The Gen Z Effect: Sustainability, technology, and the future of finance
- Gen Z has demonstrated an interest in shopping for sustainable fashion, in goods and companies whose values align with their own.
- In this special episode of the Tearsheet Podcast, executives from Klarna, Publicis Sapient, and Good on You join us to talk about the intersection between sustainability, technology, and finance.
This episode of the podcast explores how Gen Z’s penchant for bringing social issues to the forefront impacts the financial services they use and their choice of providers. We look at one particular partnership between Klarna and Good on You that demonstrates the power to serve Gen Z via a collaboration that combines sustainability with financial services. We’ll also explore how some of the largest financial institutions can navigate this new generation by more deeply understanding them – it will require some evolution, though.
This conversation is part of a special podcast series where we explore the fascinating Gen Z deeper: their relationship with money, how they like to save, spend, and borrow money, their fears and aspirations, and their connections to social issues.
Joining me on this episode is Salah Said, Head of Sustainability at Klarna, Dave Donovan, Head of Publicis Sapient’s Financial Services Practice in North America, and JD Shadel, Editor at Large at Good on You, which publishes data on 5,000 fashion brands’ sustainability.
Tearsheet thanks our sponsor Publicis Sapient for their support. Read more and download customer research about Gen Z and financial services at SteezLife.
Now, let’s talk about Gen Z, financial services, and social issues.
The big ideas
- Gen Z's Impact on Financial Services: Gen Z is reshaping the financial services industry through their strong focus on sustainability, ethical practices, and social impact. Financial institutions must adapt to meet the values-driven demands of this generation.
- Sustainability as a Key Driver: Sustainability is no longer just a buzzword; it's becoming a key driver in financial decision-making for Gen Z. They prioritize financial health, social impact, and making investments that align with their values.
- Technological Solutions: Technology, particularly fintech, is playing a significant role in promoting sustainability within financial services. Digital-only banking platforms, eco-friendly credit cards, blockchain, and crowdfunding are some examples of tech-driven sustainability solutions.
- Collaborations for Impact: Collaboration between companies and organizations is crucial to drive sustainability efforts forward. Partnerships, like the one between Good On You and Klarna, are instrumental in making sustainability accessible and empowering consumers.
- Fashion Sustainability: Sustainable fashion is gaining popularity among Gen Z, influencing their lifestyle choices and financial decisions. A growing emphasis on circularity and expecting brands to communicate their sustainability efforts are key trends.
- Consumer Empowerment: Empowering consumers with information is essential. Tools that help track carbon emissions, round up change for sustainability projects, and promote ethical credit cards are becoming increasingly relevant in helping consumers make sustainable choices.
- Inclusion and Affordability: Accessibility to sustainable products and financial services is vital. Large enterprises should aim to provide more inclusive financial instruments, ensuring that sustainability is not just an option for those with financial means.
The following excerpts were edited for clarity.
How would you describe Gen Z's values and their impact on the financial industry's approach to sustainability?
Salah Said, Klarna: When it comes to Gen Z, we launched several reports. Our recent report, the 2023 Money Pulse Report, found that Gen Zers are digital first and they have a preference for digital devices, smartphones, smartwatches, and so on. They're much more budget conscious and frugal. It shows that they're looking into their budget before they make a purchase decision. They're much more conscious when it comes to shopping choices.
But they're also much more purpose-driven, and really look into who the brands are that they shop with. They want to shop and make conscious decisions. And they don't really make buying decisions lightly. That's what we learned.
I think that aligns very well with sustainability because you're always looking into making a conscious choice, for instance, of a more durable product or saving money and that can be great for your wallet but also for the planet. So whenever we try to invest in products that could last a lifetime or products that we could resell, that's definitely great for them and fits really the idea of durability, sustainability, and being frugal.
JD Shadel, Good on You: That's what we see, as well. There's a lot of different indicators that Gen Z is the most socially and environmentally conscious generation yet and that definitely influences how they approach making consumer choices and financial decisions. There's a lot of different kinds of stats that you can cite that say Gen Z is more interested in supporting brands that demonstrate sustainable credentials, that will invest more in sustainable products. Gen Z individually in their own lives is taking action to reduce their footprint, their impacts.
