DLL and ESG: a vision which marries profit with purpose

Summary

For DLL, with over 50 years as a global asset finance leader and a presence in more than 30 countries, creating long term partnerships has been critical to success, and the lender is now actively seeking to spearhead the push to more sustainable solutions for partners and end users, according to Marije Rhebergen, global head of sustainability.

“Increasingly our partners are asking us questions about the overall sustainability of their assets and asset solutions, rather than just the productivity of those assets”

“With many of our clients we are exploring ambitions to achieve net zero emissions and to move to a circular economy. But we can only do that together in partnership. The same is true of our own industry – we need to share experience to bring the industry to a higher level.”

Speaking at an Asset Finance Connect webinar, Rhebergen highlighted the growing pressures to bring ESG factors into consideration in contracts, among them changing public opinion. A recent DLL employee survey found 80% reporting that prioritizing the environment and sustainability was “very important”, while 75% ranked environmental impact first in importance, higher than profit.

“We are a very commercial company, so I thought people would see profit as most important. This doesn’t mean that we shouldn’t continue to be commercial, but we need to find ways to manage a profitable business and also seek to reduce the environmental impact of what we do. People feel a sense of urgency about this,” Rhebergen said.

Rhebergen’s observations struck a chord with Nick Leader, CEO of webinar sponsor Acquis, who observed that “We already have a very strong ethos about being transparent, so the real question is how early should we be engaging ESG into our conversations? And how do we maintain that culture within our own organizations and help create a matching culture and mind set with our partners, because the more they buy in to any solution, the more they will be wanting you to help them get there.”

Business challenges

In response, Rhebergen pointed out that at a very early stage clients are seeking analysis from an ESG risk perspective, and this requires a new way of looking at the traditional equipment life cycle, changing the nature of risk assessments. “ESG is being embedded in the credit risk and implementation process, and that can prove challenging. Lenders have always done broad checks in areas such as sanctions, but now we are being asked to consider both local legislation and a company’s own ethical policies in certain areas,” Rhebergen pointed out.

While initiatives such as the EU’s Corporate Sustainability Reporting Directive due to go live in 2023, the EU taxonomy, and national and global ESG requirements changing “at the speed of light”, Rhebergen said it was complex and challenging for lenders and their customers to ensure they were meeting ESG best practice requirements. A particular concern is accounting for responsibilities for “Scope 3” emissions, which are those occurring upstream and downstream in the supply chain.

“In some cases lenders may not know how the equipment they are funding is being used, making it difficult to assess potential ESG concerns”

Business benefits

“But tracking assets creates a wealth of data. This can be used to give a better steer to a client on how to move in a greener or more efficient use of assets direction, but it also provides new business opportunities, such as helping companies to develop offsetting propositions,” Rhebergen explained.

Pointing out that recent research showed less than 9% of the precious minerals used are recycled back into use, Rhebergen noted “this is a waste for those who are working to extract them and environmental burden, but it’s also an economic loss. What if we could bring those resources back into the loop – we’d have a much more effective economic model alongside the environmental benefits.”

The solution is refurbishing and remanufacturing equipment, and lenders being prepared to finance used equipment. The supply chain shortages experienced during the pandemic have served to highlight the business opportunities here, pushing second and even third life sales higher up the business agenda.

“To what extent you can build a circular solution depends on the user type and the value of the asset over time, and whether it is designed in a modular way so that elements can be upgraded when needed. For high value assets that retain their value over years, we are increasingly looking at a circular model.”

However, she cautioned that ESG pressures themselves could have an impact too, as an asset can lose value when legislative and regulatory changes are made.

“There is clearly residual value risk in funding diesel, which could become a hugely devalued asset class, but then there are also risks to funding newly emerging asset classes such as EVs because the technology evolves very quickly in the early stages,” Leader added.

New models

Rhebergen pointed out that the switch from traditional ownership of an asset towards paying for usage is also gaining traction, encouraging new ways of using assets. Citing the example of agricultural equipment, Rhebergen said there were opportunities for manufacturers and lenders to work together using smart solutions which encourage more resource efficiency, and maximize asset utilization.

“And of course there is the option of sharing an asset or Pay-per-use – where an end user only pays for the usage of the equipment, not a fixed monthly cost. The benefit is better alignment of cost and revenue. Here you are talking about active asset management, compared to traditional asset management which is passive. Normally you assess the asset value at the beginning and the end of the contract, but now you are looking at what is happening during its use,” Rhebergen stated.

With that closer link to the asset, she argues, lenders are better able to support the transition to a circular economy, using telemetry and onboard computer systems to optimize maintenance and repair, for example.

“The next generation in the workforce is very interested in ESG and by linking that to our strategy now, [we can] marry profit and purpose”

Marije Rhebergen