AFC Unconference - Leaseurope's perspective on Europe’s economic and political future
Speaking with David Betteley, AFC head of content, Knubben explored the aftermath of 2024’s seismic changes and the opportunities ahead for leasing companies (leasecos) and technology providers.
Political shifts and economic implications
Knubben described 2024 as a “shockwave” year for Europe, paralleling the political upheaval in the United States. The June European Parliament elections significantly altered the political landscape, with green and socialist parties suffering major losses. Votes shifted to more extreme ends of the political spectrum, leaving the European People’s Party (EPP) as the dominant stabiliser.
This new political reality poses challenges for the European Commission as it develops its 2025 agenda. Ursula von der Leyen’s leadership will likely face pressure to recalibrate the Green Deal amidst growing scepticism and calls for reduced regulation.
“There is a clear disconnect between the European Commission’s vision and the shifting priorities of the Parliament and Council,” Knubben noted. Leaseurope is closely monitoring these changes to anticipate their impact on regulatory frameworks.
Sustainability and ESG reporting: a key battleground
Competitiveness concerns, particularly with the United States, have driven the European Commission to propose a comprehensive package to simplify sustainability regulations. This initiative aims to address overlaps in the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CS3D), and EU Taxonomy.
However, the path forward remains uncertain. The European Parliament has called for significant simplification, aligning ESG reporting requirements with the more relaxed standards in the US. Knubben sees this as a pivotal opportunity for leasecos and tech companies.
“ESG reporting, particularly Scope 3 emissions, is a complex challenge but also an opportunity,” Knubben emphasised. Leasing companies, as asset specialists, are uniquely positioned to provide critical data and bespoke reporting services. Businesses already seek support from leasecos, giving those with robust data and analytics capabilities a competitive edge.
“ESG reporting, particularly Scope 3 emissions, is a complex challenge but also an opportunity.”
Social leasing: potential and pitfalls
Social leasing emerged as a contentious topic in 2024. France’s experiment with subsidized leasing of electric vehicles (EVs) for low-income families, while well-intentioned, proved financially unsustainable.
Knubben suggested a more viable path might be enhancing the second-hand EV market to make these vehicles accessible and attractive. Germany’s political discourse includes proposals for social leasing, with funding potentially coming from the European Social Climate Fund. However, questions about sustainability and risk remain unanswered.
Extending social leasing to other green assets, such as heat pumps and solar panels, introduces additional complexities. Unlike EVs, these assets are immovable, making recovery in cases of default more challenging. Legislative innovations and government guarantees would be essential but could prove costly and difficult to implement.
Shifting business models in asset finance
The leasing industry is grappling with evolving business models, driven by consumer demand for flexibility. Knubben highlighted a growing trend toward shorter-term contracts, particularly among younger generations. However, this flexibility comes at a cost.
For EVs, however, unstable residual values (RVs) are prompting leasecos to encourage longer-term contracts in the business-to-business (B2B) segment. In the business-to-consumer (B2C) space, subscription models and pay-per-use arrangements are gaining traction, although they bring higher costs.
“The market is heading in both directions—longer contracts for some assets, shorter for others,” Knubben observed. The challenge lies in balancing flexibility with financial stability, particularly in an era of rapid technological change.
The big question is: has the political instability in 2024 set the scene for regulatory pragmatism to break out in 2025?
“Whoever has the data and analysis will have the competitive edge.”
Looking ahead: opportunities and challenges in 2025
As Europe navigates this period of transformation, the European equipment finance industry and Leaseurope is focused on three key areas:
- ESG reporting simplification: Despite anticipated simplifications, the industry will need to adapt to new requirements and timelines. Tech companies and leasecos have an opportunity to lead by providing essential data and expertise.
- Subsidized leasing: Potential extension of social leasing programmes and the enhancement of government-funded subsidies or favourable policies for green assets, such as EVs and electrically powered machinery.
- Innovative business models: The demand for flexible leasing solutions and second-cycle leasing presents opportunities for innovation, particularly in the consumer market.
While uncertainties persist, Knubben struck an optimistic tone. “Whoever has the data and analysis will have the competitive edge,” he concluded. The leasing industry stands at the nexus of change, poised to turn challenges into opportunities in the years ahead.
This article was published by Asset Finance Connect in January 2025. Reproduced by permission of the publisher.