Nexi ESG Highlights: Leading the payment sector in environmental engagement
Marouane Samghour
MSc Sustainable Finance & Fintech - Corporate finance graduate - SKEMA BS. Looking for an opportunity in Finance, ESG or Investment Analysis
Board Members:
?? We believe the board has a solid track record, extensive industry knowledge, and is very well positioned to execute the strategy. In addition, following the acquisition of Nets and SIA, the board has been shuffled and the number of independent directors improved from 39% in 2021 to 54% as of early 2022. It remains at this level in 2024.
Nexi’s board of directors is responsible for the strategic direction and supervision of the group’s activities, results, and sustainability impacts. It defines the principles, guidelines, objectives and commitments in reference to sustainability issues relevant to Nexi, in line with the group’s strategic objectives and the needs and expectations of the group’s internal and external stakeholders.
As of March, the board was comprised of 13 members (including the CEO), of which seven are independent (54%) and five are women (38%). Note that the role of chairperson of the board is clearly separate from the CEO position and is held by Michaela Castelli (independent). However, the CEO is a member of the board, Chairperson of the strategic committee, and General Manager of the group. We do not see this as negative, as shareholders have a vote on the removal/appointment of the CEO at board level, which is a governance positive. The board is made up of experienced professionals, especially in the payment industry, which should support growth as we believe significant M&A synergies are set to drive the company’s development. The group has four committees: the strategic committee chaired by CEO Paolo Bertoluzzo, the control, risk and sustainability committee chaired by Ernesto Albanese, the related party committee, chaired by Marina Natale, and the remuneration and appointments committee chaired by Elisa Corghi. Paolo Bertoluzzo has been CEO of Nexi and Nexi Payments CEO since July 2016. Prior to joining Nexi, he served as Chief Commercial Operations and Strategy Officer of Vodafone with responsibility for Vodafone’s global commercial management, strategy, and operations, as well as innovation and transformation projects. From 2008 to 2013, Bertoluzzo was CEO of Vodafone Italy and since 2012 of the Southern Region, when he became a member of Vodafone Group’s executive committee. He is currently a member of the Politecnico of Milan advisory board and from 2013 to 2016 he served as a member of the GSMA board, the worldwide telecom industry association. Bertoluzzo graduated with a degree cum laude in management engineering from the Politecnico of Milan in 1990 and completed an MBA with distinction from INSEAD (Fontainebleau, France) in 1994. He started his career as a management consultant working both in Europe and the US. Bernardo Mingrone has been CFO at Nexi since 2016. Prior to that, he was CFO at Unicredit, deputy general manager in charge of finance and operations of Banca Monte Dei Paschi di Siena (MPS), CFO and head of strategy of Pioneer Global Asset Management, and held various positions in investment banking at Lehman Brothers and JP Morgan.
Bernard Mingrone also served as chairman of the board of Mercury Payment Services, chairman of the board of Fabrica Immobiliare SGR, vice chairman of the board of Anima Holding, and was a board member of AXA MPS and of AS Roma. He holds a degree in economics from the London School of Economics and Political Science.
Nexi also benefits from a very experienced management team with talented leaders coming from both Nexi (Andrea Mencarini heads cards & digital payments and Renato Martini heads digital banking solutions) and Nets (Torsten H. J?rgensen heads issuer & eSecurity services). Note that Nexi’s board has a traditional governance structure, with a board of corporate auditors. Another important fact is that in 2023, the board established the tables for succession planning which gives the company a clear view on the future of its management and possible improvement to all stakeholders. In our view, the board has a solid track record, extensive industry knowledge, and is very well positioned to execute the company’s strategy. Furthermore, the board members exhibit a commitment to transparency and strategic longterm planning.
Remuneration policy:
?? We believe Nexi has an efficient compensation policy, including a large part of variable remuneration, while the fact that the CEO renounced his MBO in 2020 is clearly positive.
Nexi made the choice to keep its 2023 compensation policy in line with the 2022 policy, with some small additions. The CEO’s compensation is made up of several components:
In 2023, the CEO received EUR2,762,386 (vs. EUR2,940,486 in 2022). The emphasis of the MBO plan was significantly shifted towards ESG (Environmental, Social, and Governance) goals, especially for the CEO and General Manager of the group, as well as for most senior management members. This adjustment reflects the specific roles and responsibilities of these positions. Additionally, the implementation of explicit and quantifiable ESG targets now encompasses all participants in the variable compensation programme, broadening this initiative from its inception. This substantial alignment of the CEO’s incentives with sustainability performance significantly motivates the CEO to enhance the company's sustainability efforts and track record. Furthermore, in line with the commitment established at the shareholders' meeting on 5 May 2022, Nexi’s ESG Strategy was incorporated into the long-term incentive (LTI) plan, starting with the allocation cycle for 2023-25. This move further integrates ESG principles into the company’s core strategic directives. The scorecard is defined as a set of objectives (10% weighting) related to the ESG strategy of the Nexi Group, with particular reference to digitalisation, gender balance, people engagement, and emission reduction objectives (representing 35% of the ESG-related performance share allocation). The inclusion of ESG topics in the LTI plan has been confirmed for the 2024-26 allocation cycle. These performance shares range from 0% to 200% (cap) of the target amount as a result of the weighted average payout of each ESG KPI .