At the same time, I think it's really interesting in analyzing this generation to think about the behavior-intention gap, because we also see at the same time, a lot of kind of dissonance between both those values. Some of the industries that Gen Z is the primary consumer of fast fashion, we see growth and a lot of fast fashion brands, which are driving a lot of the problems in the fashion industry from both the carbon footprint of the industry through to the waste crisis. So I think it's kind of interesting to see both of those dynamics at play, right?
At Good on You, Gen. Z is our largest user base of users by age, and more than two thirds of our users are under the age of 30. They're also the largest growing segment of our audience that uses our data on our own platforms. And so clearly, there's a growing movement that is putting sustainability and those values at the center of a lot of their financial decisions.
It's kind of hard to talk about a generation broadly. And so you're going to see a lot of nuance within that. Cost of living is also a key factor for this generation.
In your work with some of the largest financial institutions in the world, how do you see sustainability in connection with Gen Z?
Dave Donovan, Publicis Sapient: First of all, for banks and asset managers, this is an extremely important demographic, because when you look over the next two decades, Millennials and predominantly Gen Z are going to be the largest consumer base that they're going to have to serve. They're going to inherit something like $30 trillion in wealth over the next couple of decades. Their impact on the industry is starting to be significant. If you look at just things like shifts towards sustainable investing, the creation of ESG products, green bonds, and investments that are geared towards sustainable projects, they force transparency on banks.
Gen Z, as a value, is all about transparency. And I think they've demanded that their financial institutions become more transparent, not just in how they report their businesses, but also the types of companies that they work with. And in some situations, they've affected change around financial institutions not engaging with companies that are not eco friendly, like like Big Oil.
You've also seen a change, which is paramount to my business, which is in technology, because to gain the loyalty of Gen Z, Gen Z is all about seamless integration and personalization. And because they're digitally native, they demand that their experiences be the same as with something like Netflix or Spotify. In the past, many generations have kind of put up with some of the friction that banks have created, but Gen Z is going to have no tolerance for that. They're going to vote with their wallet. And so at Publicis Sapient, being a technology integrator, this is key to our strategy. We're helping these businesses reimagine themselves so that they can essentially thrive and service this demographic in a way that they want to be served with that personal touch, because I think that's going to be really important. That comes with technology, it's going to come with a lot more focus on data and AI, and that's why you see the rise of alternative banking models like fintechs, robo-advisors, and challenger banks.
Klarna and Good on You
Salah Said, Klarna: In our data, for instance, eight out of 10 consumers are trying to look for brands that they can align their values with. We try to help consumers get that transparency and that information around brands, but also around products. There's a lot of consumers that do have brands that they share values with, that they want to shop with, and that they want to learn more about. So one reason for us to collaborate with Good on You was that we wanted to have a credible external partner that vets and assesses brands to what they are. We are not a judgmental platform -- we try to amplify the information that is publicly disclosed in a very simple and digestible way to consumers so they can use it and make more informed choices.
And that's been going for more than two years now. It's been really appreciated by consumers, because it's very digestible and easy information to get. On the other hand, it's absolutely important to be truthful and not misleading towards consumers, and to really make sure that if they want to dig deeper, if they want to learn more about the impact of certain companies, that they can do that. That's something that they can absolutely do with Good on You.
So very simply put, when consumers browse and shop with Klarna, they're able to find information about fashion brands, and they look at the brands that have been graded -- we only display brands that have been highlighted Very Good by Good on You. So they can shop with them, they can learn more about them.
They can explore three different impact areas: working conditions, environmental impact, and animal welfare. We do that also in other areas, but I think the important piece is consumers like to get information about the product. But usually, it's not enough to just know that there is a collection that was made out of more sustainable materials. I want to know the overall impact of the company. And that creates trust, and that maybe creates another purchase and a lot of brand, and the reason for someone to come one more time and just stick around.
JD Shadel, Good on You: I think that really underscores why Good on You exists in the first place -- that consumers, especially Gen Z and younger consumers, care about sustainability and want to support more sustainable brands. But there's the challenge of not being able to find or assess the information. There's either too much information and you don't know what to make of it or you're struggling to get that information and making informed choices becomes really challenging.
