ESG is a well-known concept and many overseas markets and regions have taken steps to formulate legislation around the establishment of ongoing reporting and monitoring of processes for companies, across a broad range of industries, big and small.
Asset finance and in particular leasing and renting, has long been established (at least from a sell side perspective), as a business option that allows organisations to update equipment on a regular basis. Sustainable asset management has the potential to provide environmental and social benefits by supporting a circular economy and practicing ESG.
The circular economy is based on the principles of eliminating and reducing waste, maintaining assets and materials to extend their life cycles and the regeneration of natural resources.
So, in a circular economy, assets such as equipment are designed to be re-used or re-purposed to extend their useful life. Technology based equipment, particularly end-user equipment such as laptops, desktops and mobile devices i.e., smart phones, have already been heavily promoted this way for a number of years, with a strong focus on asset management tools to track, decommission (including data wiping) and resell the equipment after the initial primary finance or usage term.
There are several positives for the user and provider when it comes to sustainable asset management.
From the user’s perspective, one major benefit is the potential to mitigate the cost of disposal or obsolescence. Having a subscription type product, that includes current and future services bundled into the pricing also makes it a simpler product to manage.
Lack of asset ownership is viewed negatively by some businesses (paying potentially more than the original asset value), however it’s clear that consumers are renting or leasing more products than ever before due to flexibility, cash flow and inventory management.
Business perception may change over time, particularly with a growing focus on managing and disposing aged equipment in a more environmentally aware society. It also goes alongside the benefits of managing cash flows and capital in a more volatile interest rate and cost of capital landscape.
When it comes to the growing environmental focus, businesses should be considering the risk; is it better for our organisation to take on the environmental risk of ownership of equipment, or let the provider of the equipment manage this risk?
From the equipment providers perspective, there are several benefits they are potentially able to achieve in leasing or renting equipment to businesses. This includes achieving an improved financial return through reselling, refurbishing, or even breaking the asset down to obtain the raw materials. There is a risk, as second-hand prices for equipment are never 100% certain, and the quality of the returned equipment may mean optimal values are not achieved.
Financiers are generally well versed in managing this risk, though sometimes they make mistakes. Providers are also looking for an economy of scale. Decommissioning, refurbishing and reselling a single laptop is a very different process to managing thousands of devices.
This dictates how financiers manage their risk, the type of customers they may target and pricing.
Pricing of the solution will vary, and often small businesses are exposed to higher product solution costs compared to larger companies. Where possible, try to make sure your solution provider delivers transparency in how the product pricing comes together. There is no point paying for a solution feature you’re not going to use.
With the ongoing advancements in technology there is real potential and opportunities to reduce business’ environmental footprints. Coupled with the evolution of the workplace environment and the growing awareness of ESG, it seems the age of owning workplaces, equipment, and the tools to operate a business might be changing faster than we think.
About Mike Mobilia
Mike is the founder and owner of Amicus Finance. He is a specialist in financial products, "as a service" models, technology, healthcare, capital raisings and building successful businesses that foster a strong, lasting employee culture. 20+ years of experience in both the public and private sector, with c-suite roles including business and financial leadership, commercial management, risk management, investment activities and treasury oversight across a range of industries. What you get from Mike is a highly motivated business professional with a record of achievement in providing strategic insights and operational business solutions.