As the push for greener business practices gathers pace, UK equipment finance lenders find themselves in a challenging environment. Jason Hurwitz, European Sales Director at NETSOL Technologies and former Head Of Strategic Initiatives at Aldermore Bank, has a unique perspective on this issue. Drawing from his experience in overseeing Aldermore’s green strategy, Hurwitz highlights the systemic hurdles and potential solutions facing lenders in supporting the transition to green assets.
In a discussion ahead of the Leasing Life Conference 2024 in Milan on 14 November, Hurwitz shares his views on funding green assets, managing low demand, the relevance of supportive government policies, and how digital integration can address these complex challenges.
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Challenges for UK equipment finance lenders
Hurwitz identifies several obstacles to adopting green assets in the UK. Although manufacturers such as JCB and Volvo provide low-emission or zero-emission machinery, uptake remains limited. Volvo is investigating hydrogen as a fuel source for heavy-duty trucks, aiming for net-zero CO2 emissions with green hydrogen-powered vehicles. Meanwhile, JCB has developed a series of fully electric machines, including mini excavators, loadall telehandlers, and site dumpers, designed to operate a full shift on a single charge with zero emissions.
Green take-up remains low due to the economic strain on SMEs, exacerbated by high interest rates, inflation, and the additional costs of green equipment compared to traditional options, says Hurwitz. With green machinery often priced 20-30% higher than conventional diesel-powered alternatives, convincing cash-strapped SMEs to make the switch is a hard sell.
“The economic environment is very challenging right now,” Hurwitz says, citing economic aftershocks from the pandemic and inflationary pressures. SMEs, already coping with reduced margins and uncertainty, are reluctant to invest in greener, more expensive equipment despite the potential long-term savings and environmental benefits. Hurwitz describes this as a “push market,” where supply exists against a backdrop of government mandates but demand is weak due to economic conditions and higher costs.
Reviving government support to stimulate demand
During his tenure at Aldermore, Hurwitz collaborated with government stakeholders to promote a policy initiative aimed at addressing this issue. His team proposed reviving the Regional Growth Fund, a grant scheme that provided initial deposit support for SMEs entering hire purchase agreements, thereby lowering barriers to accessing financing. Unlike previous iterations, Hurwitz’s proposed version focused not on job creation but on reducing carbon emissions. If an SME could demonstrate carbon reductions, the government would cover the deposit cost, making green financing more attainable.
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By GlobalDataHurwitz believes that such policies are essential for stimulating demand for green equipment, as they would offset the upfront costs, encourage SMEs to switch, and drive sustainable economic growth. “At this stage, where we are in the economic cycle, the government needs to help on the demand side,” Hurwitz asserts. Similar schemes have successfully encouraged the adoption of green technology in France, where emissions limits on construction projects have spurred companies to avoid high-emission equipment.
Technology’s role in overcoming data collection challenges
Another obstacle for equipment lenders lies in meeting increasingly stringent regulatory reporting requirements, particularly those mandated by the Prudential Regulation Authority (PRA). These include Scope 1, 2, and 3 emissions reporting, covering emissions generated directly by banks, by their supply chains, and, crucially, by the assets they finance. As Hurwitz explains, the challenge lies in collecting accurate emissions data, particularly for non-wheeled assets such as industrial machinery, which lack standardised data records like Vehicle Identification Numbers (VINs) for vehicles.
To address this gap, Hurwitz advocates the use of adaptable, API-driven technology solutions that streamline data collection. Industry-tested software, for instance, enables lenders to integrate emissions data from various sources, automating much of the reporting process. This data integration is particularly effective for wheeled assets, where emissions data can be quickly retrieved and analysed. However, for non-wheeled assets, Hurwitz acknowledges that the industry still lacks sufficient data, making Scope 3 reporting complex and inconsistent.
The software can help streamline operations and reporting but also has potential implications for underwriting and pricing. Lenders could theoretically use emissions data to offer preferential terms to clients purchasing green assets, though Hurwitz warns of pitfalls here, that minor rate adjustments are unlikely to drive significant behavioural change among cost-sensitive SMEs.
The push for change
Hurwitz’s insights reveal a disconnect between the financial and environmental ambitions of UK lenders and the commercial realities of today’s market. The demand for green assets is low, and banks, despite their willingness to fund greener projects, continue to lend to high-emission industries to protect profitability. “SMEs have a strong desire for green assets, but demand is still low. People want to go green and believe in net zero, but they simply can’t afford to make the shift right now,” he says. A more comprehensive approach — one that combines supportive government policies with the right technology — is essential to close this gap.
For now, technology solutions present a path forward by simplifying compliance and helping banks track their environmental impact. Still, without stronger financial incentives and regulatory frameworks, the transition to green assets will likely remain a challenge for UK lenders, especially as SMEs grapple with competing economic pressures.