We believe consumers have a right to know how brands impact issues that they care about. We do that through our platforms. Of course, consumers use Good on You to check brands' ratings, but ultimately, we want that information to be as widely available as possible. And it really is through collaborations with innovators like Klarna that were able to do surface that information, which is all based on what is publicly available. And it really gives us opportunities to meet consumers where they are. I think that's the key benefit of this collaboration and why it's been a success in in our minds, and why we're really excited about Klarna committing to providing this information to consumers in an accessible way.
Salah Said, Klarna: I think an interesting component is we also work with like half a million retail partners. The opportunity to use this information and to help them understand how they perform, how they can improve, and ultimately allowing them to have a piece of that opportunity with consumers out there if they improve -- I think that's really important. And obviously with a lot more efforts within ESG and sustainability, a lot of companies look into their own supply chain, their own operations, which is great and that's everything that they should start with.
But if there's an opportunity for you to use your clout as a force for good -- whether you want to be an environmentalist company and have a large commitment or be it for the reason that you want to piece or a stake in this massive opportunity that is out there, I think that doesn't matter. I think companies should just try to unleash the potential they have, when it comes to their engagement with consumers and partners, and Good on You is a great partner for that.
JD Shadel, Good on You: Good on You exists because we envision a future that's more sustainable, and to get to that future that's more sustainable, part of it is encouraging and incentivizing accountability and transparency. We also want to empower brands to do better -- that's key to our mission as well. They can reach these growing consumer segments that are putting the values around sustainability and ethics at the center of their decision making. So we've been creating tools and opportunities and partnerships to do that more. I think you'll see more from us in that space, and more from us and Klarna collaborating together to try and make that impact even greater.
How have you seen the financial services industry evolve in response to Gen Z's sustainability preferences?
Dave Donovan, Publicis Sapient: Well, I think the response is a testament to Gen Z's sustainable preference. It's a testimony to the power that they hold that they've made changes. When you think about it, how Gen Z thinks about wealth, for example, it's not just about making money or increasing your 401k. But it's really about financial health and how that creates social impact.
Clearly, you've seen lots of products and services that are geared towards ESG. So whether it be ESG-centered funds, ETFs are products that cater to any sort of growing demand within the space. And you've seen that rise in the space and to the point where it's transforming the industry -- every company is being looked at from a corporate governance perspective. What's their thought on ESG? Are they sustainable?
You look at banking with a purpose, for example. Are banks going to be able to offer products and services, maybe loans, that have much more favorable interest rates towards companies that are going to be mission driven, as it relates to sustainability projects? I mentioned green bonds before -- there's a whole market and secondary market on green bonds, along with ETFs. We talked about robo-advisors with ethical focus, the idea around transparency. I think Gen Z's has had a huge impact on forcing, not just financial institutions, but every institution to be more transparent in how they deal with the world and who they deal with.
From an FS perspective, there's absolutely an impact, because I think that among financial services companies, it's uneven -- some are more ahead of others. But clearly, at some point, all of them are going to have to understand that these are the future consumers of their products and services, and they are not going to be able to thrive as a business unless they're able to win the brand loyalty of this demographic. This demographic has been very clear around the things that they value and sustainability is top of the list.
How do you see financial services firms evolving in response to Gen Z's requirements around sustainability?
Salah Said, Klarna: The data is clear. We see that there is high demand from consumers in regards to sustainability. There's a demand for information and transparency and consumers holding companies more accountable. On the other hand, that's a driving force for a lot of companies to look into: how they can improve on their ESG performance, but also what they can do in order to respond to that demand because disclosure is one thing, but we also need action.
I do think that a lot of companies are more and more understanding that there's pressure from a lot of different sides as investors as policymakers, employees, are all demanding more sustainable practices in business. I like to look at this as an opportunity, as something that will help a business to strive and keep their license to operate in regards to preferences from Gen Z, but also in regards to expectations from all sorts of stakeholder groups. As a company, you should really start figuring out in your operations, what's my roadmap to decarbonize? How I can make sure that I respect nature and the communities that are operating.