Note that to strengthen corporate governance, with the CEO held accountable for his actions and to protect the company from reputational damages in the event of unethical practices, the company includes clawbacks in all the variable components of the CEO compensation schemes. The variable component is fully or partly reimbursed (MBO, or Shares) in the event of violation of the rules set forth in Article 114-quinquies.3 of the TUB.
Shareholders Structure:
???? We believe there is a balance of power between CDP Equity and the Private equity funds that helps to offset any short-term pressure for management to meet the PE exit conditions.
The shareholding structure has changed materially since the IPO of Nexi, as Mercury UK (Advent International, Bain Capital and Clessidra) owned c. 60% of Nexi at the time of the IPO. It has also evolved following the acquisitions of Nets in June 2021 with the entry of Hellman & Friedman, Eagle & CY (Advent International & Bain Capital) and AB Europe (Advent International & Bain Capital), and of SIA at the beginning of 2022, with the entry of CDP Equity and Poste Italiane. We note that Advent International and Bain Capital are now largely represented, as they were already owners of Nexi through Mercury UK and they are now also holding shares through Eagle & CY and AB Europe, while CDP Equity is also a major shareholder.
Nexi’s shareholding structure remains largely controlled by private equity funds, including Hellman & Friedman, Mercury UK (Advent International, Bain Capital and Clessidra), Eagle & CY and AB Europe (Advent International & Bain Capital). Private equity groups typically operate with very close accountability to the CEOs of business they invest in. The presence of the CEO on the board makes accountability more transparent. Following the closing of the SIA acquisition, Hellman & Friedman now owns 19.9% of the shares, CDP Equity 13.6% of the shares, Mercury UK 9.3% of the shares, Eagle & CY 6.1% of the shares, AB Europe 4.0% of the shares, Poste Italiane 3.5% of the shares, with a free float of c. 44%. All in all, we believe there is a balance of power between CDP Equity and the Private equity funds that helps to offset any short-term pressure for management to meet the PE exit conditions.
Quality of Reporting:
Financial Disclosure and Reporting Complexity Nexi's financial communication is considered high quality within the payment sector, yet it remains complex due to numerous exceptional items affecting P&L and cash flow. These complexities stem from extensive M&A activities and ongoing restructuring, making it difficult to gauge the company's actual cash generation accurately. The focus on normalized free cash flow (FCF) instead of reported FCF obscures a clear view of current cash generation, necessitating improvements in financial transparency.
M&A Activities and Integration Nexi has significantly expanded through strategic acquisitions, including Nets and SIA, which have led to substantial exceptional items, such as purchase price allocations and restructuring charges. These acquisitions have been a mix of merchant acquiring businesses from various banks and digital banking solutions, adding complexity to the financial statements and integration processes.
Cost-Cutting and Exceptional Items A new cost-cutting program, set to generate EUR 90 million in savings by 2025, will introduce further exceptional items, including a EUR 170 million charge on the P&L and cash outflows over the next few years. Despite these, the gap between adjusted and reported EBITDA is expected to narrow significantly from 2024 onwards, indicating improving earnings quality.
Capital Expenditures and Transformation Nexi's capital expenditures have been high, particularly due to transformation capex required to integrate various acquired payment platforms. Although capital intensity is set to decline slightly, ordinary capex remains higher than the long-term target, which could impact future cash flows.
Free Cash Flow and Cash Conversion Nexi's cash conversion rates have been low and erratic historically but have shown improvement since 2022. The group’s focus on normalized results and excess cash generation rather than actual FCF figures has led to misrepresentation of its financial health. Adjusting this communication could provide a clearer picture of financial stability and improve market credibility.
Future Outlook and Strategy Nexi plans to focus on organic growth and smaller, bolt-on acquisitions while aiming to deleverage its balance sheet. The company’s strategy includes a EUR 500 million share buyback program to support share prices and continued investments in core business areas. Despite not paying dividends since its IPO, this new capital allocation strategy reflects a shift towards enhancing shareholder value.
