ESG in the boardroom: The bank-parent and lessor-subsidiary relationship
ESG in the boardroom: The bank-parent and lessor-subsidiary relationship
How should leasing executives respond when their bank parents indulge in ESG funding that attracts opprobrium? Lindsay Town considers the nature of the parent/subsidiary relationship.
Time, regulation, products, and economic cycles have all contributed to leasing companies becoming increasingly close to their parent bank. Historically, through scale, superior returns and high-quality risk outcomes, the leasing companies enjoyed considerable latitude, albeit always within parental oversight and policies.
As the products tended towards “money on money” the vanilla or mainstream aspects of the industry have become far less differentiated from pure bank products.
Some lessors have gone on to build strong and sustainable differentiation through specialisation, for example: routes to market such as vendor/captives/manufacturers, asset classes such as IT or specific equipment categories or industries, or product such as operating leasing.
Lindsay Town, CEO of IAA-Advisory
These specialisations require very specific lessor level strategic and operating policies, but none could override a parent bank overall policy or strategic imperative.
The development of regulatory frameworks and the continuing impact of the ‘08/’09 “Global Financial Crisis” have also cemented the parent/subsidiary relationship further. Reporting, capital risk allocation and process have all made the relationships far less “arm’s length” in the vast majority of cases. None of this is a negative when properly led and implemented.
It seems to me inconceivable that a lease subsidiary could materially divert from or ignore a parent’s strategic or policy imperative in critical areas. This would be especially the case in a negative policy, e.g. no facilities to XYZ asset class or ABC industrial sector.
Where the tension could feasibly build would be in areas where the parent wished to support a sector or asset type that the leadership of the leasing company fundamentally disagreed with (something that I have not seen cause a major issue in my 40+ years in the industry).
In the reverse situation the parent rightly has the argument of ownership in its favour to dictate risk or strategic policy (and this situation I have seen occur). As always, these tensions can lead to healthy and constructive debate, but in the developing world of ESG especially, tensions may arise that cause harder discussions as the principles are still developing.
Caption. Image:
COP26
ESG in the boardroom: The bank-parent and lessor-subsidiary relationship
ESG in the boardroom:
The bank-parent and
lessor-subsidiary relationship
How should leasing executives respond when their bank parents indulge in ESG funding that attracts opprobrium? Lindsay Town considers the nature of the parent/subsidiary relationship.
Time, regulation, products, and economic cycles have all contributed to leasing companies becoming increasingly close to their parent bank. Historically, through scale, superior returns and high-quality risk outcomes, the leasing companies enjoyed considerable latitude, albeit always within parental oversight and policies.
As the products tended towards “money on money” the vanilla or mainstream aspects of the industry have become far less differentiated from pure bank products.
Some lessors have gone on to build strong and sustainable differentiation through specialisation, for example: routes to market such as vendor/captives/manufacturers, asset classes such as IT or specific equipment categories or industries, or product such as operating leasing.
Lindsay Town, CEO of IAA-Advisory
These specialisations require very specific lessor level strategic and operating policies, but none could override a parent bank overall policy or strategic imperative.
The development of regulatory frameworks and the continuing impact of the ‘08/’09 “Global Financial Crisis” have also cemented the parent/subsidiary relationship further. Reporting, capital risk allocation and process have all made the relationships far less “arm’s length” in the vast majority of cases. None of this is a negative when properly led and implemented.
It seems to me inconceivable that a lease subsidiary could materially divert from or ignore a parent’s strategic or policy imperative in critical areas. This would be especially the case in a negative policy, e.g. no facilities to XYZ asset class or ABC industrial sector.
Where the tension could feasibly build would be in areas where the parent wished to support a sector or asset type that the leadership of the leasing company fundamentally disagreed with (something that I have not seen cause a major issue in my 40+ years in the industry).
In the reverse situation the parent rightly has the argument of ownership in its favour to dictate risk or strategic policy (and this situation I have seen occur). As always, these tensions can lead to healthy and constructive debate, but in the developing world of ESG especially, tensions may arise that cause harder discussions as the principles are still developing.
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