Globalisation and concerns about the efficiency of a traditional linear economy have led to the development of an alternative approach to resources.

With efficiency, a key driver for CFOs in the finance and leasing industries could the adoption of the principles of a circular economy allow for a more sustainable and profitable approach to assets and resources

What Is The Circular Economy?

The circular economy is a concept that is created to challenge the traditional make, use, dispose of, a model of a traditional economy.

Based on the principles that many of the resources the global economy devours are finite, a circular economy approach looks to drive organisational efficiency by reducing wastage by reusing and recycling as much of the resources used within the economy as possible.

Advocates for a circular economy approach highlight the reduction in waste that reusing resources create, driving productivity and making organisations more competitive. As well as protecting the economy from potential scarcity issues in the future.

They also argue that external stakeholders benefit due to the positive impact this can have on the environment.

Circular Economy & Leasing

The concept of the circular economy could create opportunities for innovation and expansion within the leasing industry.

Judith Merkies a member of the European Parliament Committee on Industry, Research and Energy and Eric Lowitt, the author of The Future of Value have proposed an alternative model to the economy based on consumers leasing rather than buying resources.

They wrote in the Guardian outlining their leasing society model

“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.

A leasing society model prompts manufacturers to design sustainable products not through force or regulations, but through economic incentives.

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 de-incentivised 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 Leasing Society Approach In Action

The article highlights ways in which we already see changes in the way many products and services are being marketed and delivered. A subscription or leasing model on items that were previously bought outright is growing rapidly.

We can see this within the IT infrastructure industry where providers like Oracle are shifting their focus from on-site solutions to the cloud. To manufacturers such as tyre or LED lightbulb providers offering their products on a lease basis.

By innovating and investing in technologies and equipment with the asset lifecycle and its potential for recycling and reuse the lifetime value of the asset increases while customer expectations are met.

This model incentivises organisations to maximise the lifecycle and reusability of products which increases efficiency whilst reducing the resources required creating a win-win.

VIP Apps Consulting has extensive experience within the financial services industry with the knowledge capabilities and operational track, to help organisations implement the process changes, optimisation and innovation to realise the financial value in a customer driven market.

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