The Green Elephant in the Room

by Dillard Van Dango Nov/Dec 2022
Dillard Van Dango, the millennial son of Dexter Van Dango, makes his Monitor debut with a strong message: equipment finance companies have a unique opportunity to help end users, manufacturers and vendors make more climate conscious choices.

Dillard Van Dango,
Senior Executive,
Equipment Leasing Industry

There’s no question that we are entering a complicated time for ESG. When Tesla, the undisputed innovator responsible for revolutionizing the auto industry and monetizing sustainable vehicles was kicked out of the S&P ESG index in May, I began to wonder who was next? A mere 42.8% of Russell 1000 companies have publicly committed to reducing emissions, according to an analysis by JUST Capital. Just over a tenth of companies have committed to Net Zero by 2050.

As corporations across sectors and around the globe fall short on their climate commitments, I can’t help but think that the equipment finance space has a unique opportunity to help companies make better choices — even if the broader business community is still figuring out exactly what ESG means and how it should be prioritized at scale.

The reality is that there has not been any organized focus on ESG in our industry. Panels or breakout sessions at trade conferences on sustainable financing? Tepid. The extent of our sector’s advances in this department might be some sparse green tech investment pegged to Earth Day or other fluffy marketing statements about the circular economy and sharing models. I would love to know how many of us downloaded the Equipment Leasing & Finance Foundation’s recent ESG report. If I had to guess, not many.

But there are some things we can do to do better.

  1. We, as an industry, must develop metrics and management processes that gauge our current state as it pertains to ESG initiatives and begin to quantify the impact we are making, or not making.
  2. Our trade associations should launch an annual event to bring our collective voices together and zoom in on this topic to meaningfully discuss and debate options with third-party and government experts.

Time to Step Up

What’s our alternative? Big Tech is already lightyears ahead of us in terms of prioritizing and understanding what we can be doing differently. And the environment is becoming something that transcends politics and business to a point we cannot ignore. In addition to the human suffering and habitat destruction caused by climate change, weather anomalies are already wreaking havoc.

The below frozen temperatures in Texas caused major disruptions and slow payments. Hurricane Ida sent torrential winds and rain through leased rental equipment causing unplanned CAPEX spending and restoration projects.

As an avid fisherman, every guide I’ve spoken with over the past six months about rivers and lakes across the southeast and central U.S. all report similar changes in their home waters: low species numbers and dwindling biodiversity. The outlook isn’t great. It would make sense that we, as equipment lenders, have something to say about it or, even better, something we can do.

Climate Conscious Leasing

The first inventive hint of climate conscious leasing and finance came from CHG-Meridian in early 2021 with the launch of a carbon-neutral leasing solution. Similar to booking airflights in European countries, end-users can pay to offset the entire CO2 emissions of their purchase.

Their carbon-neutral leasing offer is niche to the IT space and for the purchase of PCs, tablets and smartphones. By converting the emissions costs derived from production, operation and end-of-life phases, they are able to effectively garnish the monthly payment with a monetary value needed to offset the applicable carbon emissions. The offset payments collected under CHG-Meridian’s carbon-neutral leasing platform go toward four major renewable and conservation projects, and they even provide customers with a digital certificate as proof of the CO2 emissions saved.

In the lending space, we rely heavily on our customers and consumption behaviors to steer our product offerings. We are all becoming more familiar with consumption-based lending models and warming to the fact that there is not a one-size-fits-all model when it comes to pay-per-use.

These concepts involve endless engagements with key stakeholders around payment options, content and term. Embedded lease or charging for overages? Single service providers or multiple sub-contractors? Managed or non-managed? Stacks on stacks on stacks of contracts. There are technical variables, accounting requirements, remarketing discussions and endless hours of underwriting. However, one item that we continue to overlook is how these models play a part in our collective clean energy future.

OEMs and Vendors Step Up

We need to be having conversations about sustainability with our manufacturer and vendor partners. How can we collectively make an impact? What do customers value and how can we deliver it?

Earlier this year, Joachim Doerr and the team at TRUMPF Financial Services launched a pay-per-cut finance model for their laser cutting machines. In this model, customers pay a previously agreed price for each cut sheet metal part — in other words, they only pay for what they need. This allows customers to make their production processes more flexible and react faster to market changes.

As a byproduct, they also created an acquisition vehicle that mitigates waste, ensures machine peak performance and drives cleaner greener ways to manufacture. I wouldn’t expect any less from Joachim Doerr who is known to be an avid environmental protestor.

As more equipment manufacturers begin to invest in IoT technologies, real time data collection methods or even switch away from standard diesel engines, these consumption models present a very unique way to tap into a number of positive benefits that may be part of a much larger green trend. With the proper education and concept, we can help provide our customers with a low-cost acquisition strategy that favors efficacy and minimizes waste.

Quietly, new companies are creeping into our space to confront some of the challenges we have overlooked. They have the automation, backing, talent pool, credit scoring models and risk teams who happily account for the project’s proposed energy and cost savings into their cash flow models. Companies like Redaptive and Metrus have already established true operating expense, energy-as-a-service programs and on-bill finance programs. There are also new players like, ORKA Finance, who are dialed in on solar deployments in the SMB space and making sure every business has the opportunity to install solar.

I expect we’ll continue to see more companies innovate financing models that favor ESG initiatives — which also tend to act as a gateway to other revenue streams and positive benefits. Why? Because these models enable companies to improve the customer experience, cross sell additional products and retain customers for longer by making the model stickier. All of this will ultimately drive larger LTVs (lifetime values). And who doesn’t want that?

Dillard Van Dango, the son of Dexter Van Dango, is the pen name for a greying millennial entering the peak of his equipment finance career. He has held various roles within independent and bank-owned leasing companies. A recession grad and rising rate virgin, Van Dango is also a family-renowned home chef and the world’s proudest dog dad.

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