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The Dirty Side of Green Leasing

Leasing can be a route to sustainability – or to greenwashing. This research suggests when to lease, buy, and retire products.

When companies should buy, lease, or scrap and start over.

If your sales team tells customers your company is environmentally responsible because you lease rather than sell products, take a closer look. They could be guilty of greenwashing. Researcher Vishal Agrawal, of Georgetown University, and colleagues examined the environmental and financial benefits of leasing and discovered not all leased products are created – or used – equally. Some opportunities for green leasing help the environment. Others just mask the problem.

“Leasing is often better for the environment because it keeps perfectly good fridges, washing machines, photocopiers, etc. on the market rather than customers throwing them out,” said Agrawal. “But we discovered leasing in itself is not a green guarantee. Sometimes, it’s better for the environment if a company retires an old photocopier, for example, and manufactures a new one rather than continuing to lease the old one.”

The Green Leasing Theory

Environmental organizations such as the US Environmental Protection Agency often tell companies to lease products (or to promote their leasing programs) as environmentally responsible alternatives to selling. The argument for leasing is that companies make durable products and maximize their useful life if they continue to own them. Companies focused on selling benefit from replacing products with new ones – and produce major environmental impacts in the process.

The Sweet Spot between Profitable and Responsible

Understandably, companies often want to replace old products with new ones. Customers want new features and bug fixes. Companies want to showcase new technology and generate more revenue. So, where’s the sweet spot between being environmentally responsible and being profitable?

Agrawal offers this advice to managers:

  • To maximize profits, lease products that have high environmental impact during use and lower impact during production and disposal.

  • Replace working products with new ones as long as the environmental impact of producing, using and disposing of the new product will still be less than using the old one (see graphic below).

  • Don’t fear the well-intentioned environmentalist. Feel confident pulling working products off the market, knowing the new ones will be better for the environment.

When to Take Functional Products off the Market

Of course, all of this requires that you know the environmental impact of your products at each stage in their lifecycle. For resources on calculating a LifeCycle Analysis, check out organizations such as the US Environmental Protection Agency.

Agrawal, V.V., Ferguson M., Totkay L.B. and Thomas, V.M. 2012. “Is Leasing Greener Than Selling.” Management Science. 58: 3, 523-533.

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