The trailblazer of ‘buy now pay later’, Klarna, has established a system of internal payments for greenhouse gas emissions. It aims to build a shared sense of responsibility and place downward pressure on emissions.
Experts have argued the Swedish fintech company has done what US politicians failed to – put a price on carbon pollution. In 2023, they set aside $2.35 million in internal payments for its climate action plan based on its ongoing emissions – $100 per tonne of Scope 1 and 2 emissions, as well as those from staff travel and $10 for all other emissions in its supply chain (Scope 3).
Background on Klarna’s internal carbon price system
Instituted in 2021, the internal carbon price has managed to raise over $5 million to date. The company contributes the proceeds to environmental projects chosen by Milkywire’s Climate Transformation Fund. This fund is a portfolio of projects ranging from the protection and restoration of natural ecosystems to carbon removal and policy advocacy for reducing emissions.
Klarna uses the funds not to offset its emissions but to accelerate worldwide decarbonisation. Businesses that place an internal price on carbon pollution from their businesses align their sustainability and climate budgets directly to a metric of ongoing climate impact. Through this, they are embedding their sustainability initiatives within a bigger business sustainability strategy.
They believe that by doing this, they are holding the entire company accountable for its carbon pollution but at a fixed price. The implementation of the fee has not only helped Klarna curb its emissions but also boosted transparency surrounding its emissions reduction journey. Moreover, the payments are supporting projects that desperately need funding and that are key to tackling the environmental crisis.
The rise in internal carbon pricing (ICP) systems
There’s no denying internal carbon pricing (ICP) systems are on the rise. A 2021 survey conducted by CDP, a non-profit committed to environmental impact disclosures, has reported over 2000 businesses use ICP systems or have plans to start doing it in the next two years.
This figure consists of half of the world’s 500 largest companies and represents an 80 percent rise in businesses planning or utilising an internal carbon price from the five years before. In saying that, the majority of these are shadow prices. In other words, they are only calculated on paper to help navigate greenhouse gas disclosure regulations and inform corporate decisions.
It is only a fraction of businesses with ICP that levy an internal fee, which generates revenue and affects the organisation’s bottom line. Along with Klarna, other companies leveraging internal carbon pricing systems include SwissRe, Microsoft, and Ben & Jerry’s.
According to an analysis from Milkywire, businesses with limited opportunities to spend internally to minimise their carbon emissions are particularly well-placed to implement carbon fees to accelerate climate action outside their supply chains. It adds that these usually include businesses in low-carbon intensity sectors like finance, technology, and professional services.
Conclusion – achieving net zero emissions
Klarna believes internal carbon piercing is a vital tool to translate the language of sustainability into finance and business. Klarna’s current tax of $100 per tonne of pollution from Scopes 1 and 2, in addition to employee travel, is aligned with the UN Global Compact recommendation.
The company plans to explore increasing this in the future, in line with the social cost of carbon. Their outlook is that it is not about making their business net zero but a matter of how we get the world to net zero. These are inspiring words that reign true and illustrate that this big company is doing much more than simply a ticking-the-box exercise.
