The leasing world needs to switch to a circular economy
Circularity goes beyond enhancing sustainability.
In sustainability, the emphasis is often placed on lower energy consumption; in the circular economy on resources. Industries such as the manufacturing, the construction and the real estate sectors are great consumers of resources.
Looking at it that way, ABN AMRO is at the head of a huge resources bank. And from that position we can make a real contribution to a more circular economy.
For those who do not know yet: we are in a hurry.
As stated by Petran van Heel, Sector Banker Construction, ABN AMRO and speaker at the Leasing Life Conference.
The Dutch government has the ambition to have a 50% circular economy in 2030 and fully circular in 2050. To use 50% less primary raw materials in 2030 is a fierce target.
Based on these objectives, we know what the market potential is for the five circular revenue models ABN AMRO uses. Existing players will need to find a new place (suppliers become service providers, deconstructors become suppliers) while new players will help accelerate the circular transition, i.e. start-ups with 3D-printing technology or digitally driven sub-platforms.
Imagine that a construction project in about 12 years must be designed and constructed in such a way that materials and components can easily be reused. And that at least 50% of the project must exist of reused raw materials or biomass. The circular transition requires a new mindset from each party and radically different kinds of collaboration. That means there is still a lot to be done. A lot.
To accelerate the transition to a circular economy, ABN AMRO has set clear goals. And not just goals, there are deeds as well. For example, ABN AMRO initiates and realizes concrete projects, of which our circular pavilion, Circl is the most tangible in the Real Estate and Construction sector. This circular pavilion in Amsterdam is the result of a collaboration we are proud of.
We have learned valuable lessons. We also know what opportunities and revenue models there are for entrepreneurs in the Construction sector. And because doing nothing is not an option anymore, we do not use ‘copyright’ but a ‘right to copy ‘. The transition to a circular economy has to be accelerated.
Circular business models by ABN AMRO Lease
As a customer oriented leasing company, ABN AMRO Lease understands this transition and we change with it. In collaboration with customers in the chain we innovate our products and services. With in-depth sector and asset knowledge, we investigate funding needs and risks that lead to actual funding of circular business cases. And with that, strengthen our circular reputation.
ABN AMRO Lease is the first party (circular) entrepreneurs think of to meet their circular ambitions with respect to assed based financing.
The current business model of most manufacturing companies is running to sell as many products as possible at the lowest possible cost. This leads to the destruction of valuable raw materials. In a circular economy, more and more companies are no longer a product but a service. Raw materials remain the property of the company and the customer pays for the use of the product.
Product risk (lifespan and functionality) lies with the manufacturer or supplier, which has the incentive to optimise the useful life (long-life, recoverability, reusability). The resulting cash-flow leads to financing needs of companies.
The circular economy is characterised by a changed manufacturer / customer relationship. Based on service-oriented business models in which ownership and (product) risk remain with the manufacturer. This requires that the manufacturer (or supplier) takes control over the entire value chain. The leasing company makes this possible by financing the object based on knowledge of the object and its value.
Five CIRCULAR earning models
The circular economy offers practical possibilities to transition to a waste-free and resilient economic system. New earnings models make this possible. The core of the circular thought is to move from a linear take-make-waste economy to a circular economy.
For example, products last longer; we use materials in an infinite cycle and maximize existing assets, such as buildings and machines. ABN AMRO uses five circular earnings models of which there are also opportunities and challenges for the leasing industry.
1. Circular inputs
Use non-toxic, highly recycled, bio-based or biodegradable raw materials that are renewable or reusable. Reduces the use of commodities in general.
2. Product-service systems
Deliver a service instead of a product and stay owner. Keep sight and grip on raw materials. Dissolve and bind customers for the long term.
3. Life duration
Maintain and extend service-life through (smart) maintenance, repair, overhaul and renovation.
4. Sharing platforms
Undercutting or overcapacity by sharing products and assets and optimizing their use.
5. Valuation recovery
Use waste from used products and from the production process for new raw materials.
To enable these earnings models, there are three major catalytic factors of the circular economy:
A. Design for the future
Design construction products – from parts to complete buildings – and services for efficient maintenance, repair, dismantling, revision, renovation, adaptation 19, transformation and high-quality recycling. Use (modular) design principles and prefabrication elements that facilitate dismantling.
B. Use (digital) technologies
Use digital technologies like BIM, internet of things (IoT) 21 and blockchain 22 to store, track and monitor (big) data about materials, products, and transactions. Make use of 3D printing, drones 23 and ‘additive manufacturing’.
C. Collaboration in value creation
Start your dialogue with partners in and around the chain. This will bring you new value propositions based on trust, transparency and performance. Do not just create financial, but also social and ecological value. Consider deploying a circular economy service company (CESCo).
Some examples ABN AMRO Lease is working on and the earning models they require will be presented during the Leasing Life Awards conference 30 November in Amsterdam. We are happy to have a good dialogue on the future of leasing in a circular economy.