CDR Buyer Interview - Klarna

'Unbound Showcase' is a globe-spanning series of interviews with pioneers of carbon dioxide removal (CDR). We’re questioning innovators, business leaders, policymakers, academics, buyers and investors taking on the challenge of our lifetime - gigaton-scale carbon removal from the earth's atmosphere.

Today’s buyer-focused interview is with the Head of Climate and Environment at Klarna , Alexander Farsan .

Tell us a bit about Klarna and an overview of its approach to sustainability.

Alexander Farsan —Klarna is an AI-powered global payments network and shopping assistant. Climate change is a focus area within our sustainability strategy, and we're very committed to being catalysts and leaders in climate action. We have a three-pronged approach there. First, we have a net zero target for our emissions by 2040, working to reduce our scope 1, 2, and 3 emissions along the way.

On top of that, and this is the second prong of our climate strategy, we are taking responsibility for the emissions we still need to reduce. We do that by financing impact-focused climate projects and climate solutions annually via a voluntary carbon tax in a climate contribution model, which means this doesn't go towards any climate neutrality or carbon neutrality claim. Specifically, we're doing that via our partners at Milkywire and their Climate Transformation Fund (CTF). The CTF is focused on three different pillars, broadly representing the various pieces of what we need to do to reach global net zero. There is a pillar that finances decarbonisation projects. A second pillar focuses on nature restoration and protection, addressing natural carbon sinks that need to be protected and restored. The third pillar of the CTF is focused on permanent carbon dioxide removal technologies, which we support alongside these two other vital areas.

What do we mean when we say our contributions to the fund are impact-focused? Many of the issues with the voluntary carbon markets that have emerged over the last few years are linked to the incentives that come with a focus on tonne-for-tonne compensation. We're trying to detach our approach from that by saying, here's a pot of money and let's find the most impactful things to do with this money - that’s also called a money-for-tonne approach.

The third prong of our climate action approach is that we're trying to empower our customers to make more climate-conscious decisions. We're highlighting, for example, the carbon footprint of products they can buy on our platform. With over 150 million consumers, we have a lot of reach, so we want to make sure we use that for a positive impact. In summary, we are trying to address all these different circles of influence in our strategy, reduce our emissions, finance impactful climate solutions, and use our network of retail partners and consumers to drive climate impact.

There's a severe lack of companies purchasing carbon removals. What do you think needs to happen to attract more buyers to this market?

Alexander Farsan - Overall, there needs to be more clarity about what role carbon removals should play within a company's climate strategy, why it makes sense to buy carbon removals now as part of an overall strategy, and how they should complement other measures. As I explained, we have these different pillars of our climate strategy where we reduce our emissions to Net Zero but also look at what solutions and projects that contribute to global net zero need finance - this is where our support for carbon dioxide removal initiatives fits in. This approach eliminates all the confusion about whether carbon dioxide removal should be prioritised over other areas or vice versa. We need to pull these all-important leavers simultaneously to reach global net zero.

Companies need clarity on how these pieces of the puzzle fit together and why carbon removals have a place now: because the ecosystem needs to be built up. It's not about positioning one solution versus the other. Ideally, there would be clear regulatory incentives to purchase carbon removals. Without that, the second best solution is clear guidance from voluntary initiatives and standard setters like the SBTi to inspire companies to adopt the type of comprehensive climate strategy Klarna is pursuing.

What's the best way to explain CDR to sceptics?

Alexander Farsan - I lost count of the number of analogies I've already heard for CDR, and ultimately, what resonates will depend on the person and where they're coming from. However, one thing I found to be generally good because most people can relate to it because it's so simple is that all CDR is is cleaning up after ourselves after we’ve polluted our environment. People intuitively understand that we want clean rivers, clean air, so putting it in that context tends to be effective.

How do you measure and communicate the effectiveness of your carbon removal purchases to stakeholders and customers?

Alexander Farsan - I think it's an interesting one for Klarna because, as I explained, we make our allocation of funding via the Climate Transformation Fund, and that's because our current focus of engagement in the carbon removal space is to support this fledgling ecosystem and help it grow and evolve to fulfil the role it will ultimately have to play in enabling global net zero down the road. This means we typically purchase carbon removal credits at a high cost and with a very high risk tolerance. We're often the very first corporate customers of the companies we buy from, so we measure the effectiveness of our purchases more in the context of pushing forward the CDR ecosystem overall and helping drive innovation rather than focusing on each purchase. That's the bigger picture approach we're taking, at least for now, while trying to get the most bang for the buck, impact-wise, by being one of the first buyers to unlock solutions at this scale.

What advice would you give to other businesses looking to get involved in carbon credit purchases and support carbon dioxide removal initiatives?

Alexander Farsan —Going back to my earlier point, I think it's essential that the companies get some clarity for themselves about what roles CDR really should play within their overall climate strategy. Building on Klarna’s experience with this, we think it’s important to have a comprehensive approach. I think they should set a carbon tax and make climate contributions with a focus on impact, e.g., through the Climate Transformation Fund.

What do you look for in a carbon removal solution? How can suppliers capture your interest?

Alexander Farsan - We have this whole range of criteria against which we assess proposals. Still, a good summary would probably be that we are looking for solutions that hold the promise to reach significant scale, that have the potential to become cost-effective, that have a clear differentiation compared to other solutions that are already in the marketplace, and finally, but as important as the others, that they don't come with significant negative externalities for people or the planet.

What risks for the industry do you see for 2024?

Alexander Farsan - There needs to be more certainty about the actual demand for CDR and realistic projections for some of that demand. Many predictions or forecasts for demand are very rosy-eyed in their assumptions. Of course, you can take a sample of companies with Net Zero targets and then make assumptions about when they will ramp up buying CDR and by how much. But that leads to really misleading numbers. If you're a CDR company, I understand that gives you an excellent figure for your investor pitches, but I’m not sure it’s the one you should use for your business planning. So that is still the most significant question to me: where will this demand come from at the required scale without real strong regulatory levers that, at least in the short-term, I don't see coming into place?

Unbound Summits’ mission focuses on unrivalled connections, unmatched insights, and unbound CDR opportunities. You can learn more about Klarna’s sustainability pledge here, alongside its ESG report.