Response to discussion paper on the role of environmental risk in the prudential framework
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The risk mitigating role of the leased asset:
The leasing industry is in many ways ideally placed to act as a facilitator of the green transition for businesses and households alike. To this aim, the leasing industry currently plays a major role in improving the availability of newer, more efficient and greener technologies, without the operational and financial constrains that would often deter companies and individuals from upgrading their assets (such as factory equipment or vehicles for example). In this way, leasing companies are in a better position compared to other financial service providers.
By ensuring an efficient turnover of assets, leasing companies always hold the newest assets in their portfolios, built and designed in accordance with the latest industry and type approval standards. Therefore, the underlying asset of the lease exposure is by definition less exposed to environmental risks. As such, our industry is hedged from a risk perspective against environmental risk factors as well as newly introduced environmental performance standards.
As leasing companies have developed significant expertise, not only the performance of the leased assets, but also the business activities of the respective lessees, environmental risk factors negatively affecting business performance (e.g. droughts and farming activity) can be substantially mitigated.
Leasing companies are well placed to reallocate assets depending on clients’ needs:
As asset management specialists, leasing companies integrate lifecycle management into their risk management processes, which is a relevant aspect of our business model. This special characteristic allows lessors to re-deploy assets to other customers, taking into account changing client’ profiles and needs, which reduces the risk of potential losses on a leased asset even further.
In addition, the majority of leasing companies operate either on a pan-European level directly, or, have established partnerships across Europe, enabling the re-marketing of assets in target markets best suited to the specificities of the asset. Consequently, leasing companies are less beholden to concrete environmental risk events, which reduces over all risks for both lessors and lessees.
To conclude, Leaseurope would like to stress that any future prudential regulatory initiative in the area of environmental risks should consider as a credit risk mitigation technique the advanced expertise on the lifecycle management of the leased asset by leasing companies.
Any other comments?
Leaseurope, the voice of leasing and automotive rental at European level, welcomes the opportunity to comment on the EBA consultation on the role of environmental risk in the prudential framework. We recognise the importance for supervisors and regulators to better understand risks stemming from climate change and broader environmental issues for the financial sector.The risk mitigating role of the leased asset:
The leasing industry is in many ways ideally placed to act as a facilitator of the green transition for businesses and households alike. To this aim, the leasing industry currently plays a major role in improving the availability of newer, more efficient and greener technologies, without the operational and financial constrains that would often deter companies and individuals from upgrading their assets (such as factory equipment or vehicles for example). In this way, leasing companies are in a better position compared to other financial service providers.
By ensuring an efficient turnover of assets, leasing companies always hold the newest assets in their portfolios, built and designed in accordance with the latest industry and type approval standards. Therefore, the underlying asset of the lease exposure is by definition less exposed to environmental risks. As such, our industry is hedged from a risk perspective against environmental risk factors as well as newly introduced environmental performance standards.
As leasing companies have developed significant expertise, not only the performance of the leased assets, but also the business activities of the respective lessees, environmental risk factors negatively affecting business performance (e.g. droughts and farming activity) can be substantially mitigated.
Leasing companies are well placed to reallocate assets depending on clients’ needs:
As asset management specialists, leasing companies integrate lifecycle management into their risk management processes, which is a relevant aspect of our business model. This special characteristic allows lessors to re-deploy assets to other customers, taking into account changing client’ profiles and needs, which reduces the risk of potential losses on a leased asset even further.
In addition, the majority of leasing companies operate either on a pan-European level directly, or, have established partnerships across Europe, enabling the re-marketing of assets in target markets best suited to the specificities of the asset. Consequently, leasing companies are less beholden to concrete environmental risk events, which reduces over all risks for both lessors and lessees.
To conclude, Leaseurope would like to stress that any future prudential regulatory initiative in the area of environmental risks should consider as a credit risk mitigation technique the advanced expertise on the lifecycle management of the leased asset by leasing companies.