Buy now pay later (BNPL) firm Klarna has added a carbon footprint tracker to its app. Launched on Earth Day, it helps shoppers understand the estimated environmental impact of the products they’ve splurged on.
That means the 18m users of Klarna's app now have a personal dashboard showing the cumulative carbon emissions of purchases they have made using the company's BNPL service — based on estimates from impact-tech startup Doconomy. Emissions can be compared on a monthly basis, essentially giving shoppers a score they can try to ‘beat’.
“When you’re buying food today, you can clearly see how much sugar is in there, how much fat is in there,” the company’s cofounder and CEO Sebastian Siemiatkowski says. The hope is that by providing carbon footprint data, shoppers will start to switch to less impactful products.
And if customers do that, Siemiatkowski thinks retailers might just head in a more sustainable direction. “Companies will wake up and say, ‘I’d better change fast here, because I’m losing my business’.”
Can BNPL be a force for good?
Klarna’s moves also include a ‘1% pledge’, whereby the fintech has committed to allocate $10m of its most recent $1bn funding round to climate change initiatives, and they're part of a wider trend among BNPL companies to position their services as planet positive.
On April 5, the Australian fintech Afterpay launched a “top-up” programme that lets shoppers make donations to a charity fighting fashion waste. Over in the US, BNPL firm Sezzle acquired B Corp status last month.
It makes sense. Millennials and Gen Zers, which make up a big chunk of BNPL services’ customer bases, care deeply about sustainability.
But given their reputations as ‘debt traps’ — and their close associations with fast fashion brands — can we really believe businesses like Klarna when they say they want to put the planet first?
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“We work with fast fashion, but we also work with the Allbirds of this world,” Siemiatkowski says, referring to the eco-friendly shoe brand. “We try to promote consumers taking good decisions.” Klarna says it provides incentives for consumers to shop with the eco-friendly brands it has partnered with, such as offering an increased amount of loyalty points.
While Klarna’s big pitch to retailers is that it increases sales — a case study in its 2020 annual report featuring beauty retailer Sephora boasts of a 35% increase in online sales since the company became a Klarna customer in May 2020 — Siemiatkowski argues that equating this with consumers buying things they don’t need is “oversimplifying”.
Indeed, it has been argued that BNPL products could help consumers get over the price barrier when it comes to making more sustainable purchases. “Consumers are, because we are giving them a small line of credit, capable of buying a more expensive item,” Siemiatkowski says. “A more expensive item might many times be a more sustainable item.”
Searching for mentions of Klarna on Twitter, however, paints a different picture of what is happening with that extra spending.
The fast fashion problem
According to a Money.co.uk study, which analysed a YouGov list of the UK’s most popular retail brands, fast fashion retailers Nasty Gal, Boohoo and Pretty Little Thing ranked top for BNPL mentions on their websites, meaning they are pushing credit services heavily to their customers.
Fast fashion brands, with their ultra-speedy supply chains that churn out high volumes of clothing and styles, have a significant impact on the environment. A 2019 study by Oxfam found that the average UK adult spends £27 a month in fast fashion outlets, and currently owns two items of clothing that remain unworn.
Accusations of modern-day slavery have also been levelled at these brands. Boohoo, a Klarna retail partner, was recently investigated after it was revealed that workers making its clothes in Leicester in the UK were paid as little as £3.50 per hour.
Asked about potential conflicts between Klarna’s sustainability messages and its continued work with fast fashion brands, Siemiatkowski says he wants to be “mindful of what judgement we pass when we don’t have the details or the knowledge of what’s actually happening in each of these businesses.”
Referring to the allegations against Boohoo specifically, a Klarna spokesperson said: “Klarna takes a zero tolerance approach to modern slavery and will not knowingly support any business involved in such practices. Boohoo has thoroughly investigated this matter and is taking considerable steps to tackle poor practices in complex global supply chains and protect vulnerable people.”
Siemiatkowski argues that fast fashion brands provide those on low incomes a means to access clothing “at a favourable price”, although he does agree that “if you are in a position in life where you have the ability to choose, then we should give you the tools to take the right decision.”
Fast fashion — which accounts for an estimated 10-20% of revenues in key European fashion markets according to Vogue Business — is likely to make up a significant enough portion of Klarna and other BNPL companies' incomes that it would be difficult for them to disentangle themselves from these relationships if they wanted to.
Untangling Klarna’s roots
Klarna has grown at a phenomenal pace. Since launching 16 years ago, the company is now valued at $31bn, and an IPO is thought to soon be on the table.
Speaking with Sifted, Siemiatkowski admits that as the company has expanded its reach, issues with the business model “that we hadn’t really considered” have emerged. While Klarna has caught up to criticisms regarding the financial wellbeing of its users, sustainability is another hurdle it must face up to.
Currently, the carbon footprint data on Klarna’s app is only displayed after a purchase has been made — not before, when it could change a customer’s mind. The app is also only used by a small set of Klarna’s 90m customers (although new sign ups will be able to see the carbon footprint data of their previous Klarna purchases). The data itself comes from the Åland Index, developed by Doconomy in collaboration with Finnish bank Ålandsbanken, which provides general estimates on the carbon footprints of different products (but cannot differentiate between, say, a sustainably made t-shirt and one from a fast fashion retailer).
“That was the fastest way we could come to market,” Siemiatkowski admits. “We have to improve the reporting, we have to make it more accurate, and we have to make sure that it’s available to you when you’re making the purchasing decisions.”
Siemiatkowski adds that Klarna will soon start recruiting a dedicated product team to take on the development of the carbon footprint tracker. Part of the plan is to allow retailers to provide their own, more accurate data on the carbon footprint of their products (along with proof) in the future.
It may take Klarna some time to bring about the behaviour change Siemiatkowski is hoping for.
But considering the company’s reach — over 250k merchants have signed up with Klarna — any pressure it can put on brands to start disclosing their carbon footprint data is welcome.