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May 22, 2012updated 12 Apr 2017 4:07pm

Editor’s letter: Sustaining momentum

Is there a basic incompatibility between an economic model based on perpetual growth and a social model founded on sustainability? Its certainly far too big a question to tackle in its entirety on page four of Leasing Life While I am as guilty as any journalist of occasionally bluffing my way through highly technical discussions, I would not pretend to be well-informed enough to present a definitive answer.

By Fred Crawley

Is there a basic incompatibility between an economic model based on perpetual growth and a social model founded on sustainability?

It’s certainly far too big a question to tackle in its entirety on page four of Leasing Life. While I am as guilty as any journalist of occasionally bluffing my way through highly technical discussions, I would not pretend to be well-informed enough to present a definitive answer.

It’s a question worth invoking, however, since it appears leasing may be part of the solution.

That is according to MEP Judith Merkies and management consultant Eric Lowitt, who co-authored a column in UK newspaper The Guardian last month, entitled “Leasing could provide the route to a circular and self-supporting economy”.

In the article, they claim that “a leasing society model would give manufacturers an economic incentive to design sustainable products”, using the founding premise that the current economic system holds no disincentive for the relentless exploitation and exhaustion of natural resources.

To quote the piece: “We propose an alternative model. One that incentivises manufacturers to maintain responsibility for their wares through the end of their useful lives, in order to gain access to mass amounts of materials they can use in place of virgin materials.

“When consumers lease instead of purchase, companies will need to consider not only what happens the moment a product is sold, but also what happens when it comes back in. The realisation descends that, from now on, they have the economic interest to make their products more durable and more sustainable, because their expenses will be minimised when the product lasts for its entire leasing period.

“The replacement of a product will be entirely on the producer’s account. Companies thus will benefit from investing in ways to extend their products’ lifespans and be disincentivised to launch – say – a new tablet computer every few months. Therefore a company could outpace its competitors primarily by developing a range of durable devices that could be exploited by receiving monthly fees during their whole leasing periods.”

The article goes on to acknowledge the provenance of such an approach in parts of the IT and telecoms industry and calls for the leasing mentality to be applied to a broader range of assets. Whether or not today’s leasing executives buy into the full extent of Merkies and Lowitt’s argument, the fact such an argument is being made can only be good news for the penetration of leasing products into global equipment retail.

Of course, the power of sustainability as a selling point has not been lost on the leasing industry, and much recent innovation in the business has been aimed at the field of asset lifecycle management.

Just look at the meteoric growth of Finnish firm 3 Step IT, which has made full-life tracking, reuse and recycling of IT assets into a core part of its value proposition both to partner lessors and end users.

3 Step is not working in isolation, either. I have it on good authority a large European network will be rolling out something similar to its vendor partners later in the year.

The captive finance world would do well to pay heed to the zeitgeist too. On page 10 Patrick Jelly of Pitney Bowes talks about the rise of the Captives Forum and the effort to promote the strength and special character of captive lenders on the international stage.

He argues true captive finance enjoys an advantage over the vendor model because a finance company with a manufacturer parent is put in a favourable position regarding loss-given-default by virtue of sheer familiarity with the asset being financed.

This argument, springing as it does from the symbiosis between OEM and in-house funding division, says a lot for the captive proposition under a broader culture of leasing as envisioned by Merkies and Lowitt.

The issue of sustainability and capitalism is a broad one indeed and there is plenty more to say on the potential role of leasing companies in the bigger picture. I would invite readers to have a look at the article for themselves and feed their opinions, be they positive, sceptical or conflicted, back to me.

I hope you enjoy this month’s issue.

Fred Crawley

fred.crawley@vrlfinancialnews.com

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