One thing that we started off at Klarna was to say, we don't want to limit ourselves to just focusing on our own operations. So instead of just saying we are going to make a climate neutral claim, or we're going to offset all the emissions that we've emitted over the last couple of years, we've decided to focus on projects that are external, so we support carbon removal, decarbonization initiatives, but also climate advocacy projects through our funds that we generate through an internal carbon tax. I think those steps that companies take outside of their own business that relate to a larger impact or systemic impact can be really crucial, and then shaping the future and really showing that.
For financial services, companies are usually on the low emitting end. When it comes to impacts on the environment, they're not large manufacturing brands. I think the opportunity here really is to think, what can I do beyond my operations? What can I do beyond my value chain, investing in amazing tech solutions and carbon removal, supporting consumers to understand the impact of their choices, allowing them to track their carbon emissions, all sorts of things or allowing them to explore brands.
I think if you understand what the business opportunity here is, and you go beyond what you have to do, it's a massive opportunity. And a last thought, I feel with increased regulation and increased expectations, unfortunately, we're seeing a little bit of greenwashing and a lot of brands being a bit more careful around what they want to say around their sustainable practices. I think as long as it's truthful and it's not misleading or you can back up what you do, you should talk about it. Because we need many more companies to go down that road, to be bold enough and courageous enough to continue on that sustainability journey and not just focus on what they have to do.
Examples of how technology, particularly fintech, is being utilized to promote sustainability within financial services
Dave Donovan, Publicis Sapient: Well, first and foremost is the digital only banking platform. What better response to sustainability because you're talking about branchless, this banking business, no paper or electricity to power the branch. I think that's certainly the first initiative that I would think about.
We talked a little bit about ESG and robo-advisors, as far as being more aligned with how Gen Z wants to invest. I think blockchain is another platform that's important from a transparency perspective. And for example, if you are going to track initiatives that are going towards sustainability type projects, you could track it in a much more transparent way on blockchain.
Crowdfunding and P2P lending platforms like Kickstarter or GoFundMe can essentially reach out to the public, and you can find all sorts of different projects and initiatives, like payment platforms for charities for example. I've supported so many charities this year, because it's become seamless. I get this email that comes in, click on it, they look at my face, and I can donate to the charity immediately without going into my pocket to pull out a wallet or anything like that. It's increased my charitable donations, just through that technology upgrade.
You have green bond trading platforms that you trade the secondary market of green bonds, and also smart contracts. If you look at smart contracts, you can set up smart contracts where payments can be made against milestones that are achieved when doing a green project, or you have applications that can actually track carbon and carbon footprint. So I think technology is playing a huge role in advancing this idea of being much more sustainably focused, and much more socially focused.
Salah Said, Klarna: One example Dave mentioned was consumers being able to track the carbon footprint of their purchases. We launched a feature two and a half years ago, where a consumer could go back into our app and look into all purchases, understand the emissions related to their lifecycle stages, and then also act on it. And when I say act on it, they can either make a contribution, or they can learn about how they can treat this product in a better way, so it can last longer, and they can reduce the emissions while using it.
On a monthly basis, we see around 320,000 users that go and actively track their carbon emissions in the financial services app. I think that's quite significant in terms of seeing that consumers are engaging with it, or being able to conveniently resell, just going into an app and say, these are all my past purchases, they maintain value, I don't have to throw them away. Actually, there's a valuation for this Playstation that I bought five years ago, or a valuation for this shirt that I bought a month ago.
Similar to the charity you're mentioning, in the US just recently, we launched a top up donations feature that allows you to donate to a charity of your choice. That is all about simplification and allowing consumers to participate in sustainability in one way or another. But it needs to be simple. And you need to create trust in order to get usage.
That is something I think that we all need to learn to create: a little bit more immediacy around climate change and the loss of biodiversity and bring it to everyday habits like something as simple as you know, waking up and brushing our teeth in the morning. That's a regular habit that people don't even think about, it can be a habit that I connect $1 to each purchase that I make every time I choose to pay with Klarna or whatever other financial provider. I think that's a unique opportunity out there with technology being so key for Gen Z, and with sustainability being so close to their hearts.