Earnings Quality and Transparency The company’s earnings quality is expected to improve post-2025 as exceptional items decline. Nexi’s financial transparency, particularly regarding free cash flow and capex, needs enhancement to regain market trust. Management’s commitment to improving disclosure and hosting investor updates will be crucial in this regard.
Key Figures
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Overall, while Nexi faces challenges due to complex financial reporting and high capital expenditures, strategic initiatives and improved financial communication can potentially enhance transparency and earnings quality in the coming years.
Business Ethics:
???? The company has a strict code of ethics detailing Nexi’s behavioural principles and ethical values, in addition to a whistleblowing policy available to all employees, as well as an anticorruption policy and a human statement.
We highlight that no sanctions for non-compliance with regulations or laws related to corruption and money laundering were recorded in 2023, in line with 2022.
Environmental Footprint:
?? Nexi is at the start of its path towards sustainability, but in our view CDP's assessment of the company and its aim to reach net-zero emissions at all scopes by 2040, are already important steps.
Nexi submitted its 2023 CO2e emissions to the CDP and received an A-grade. The groups emission reduction targets have been approved by the Science-Based Targets initiative (SBTi) in 2024. They include:
Achieving the 2030 target represents a 5.9% CAGR reduction target, which is approved by the SBTi. In addition, Nexi aims to reach net-zero emissions by 2040 at all scopes by reducing absolute scope 1, 2 and 3 GHG emissions by 90% and using carbon credits to offset the residual emissions, however we would like more transparency on the roadmap they are putting in place.
For scope 3 emissions, Nexi has not set reduction targets but rather commitments for the share of its suppliers that will have set reduction targets, specifically by 2027:
In 2021, the emissions inventory was reviewed and extended in accordance with the greenhouse gas (GHG) Protocol for a more accurate and transparent reporting of scope 1, scope 2, and scope 3 indicators. In 2023, scopes 3 GHG emissions rocketed compared to 2022 levels. However, this is partly due to new categories included in scope 3 GHG emissions mainly produced by purchased services (the calculation is based on administrative expenditure data for the year 2023, using spend-based emission factors for the 2023 reporting year) and upstream transport and distribution which include emissions related to the transport of purchased POS and ATMs. In 2023, Nexi Group continued its commitment to exclusively source 100% of its energy from certified renewable sources, with the renegotiation of electricity supply contracts for the supply of all Italian offices and data centres. This measure contributes to reducing its scope 2 emissions. In fact, according to the locationbased method, Nexi emits 10,788 tonnes of CO2e, but adjusted for renewable electricity, this number drops to 6,622 tonnes of CO2e, corresponding to its scope 2 market-based GHG emissions. Concerning its data centres, Nexi continued with its IT strategy initiatives aimed at consolidating its data centres scattered throughout the country, with the target of improving efficiency in the management of computer systems, spaces, and the related energy and cooling needs. In addition, the group is developing programmes that will gradually and continuously lead to a replacement of IT infrastructure with new-generation systems, allowing for a reduction in electricity consumption while maintaining the same services. Although the company is below sector average emissions, Nexi Group is taking steps to be more environmentally friendly and adapt to a green economy. The company is working on the following projects:
In our view, Nexi is at the start of its path towards sustainability but has already set ambitious targets knowing that it is in a growth cycle, meaning that reducing its emissions to reach levels of 2020 or even lower will be challenging given their growing activity.
Climate Change Impact:
?? Nexi has added a carbon calculator to its suite of tools and has started to issue cards made from recycled plastic. However, its carbon-credit-supported project need to be monitored closely.
Nexi operates in areas not explicitly covered by the EU Taxonomy, which focuses on sectors with significant carbon footprints, such as manufacturing and transport. The company's environmental impact is mainly due to data processing and hosting, activities essential to its service range but not direct sources of revenue per the EU Taxonomy. Nevertheless, Nexi is dedicated to reducing this impact by improving the efficiency of its data centres. Beyond merely enhancing efficiency, Nexi has taken active steps towards environmental sustainability. The company has introduced a "Carbon Calculator" to its suite of tools, allowing users to gauge the environmental impact of their purchases and contribute to charities to offset their carbon footprint. This initiative is part of Nexi's Planet Care service, incorporating Mastercard's carbon calculator to enhance customer awareness and action on environmental issues. Additionally, Nexi has begun issuing cards made from recycled or ocean-sourced plastics, contributing to waste reduction and pollution combat. The company is also transitioning to eco-friendly packaging for its Point of Sale (POS) terminals and is scaling up less impactful solutions, including Soft POS, Digital Receipt, and Virtual Cards, further solidifying its dedication to environmental stewardship. Within the reporting period, the company has supported projects aimed at providing safe water in Rwanda by purchasing project-based carbon credits, offsetting 6,365 metric tonnes of CO2e. Nexi also invested in a forest protection project in Zimbabwe, purchasing 25,462 certificates to neutralise the same amount of CO2e emissions. The two projects should be closely monitored.
