Manifesto for Leasing as catalyst of the
Some 10 years ago, ING Lease drafted a ‘Lease for Trees’ policy paper. It governed what type of investments in renewable energy we were willing to lease and under which conditions. Basically, this policy was initiated by our willingness to contribute to a more carbon neutral world.
The idea was that by offering green leasing structures we could facilitate building up renewable energy capacity. Besides that, and important for the business case, we were convinced that in the next decades the demand for the funding of infrastructure in renewable energy capacity would grow at an accelerating pace. Looking back, ten years later, we are very satisfied. ING Lease has built up an important portfolio in solar, windmill and co-gen assets, ING Lease has built up extensive knowledge in renewable energy and ING Lease is really contributing to reducing Europe’s carbon footprint.
Over the last decade, our concern about the sustainability of our world has only increased. A new opportunity to play a role in this ambition is popping up: leasing can become a catalyst in the roll out of the circular economy. Starting from the concern that at the existing pace of growth the world’s natural resources will be exhausted by the middle of the 21st century, the core of the circular model is about creating new types of value chains. Opposite to the traditional value chain concept which is based on the use of scarce resources in a linear, consuming way, the circular model is looking to minimize the use and need for scarce natural resources.
The circular economy is based on five business models and in all of these assets play a key role, but this role is fundamentally different compared to the role of the asset in the traditional models. The first model is about circular supplies: providing fully recyclable input material to replace single-lifecycle inputs. Renewable energy is a well-known illustration of this model. A second model is about resource recovery: recycling useful resources out of disposed products or assets. Dismantling IT hardware and re-using its components and/or precious materials is an example. A third model is about extending the life cycle of products: repairing, upgrading and reselling used material. The fourth concept is about sharing platforms: increasing the utilization rate of invested assets by facilitating shared use, access or ownership - Uber and AirBnB are the well-known examples. The fifth model is the Product As A Service concept: offering product access whilst retaining ownership to internalize benefits of circular resource productivity.
Although all concepts are known and some are already booming in the mass consumer domain, most of them still have a very modest penetration in the B-2-B economy. However, it is expected that under the impulse of digital technologies those five business models will penetrate at an exponential rhythm in all domains. Specialists estimate the size of the circular economy in the order of magnitude of 4 to 5 trillion Euro within 5 to 10 years!
ING Lease is convinced that the leasing sector cannot deny this phenomenon. It offers a historic opportunity as in almost all circular business models the role of the asset in the value chain is crucial. The lessor who is able to translate his value proposition into a solution that fits with the circular concept will benefit from a fast and massively growing market. On the other hand, the ones who stay blind and stick to the traditional models could face their own sustainability challenge.
The leasing sector is well positioned to contribute to the development of this market as we master some of the needed core capabilities to facilitate the circular economy. We are used to manage ownership. We understand the interaction with users and suppliers. We are familiar with governing access rights to assets to parties who do not own the asset. And last but not least, we have the potential to finance assets. Every player in the sector has built up the knowledge which is of precious value in setting up a lot of the new concepts.
However, I am afraid that our existing capabilities will not suffice. Internally, each organization will need to define its policy and appetite with respect to the circular projects in function of its own global strategy and the role it wants to play. But whatever our own circular positioning will be, it should take into account external regulations, standards and frameworks, which will indisputably be different from the current ones. Indeed, a successful take up of the circular economy will need supporting frameworks which govern the interactions between the players of the circular value chain. We need an appropriate regulatory framework. Existing legislation about ownership, utilization, accounting are to a great extent based on the traditional, linear model and are rooted in principles of the 19th and 20th century. Equally important will be the development of operational frameworks which are able to facilitate the circular concepts. The roles and responsibilities of all intervening parties, how to facilitate interaction, what standards to be used in documentation and practices, and many other aspects will have to be defined.
Setting up new and adapting the existing frameworks will take time and influencing efforts which can never be realized on the level of the individual lessor but can only be successfully tackled via a joint effort of lessors who believe that shifting towards a circular economy is something which is not only necessary for the sustainability of our planet but also a domain in which the leasing sector can show leadership and prosper from.
As such this article is a warm appeal to join forces to make the world more sustainable and offer leasing new growth opportunities.
Patrick Beselaere, Global Head, ING Lease