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Wholesale Banking

Half measures and marginal adjustments will not be enough to meet the ambitious goals of initiatives such as the Paris Agreement – we need more radical solutions. Is it time to rethink the concept of ownership?

Electric bikes station

The ‘as-a-service’ model – whereby instead of buying products and equipment outright, organisations and individuals rent them only when they are needed – is coming of age. Examples range from the familiar – households hiring cars for specific journeys rather than having an asset sitting in the garage for long periods – to newer ideas, such as packaging machinery-as-a-service for consumer goods, which allocates costs to operational expenditure.

That kind of sharing model offers valuable sustainability gains, and brings cost advantages that will appeal to businesses and individuals grappling with the tough economic realities of the post-Covid-19 world. If, for instance, a company can reduce the amount of equipment it has to purchase, it can free up capital for other activities and keep energy-intensive assets off the company balance sheet.

Shared gains, joint responsibilities

That sounds easy, but it is not always possible for companies to reduce their carbon footprint in isolation. “No company can manage the energy transition by themselves,” says Anouk Meevis, Associate at ING Corporate Investments. “It has to be a string of marginal gains adding up on the way to net zero emissions.”

And it will take cooperation. “If you have a factory and you're producing something, it's on you to green the factory,” says Meevis. “But when there is no natural owner in the value chain to take charge of reducing emissions, as is the case, for example, in inland shipping, then all the stakeholders need to come together.”

There are already examples of collaborative as-a-service projects that are helping organisations make huge changes that would not be possible with traditional business models.

In the Netherlands, for example, ING Corporate Investments is part of the Zero Emissions Services (ZES) consortium. This groundbreaking company helps ships travelling on Europe’s inland waterways to shift from diesel-fuelled propulsion to batteries charged with electricity. Rather than requiring shipping companies to take on the prohibitive cost of investing in electric fleets, they can make use of a network of charging points at which battery-powered barges can swap out depleted batteries for fully charged replacements. Ships pay only for the energy they consume.

Circular gains

This kind of scheme does not just lower capital expenditure for the participants – the as-a-service model also unlocks energy efficiency savings. Individuals as well as companies can use state of the art equipment that consumes less energy. They are also no longer responsible for recycling or waste management.

“The as-a-service model is one of the strongest examples of the circular economy,” says Joost van Dun, ING’s Circular Economy Lead. “The manufacturer is responsible for developing the product, but also for the use phase of the product. And, once the client no longer uses the product, for getting it back in order to reuse, refurbish or recycle it.”

Own less, pay less: technologies step up

In transport and mobility, technologies such as electrification and digitalisation often go hand in hand with demand for products with new business models.

New technologies will be crucial in encouraging the shift to as-a-service. In automotive, for example, FINN, which has kick-started in ING’s Innovation Lab, is developing on-board digital tools so that cars themselves automatically pay for the services they consume – from toll fees to parking and car-wash charges. But that demands new ways of applying technology, says Arlette Warmerdam, Co-founder and Product Lead at FINN. “Generation Y doesn’t want to own stuff,” says Warmerdam. “They want to use stuff. And now devices are becoming more connected and can calculate what is payable.”

Similar tools will also be vital to power the increased use of the as-a-service concept in financial services. In insurance, for instance, several companies are pioneering products where policyholders only pay to insure goods when they are actually using them.

That approach is a boon for industries such as shipping, according to Jules Kollmann, Managing Director at ING Structured Finance. “In shipping, it’s possible to digitalise the whole service so that it’s tailor-made,” he says. “You only pay to insure the ship for the actual mile – so you pay more when you go into a warzone, but when the ship is in dock you have a different risk, so you pay a different amount.”

Think differently

The shift to products-as-a-service is not without its challenges. Manufacturers will need to think differently about how to manage product cycles that last for the lifetime of the product, rather than ending at the point of sale.

Banks must be prepared to play a role in financing these structures, which means finding new solutions, for example for potential balance sheet extensions, the change in cashflows and for covering (non) usage risks.

And lawmakers may find they have to change regulatory and taxation systems to ensure that this more sustainable business model can compete fairly with traditional ones.

But it is a model that offers such compelling benefits for both sustainability and cost that these challenges must be overcome. And indeed progress is being made in the EU with the recently announced the Circular Economy Action Plan (1), one of the main building blocks of the EU Green Deal, which seeks to legislate incentives for products-as-a-service business models. The prize is a new way of doing business that offers huge potential for helping to achieve our climate change goals.