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Klarna’s Route To Sustainability – As Easy As ESG

Klarna’s Route To Sustainability – As Easy As ESG

Leon Gauhman | Elsewhen | Fintech FinanceLeon Gauhman, chief strategy officer at digital product consultancy Elsewhen, explains how Klarna can evolve a strong social conscience building on the principles of ESG

BNPL (Buy Now Pay Later) fintech Klarna has had a sensational year tripling its market valuation to $31bn. It’s a remarkable achievement, which underlines just how tuned in the Swedish payments firm is to the financial zeitgeist of Gen Z.

But the next stage of Klarna’s growth is going to bring heightened levels of scrutiny – in a wave of headline attention that could well tarnish the brand. Amazon, Facebook, Deliveroo and Boohoo have all, in their own ways, learned what happens when the media, regulators and rivals start kicking the tyres of your business model.

If there’s an Achilles heel for Klarna, it is the criticism it faces for luring young consumers into debt – at a point in history where their future prospects have never been more fragile. Right now, Klarna has a pink and fluffy image. But if it doesn’t get out ahead of this issue then it may end up joining payday lender Wonga as a footnote in the history of financial exploitation.

Klarna founder Sebastian Siemiatkowski is on record saying that he finds comparisons between Klarna and Wonga “emotionally upsetting”. But there is no question that a day of reckoning is coming for BNPL lenders. In my view, one key way for Klarna to get ahead of the game is by proving to stakeholders that it has a social conscience. It needs to pinball on its position as Europe’s most valuable fintech by building an authentic and persuasive ESG proposition.

ESG stands for environmental, social and governance criteria: it’s a sustainable approach to business growth that delivers new value and consistently makes better returns. Many of the world’s leading brands have already made ESG core to their proposition, so there is no reason why an agile fintech like Klarna shouldn’t be able to follow suit. Indeed, the company already publishes an ESG report each year – so devising a plan of action that makes ESG a more prominent part of its communication and behaviour seems like a natural next step. 

The longer a brand waits before responding to criticism, the more likely it is to be seen as cynical when it does finally move – a case in point being BP’s response to the climate crisis. But now is the perfect inflection point for Klarna to weatherproof its brand. Here’s how:

  1. Mobilise its reach for positive environmental impact: Klarna has established itself as the go-to financial partner for Gen Z – a cohort that has demonstrated time and again that it is passionate about environmental activism. In its last ESG report, Klarna ticked some important boxes regarding employee travel, supplier behaviour etc; but its scale of audience presents a unique opportunity to amplify its commitment by providing Klarna users with insights about the eco-credentials of products they are about to buy. Not only will this reinforce the notion that the brand wants to nurture a positive relationship with its predominantly young audience, it will also benefit Klarna’s retail partners. At a time when purpose-driven brands have a clear advantage, Klarna can ‘hero’ individual brand initiatives around ethics and sustainability with integrated messaging. Some brands might suffer by comparison with their greener rivals, but that’s just incentive for them to raise their game. The aim is to create a win-win experience for consumers and brand integrity for Klarna. It also builds on Klarna’s recent commitment to invest 1% of its newly raised $1bn equity to focus on solving global sustainability issues.
  1. Develop a powerful and inclusive social voice: Klarna chief executive Sebastian Siemiatkowski already positions his company as an outsider that has “been fighting the banking establishment for years”. That’s why he finds it so galling when his brand is linked to discredited models like Wonga. The issue with being an outsider, however, is that it can be perceived in two ways. On the one hand, you’re breaking down bureaucratic barriers, and disrupting the gatekeepers that rip us off. But on the other, there’s a risk of being seen as a cowboy, cutting corners to make a fast buck – disregarding the rule structures that protect people. Right now, the momentum is with Klarna as a champion of Gen Z financing, but the negative counter-narrative is also out there. Before the latter grows any louder, Klarna should build on its positive image by reaching out to those on the fringes of the credit system – the kind of people who are usually ignored by the financial services sector. By partnering with charities that support people who’ve been in prison, struggled with drug problems or recovered from psychological trauma, for example, Klarna could develop an outreach arm that gives vulnerable groups the tools they need to manage debt and achieve financial stability.
  1. Establish governance controls for better purchase decisions: Klarna has already captured the BNPL market – so now it has an opportunity to become a trusted resource driving responsible consumer choices. Klarna’s mainstay of Gen Z users already face major financial setbacks in the current climate, so the brand has a readymade cue to step in. The company’s ESG report talks about Mindful Money, a platform designed to support and educate consumers and help them make smart financial decisions. But maybe now is time to take a step further – emulating the kind of proactive work being done by the drinks and betting sectors. Personalised responses and controls could be put in place to encourage awareness of spending habits, with rigorous checks on overspend. A messaging framework could also be developed via a compelling content vertical. By populating this channel with shareable money tips and actionable financial insights, Klarna could position itself as a trusted and empathetic advisor. In the process, it could evolve from pushing for as high a product spend as possible to becoming a sustainable partner. In the long run, it is going to generate more revenue from working with financially stable consumers than those battling unmanageable debt.

Final thought

It is easy to view ESG as a form of self-imposed friction on revenues; but the reality is that it would safeguard Klarna’s long-term success. The business world has evolved, and companies are no longer free to choose between growth or an “alternative” do-good model – they need to do both. The backlash during the Deliveroo IPO build-up illustrates that investors now expect brands to display best practice in every regard. The good news, however, is that there is research to support the view that ESG-powered brands increase value creation and equity returns as a result. Klarna already has market dominance on its side – now it can use its influence to put ESG values at the heart of its model. This will pave the way for a sustainable, transparent and responsible path forward.

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