Leasing: The New Circular Ownership Model

Leasing agreements benefit the circular economy

Leasing is an ownership model in which a person rents, rather than buys, a product from a company. Instead of paying the full price upfront in exchange for ownership over the product – as done in a purchase-based ownership model – the customer instead pays the company in installments in exchange for continued access to the product over an agreed period of time. During this time, the customer can keep the product and make use of it as they wish, but they never actually own the product. The provider is the one who maintains ownership over the product, as well as the responsibility to maintain it, replace it if it is broken or outdated, and retrieve it once the lease period is over.

Of course, leasing wasn’t invented by circular economy strategists. It is already commonly practiced in certain industries, particularly those dealing in big-ticket products such as real estate and commercial vehicles. What the circular economy is proposing, then, is that leasing schemes replace the purchase-based ownership model in both big-ticket and small-ticket industries.

While it is certainly not meant to be taken as a ‘one-size-fits-all’ change, there are certain industries in which product leasing schemes are a viable way to drastically reduce their environmental impact and make better use of our earth’s resources. Some examples of such industries that could benefit from leasing are the fashion, construction, and personal electronics sectors.

So how does leasing make an industry more circular?

The purchase-based ownership model utilized by most businesses regularly results in products being put to waste, often prematurely, once the consumer no longer wants them. This is because the consumer is the one who owns the product, and as such are the ones responsible for ensuring the product is reused, resold, or recycled properly once they are finished using it. Consumers often feel little incentive to do so, and so frequently end up getting rid of products that can still be used. Take, for instance, the fact that one in ten Britons admitted to throwing away an item of clothing after only a few wears. Thus, that product’s value, and all the embedded energy, labour, and materials it contains, are put to waste.

On the other hand, in leasing ownership models the companies retain ownership over the products, and thus are the ones responsible to make sure the product is put back to good use once it is through with one owner – and because of the economic advantages this brings, they have good reason to do so.

Thus, delivering products to customers through leasing schemes rather than through purchase-based ownership models is praised by circular economy strategists, as doing so extends the product’s useful lifetime, ultimately improving businesses’ resource efficiency, reducing virgin resource intake, and reducing value and material losses to the economy.

How does it do this?

When businesses lease their products, it is in their best interest that their product lasts for as long as possible while needing as little maintenance as possible. This is because they as providers are responsible for any maintenance costs incurred throughout the lease period, and because of the opportunity to re-lease the same product again or make use of its material components at the end of one leasing contract. Thus, leasing provides companies with an economic incentive to produce products that are more durable and long-lasting.

This in turn improves resource efficiency, because the resources consumed during production are made useful for longer when the product they are embedded in has a longer useful lifetime.

Furthermore, fewer auxiliary products are produced when product lifetimes are extended. This is because it would no longer make economic sense for companies to launch numerous new iterations of their product (as is currently done in many industries such as the smartphone and fashion industries), and because durable products do not need to be replaced frequently. Thus, the total amount of resources consumed for the production of new products is reduced. Additionally, leasing ensures by contract that products are returned to the provider after use, which provides manufacturers with a large supply of secondary materials they can use in place of virgin resources.

Also due to the contractual return of leased products is that they are re-inserted into the economy – either when they are re-leased to a new customer, or when their material components are harvested to source a consecutive production cycle. Keeping products in such a loop reduces value and material losses to the economy and reduces the risk of them becoming discarded as environmental-polluting waste.

As such, leasing is a powerful and enticing enabler of the circular economy, as it provides a means of maximizing resource efficiency and reducing environmental impact while relying on positive economic incentives – rather than sanctions or regulations – to motivate companies to do so.

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