a direct debit payment and the open banking payment. We're gonna be using that in our reporting this year, so that was really, really fascinating. 

We've actually got detailed measurements now on each different type of payment. And I think also, the interesting thing for us was efficiency. So we are obviously, in most part still accounts to account payment providers. So we take money from one place, and we move it ourselves to another. Essentially, it's a two step process, which is pretty, pretty efficient. Whereas other payment processes tend to have more steps involved. There's more intermediaries and things like that. And so that's something that we looked out and said, Well, what's the difference between account to account payment like ourselves, and and say, a card payment, and it worked out about 75% efficiency, just basically, because there's less steps involved. It's like, if you're, if I was going to drive from where I am in Guilford to Glasgow, and I went in the straight line, or I went via Cardiff, via Liverpool by Manchester out to Glasgow, it takes longer if you use more energy, and creates more emissions.

GoCardless also measures gas emissions across all three scopes. Can you give us some details on what that process is like? 

I think a lot of businesses I speak to generally get a little bit worried or or don't really know where to start on measuring their emissions. I highly advocate that measuring is probably the most important step because you can't see where those areas of action are or the opportunities as well. That's the really important part unless you understand your full business impact, because you might just assume, Oh, hey, our emissions are just here, but they could actually be completely elsewhere. 

For ourselves, Scope Three, so our indirect emissions, now make up 99.99% of our total emissions. So our Scope One, and Scope Two are pretty much reduced down to zero now. And that's by working with renewable energy, or we also worked on a pilot project with one of our customers called Big Clean Switch, a really good renewable energy switching service, they do a lot more than that, as well, but we work with them to basically procure renewable energy for areas where we don't have control. 

Our Scope One and Two, we reduced as quickly as possible, because obviously, that's our direct commissions. But in terms of measuring Scope One and Two, that's relatively straightforward for most companies, because you'll generally have energy bills and things like that which you can take that data from. 

Scope Three can be a little bit more tricky. We completely measure everything in our Scope Three, there's nothing that we miss. For our business travel, we get data from our travel provider, they tell us who's traveled where, who stayed in what hotel, who's taken, what flight or what trade, and things like that. And that's, that's really important, we get monthly data on that, so that we can track it and make sure that we're essentially on track to our net zero science based targets. 

We've also got home working, which is actually really, really big for us. So I guess a lot of people post COVID took the view that the switch to work from home would be good for reducing emissions because people aren't traveling into offices as much. But I guess the context there for us is that our commuting emissions are probably between 20 and 50 tonnes depending on which year I'm thinking about, but our homework emissions are close to 1000 tonnes. So that's generally because in the UK, a lot of us are using gas boilers in probably quite leaky homes. 

Last year, we did our sustainability survey where we asked our employees to let us know how many days they work at home, and how they get to the office. This year, we improved on that. So we really focused on asking questions like how do you heat your home, because that's really important. If they're using gas or electricity, then the emissions associated with that are different, but then also actually presented us with the first real big opportunity to reduce our emissions rapidly. So what we've done this year, actually, for everyone that's got a gas boiler, we've given the ability to opt in for an Electric Radiator for their home working environment. So that basically means that not only are we reducing our emissions, and potentially we're looking at about 75% reduction in emissions from home working, but also it helps our employees to save on their energy costs as well. So we've got a nice environmental benefit. 

We also completely measure the energy use when our customers are accessing our platforms, our payments, even when people are visiting our website, we measure that completely. And then we work out the emissions from that even down to the waste in our office. Although that might not seem like a massive part of that, we achieved a really good reduction there because we originally had food waste going to landfill. The issue of food waste going to landfills is that it emits methane, which is typically a lot heavier than carbon dioxide. So to reduce that we put in some food waste collection points now that gets taken away and turned to energy instead. So even in those smaller areas, there's still opportunities to reduce those emissions really, really quickly, which is great.