Health & Safety:
Nexi’s exposure to health and safety is very limited. During 2023, the company did not record any injuries nor accidents, compared to seven minor occupational accidents occurred at work in 2022. In 2023, a work-related Stress risk assessment was implemented through focus groups, to identify the presence of any stress factors and taking actions where necessary. This assessment is highly valued to ensure psychological health of the company’s employees.
Working Conditions:
?? Although the integration of Nets & SIA remains slightly challenging, Nexi has shown a strong commitment to workforce engagement and employee training programmes.
The attrition rate and number of employees at Nexi, including the integration of Nets and SIA, offer insightful reflections on the company's workforce dynamics and organisational changes. In 2023, with the total workforce reaching 10,580 employees, a significant increase is observed versus the previous years, attributed to the acquisitions of Nets and SIA. This expansion underscores Nexi’s growing footprint in the digital payments sector, yet it also introduces challenges in managing and integrating a diverse and larger workforce. The attrition rate of 10% in 2023, compared to 12% in 2022, marks a considerable decrease, which may be attributed to the gradual return of the companies’ internal environment to what it used to be, before the complexities and transitional challenges following the integration of Nets and SIA. It is common for mergers and acquisitions to lead to higher attrition rates initially, as changes in corporate culture, systems, and structures can impact employee satisfaction and retention. However, this rate also reflects the importance of effectively managing change to stabilise and integrate the workforce in the aftermath of such significant expansions. Regarding diversity, women accounted for 42.8% of group employees in 2023, a slight increase versus 2022. Only 30.3% of managerial positions were held by female managers, which is clearly low compared to the proportion of women within the workforce.
Nexi actively engages in monitoring and enhancing its workforce's well-being and productivity through annual evaluations and initiatives like the Our Voice survey. Conducted in November 2023, this survey garnered an 85% engagement level, indicating a high degree of willingness among employees to participate in the company's feedback mechanisms. Despite the high participation rate and the slight increase in the proportion of women in the workforce to 42.8% in 2023, and in female managerial positions from 29.6% in 2022 to 30.3% in 2023, the company need to make a greater effort to achieve gender balance, especially in leadership roles. The integration of Nets and SIA into the Nexi Group has significantly influenced various workforce metrics, not least the average training hours. The decrease in average training hours to 12.7 in 2023 from 19.6 in 2022 and 23.5 in 2021, may reflect the logistical and operational challenges of harmonising training programs across a larger, more diverse group. In conclusion, while Nexi exhibits a strong commitment to workforce engagement and training, the challenges arising from rapid expansion and integration of new teams underscore the need for focused efforts in managing change, promoting diversity, and enhancing leadership opportunities for women. Addressing these challenges will not only support Nexi in closing the gender gap in leadership positions but also in maintaining a satisfied and cohesive workforce in the face of rapid organisational changes.
Product Responsability:
Nexi’s products have not been linked to significant past controversies. Nexi has a Data Protection Officer (DPO) who is responsible for monitoring compliance with the GDPR EU regulations. According to RepRisk the company is rated “A”, which is a decent rating and is not linked to human rights controversies.
Supply Chain:
Nexi launched a comprehensive assessment of compliance measures regarding various legislative frameworks, including the Supply Chain Act (DE), the Corporate Duty of Vigilance (FR), the Child Labour Due Diligence Law (NE), and the forthcoming CSDDD (EU). In 2023, former Nets entities conducted a thorough review of the existing third-party management procedures related to ESG aspects: this evaluation spanned both local and group operations, aiming to ensure alignment with current and anticipated EU regulations on sustainability due diligence. All new vendors are screened prior to being onboarded and the screening includes various compliance areas, including ESG. Further, all new vendors which are deemed as relevant pursuant to the initial screening are required to accept contractual clauses ensuring continued compliance and reporting within each relevant area - including ESG. At the end of 2023, a screening was initiated for existing vendors representing 90% of the total spend on vendors and the process is ongoing. Furthermore, the main changes in 2023 were the issuance of a Group Procurement Policy and the launch of the CFO Transformation Project. This policy identifies essential elements to which all group companies must refer, including ESG issues, while the start of the CFO Transformation aims to homogenise group tools by making operational activities and related reporting and monitoring the same across the entire group. The project is due to be completed in 2025 and will transform the entire liability process. Nexi has continued to adopt eco-friendly materials for payment cards and, in particular 1.2m cards were issued with recycled PVC and 0.1m cards made of plastic recovered from oceans were issued.