Dave Donovan, Publicis Sapient: The other one thing I would mention is these apps that round up your change, we talked about the concept of Acorns as it relates to possibly going in, taking that, investing in a pair of Nike sneakers, but you could also do the same with that change being rounded up and put into some sort of carbon offset or some sort of program that's promoting some sustainable good, which I think is really cool.
How sustainable fashion is influencing Gen Z lifestyle choices
JD Shadel, Good on You: There's like a growing emphasis on circularity, that's something we see -- attention to things like actually mending clothes. It's become cool actually, like in the same way that thrifting or secondhand shopping has become really cool, largely due to aesthetic trends but also sustainability values and concerns.
Also, I would say there's a growing emphasis in expecting brands to communicate about sustainability as just the bare minimum. You see a highly engaged demographic within Gen Z that's really focused on wanting to know really detailed things about where products are and more information about their supply chain. I think one of the biggest trends in sustainable fashion in the past few years is just a growing consumer awareness of some of those key supply chain issues. A few decades ago, there was very little awareness of a lot of the key issues in fashion. I think it's been through growing consumer empowerment platforms, like Good on You and collaborations like these we're talking about here, that consumers are getting a lot more information and using that as the basis to make their decisions.
Partnering on sustainability efforts
Dave Donovan, Publicis Sapient: The collaboration between Klarna and Good on You is awesome. I think it's a great testament to, and, hopefully, a blueprint to inspire other companies to collaborate in a similar way. The one area where I think you could see some collaboration as it relates to my world and finance is this idea of like eco-friendly credit cards. We're moving towards more digital wallets, getting rid of that plastic that stays in landfill for 100 years. It's becoming more about essentially recreating companies in how they address sustainable initiatives like forcing how they have to comport with SEC rules, it should be something similar for an ESG standard.
Salah Said, Klarna: I think we don't need to reinvent the wheel -- there are so many great organizations out there in the impact space. Clarity AI is another partner of our and helps us estimate the carbon emissions of purchases. I think there's so many out there -- large companies should really try and look out for those companies and create those collaborations. When you have this entrepreneurial spirit in your culture and your company, and you're open to innovation, you don't need to do all the work alone. I would encourage everyone to go out and work with great organizations like Good on You because we really need them. And because you don't want to be the judge, you want to make sure that you have experts from the field, that understand what they're saying, and that make it easy for you and your consumers to participate in sustainability, without having to be an expert. We just need a little bit more courage for those collaborations to happen and ultimately help those those impact organizations grow and be part of all of our sustainability journeys.
JD Shadel, Good on You: I'm a journalist by background, by training. So I'm really interested in collaborations that lead to impact. I think that's where collaborations like these are really powerful -- we have the opportunity to reach millions more consumers to empower them to make better choices. And we've seen growth in interest in these types of collaborations. We're a lot of people that are passionate about sustainability, a lot of sustainability nerds, also a lot of people that are interested in using tech to help us drive some of these solutions. So we've been working and investing on expanding those tools, an API that enterprise partners can plug into, that can lead to more innovative experiences and collaborations, user experiences. I think the the sky's the limit in terms of where there's possibility to innovate in this space.
This collaboration with Klarna is just a really great example of how Good on You as an organization that cares a lot about social impact is looking to expand. I'll say the phrase "not looking to reinvent the wheel" -- it's something that Sandra, our co-founder says a lot, which is really just the idea why Good on You exists, to bring together all of this publicly available data. We're not trying to reinvent the wheel in terms of how we think about sustainability; we're trying to reflect growing consensus on what best practice is. I think having collaborations where we're all speaking the same language around what data is verifiable, is publicly available, having more collaborations along the same lines, aiming to empower consumers in that way. I think it's the future.
Dave Donovan, Publicis Sapient: It would be awesome if some of these large enterprises took a leadership position in driving the next generation of financial education that aligns money with values. As you build financial wealth, it goes part and parcel with a certain value creation that is aligned with that, which of course, will incorporate sustainability and economic viability.