In recent years, the green leasing business in the Shanghai region has experienced rapid growth, reflecting a significant transformation in how financial services can contribute to sustainable developmentBy the end of 2022, the total scale of green leasing assets in Shanghai reached a staggering 644 billion RMB, which accounts for almost half of the country's total green leasing endeavorsThis remarkable growth is illustrated by the addition of 182 billion RMB in green leasing assets since the beginning of the year, representing a 39.39% increaseThe most notable sectors driving this growth include clean energy, infrastructure green upgrades, energy-saving environmental protection, and green air and maritime transport.

During recent interviews, it was revealed that institutions are actively leveraging fintech tools to enhance the efficiency of risk evaluation and management of green projects

Advertisements

However, there remains a need for collaborative efforts between institutions and regulatory bodies to address several deficiencies, such as establishing unified top-level design, increasing the added value of green projects, and strengthening inter-institutional collaboration.

The challenges associated with project assessment and management in green leasing have become increasingly evidentWith the rapid expansion of green leasing assets, new innovations in business and service offerings have emergedA compelling example is provided by Changjiang United Financial Leasing Co., Ltd(hereinafter referred to as “Changjiang Leasing”), which recently pioneered the country’s first energy storage financing leasing deal using flywheel technologyA representative from Changjiang Leasing shared that the company remains focused on innovations within the energy sector and is committed to the advancement of modern energy solutions.

Nevertheless, the distinctive nature of green projects introduces inherent challenges in the context of business innovation

Advertisements

As highlighted by industry insiders, the long financing periods and slow return on investment associated with green projects necessitate additional requirements for project risk assessment and post-lease management in the green leasing businessFor instance, when evaluating the feasibility and risks of projects, leasing institutions must employ specialized assessment teams with extensive knowledge and experience in related green industries to accurately gauge the profitability and risk levels of projectsFurthermore, in terms of post-lease management, it is essential for leasing institutions to continuously monitor project operational conditions to ensure the realization of their environmental benefitsTo achieve this, the use of technological advances such as big data and IoT can facilitate real-time project monitoring and managementConcurrently, enhancing internal risk management systems is crucial to ensure the safety and stability of projects during the post-lease phase.

When asked about their specific strategies for addressing these challenges, the representative from Changjiang Leasing elaborated on their approach regarding the flywheel energy storage project

Advertisements

They conducted comprehensive risk assessments tied to both the construction and operational phases of the project, emphasizing the flywheel industry as an emerging storage technology with vast market potentialBy aligning with local policy support, they clearly articulated revenue models for independent frequency regulation power stations while further analyzing project feasibilityUtilizing a “direct lease plus tax reduction” model, they structured a flexible repayment system that reflects a low upfront and high later payment plan, enabling startup companies to expedite their project launch effectivelyThis strategic move not only alleviates cost pressures on power stations but also contributes to the creation of a modern power system dominated by renewable energy, suitable for a variety of applications while stimulating downstream demand and achieving a balance between economic and environmental benefits.

The representative keenly pointed out the major challenges in project risk assessment, particularly regarding the construction of power plants—an area that significantly constitutes the green leasing business

• Yen Poised for Surge
• A-Share Market Confidence Boosted
• Historic Milestone in U.S. Stock Market
• Fed's Rate Hike: A Jolt to the Markets
• Short-term Growing Pains in the Semiconductor Industry

The primary focus of risk assessment for such projects typically revolves around whether cash flows can cover operational costs and whether compliance procedures are duly followedIn recent years, through policy seminars, project due diligence, and the formulation of risk management measures, the company has emphasized continuous learning and collaboration with industry peers, coupled with extensive on-site investigations to establish a distinctive risk control framework that adheres to stringent project selection guidelines.

In terms of project selection, Changjiang Leasing has focused on deeply exploring relationships with clients that hold long-term cooperation potential, while constantly innovating within the realm of green projectsThey customize leasing solutions that align project cash flows with clients' cost of funds and repayment schedules—an illustrative example being the flywheel energy storage financing leasing project

With regard to risk mitigation strategies, they focus on controlling the rights associated with primary repayment sources, thereby ensuring comprehensive oversight over income sources, financial accounts, and equity management to insulate project operations from external disruptions, thus achieving encapsulated financial management throughout the project lifecycle.

Moreover, with the growing scale of green leasing business, the representative indicated that there was a pronounced effort to enhance standardized post-lease management methods, positioning digital transformation as a core focus moving forwardReports indicate that local green financial service platforms are also leveraging technology to improve project managementRecently, the Shanghai Green Financial Service Platform has been launched, utilizing fintech tools for intelligent identification of green project elements and the automatic review and classification of environmental risks

They have successfully onboarded the first batch of 11 projects, catalyzing financing worth approximately 35.81 billion RMBSeveral leasing companies have also formed strategic partnerships with these financial service platforms.

However, it is crucial to acknowledge that the competitive landscape within the green leasing sector poses challenges such as the contraction of profit marginsInterviews with industry experts reveal that intense competition has resulted in the narrowing of profit spaces, partly due to a lack of discernible differentiation between the products and services provided by various institutionsConsequently, pricing has become a key factor influencing customer decisions, leading some smaller leasing companies to adopt price-cutting strategies to capture market share, thus exacerbating the competitive pressureConcurrently, with the advancement of regulatory policies, operational costs for leasing institutions have increased, further squeezing profitability.

Statistical analyses of data from 50 major leasing firms engaged in green leasing initiatives—including 12 financial leasing and 38 financing leasing companies—indicate that while most enterprises excel in establishing specialized teams, incorporating green leasing into their business models, and achieving profitability, some have nonetheless experienced contractions in green leasing operations

They have faced mounting pressure on pricing, narrower interest margins, and rising default rates.

To ameliorate this competitive situation, industry insiders have recommended that leasing companies invest in product and service innovation to enhance the added value of green projects, thereby boosting customer loyaltyStrengthening cooperation with other financial institutions is also essential in order to collaboratively develop the green finance market, facilitating resource sharing and risk diversificationFurthermore, it is imperative for the government to refine the policy framework surrounding green leasing, lowering market entry barriers and guiding capital flows toward green leasing sectors.

Additionally, there is a pressing need for standardization within the green leasing industryPreviously, Gao Yixiang, general manager of Shanghai Sheneng Financial Leasing Company, underscored the fragmented nature of green leasing standards across regions, with a notable absence of a unified top-level design.

According to Gao, establishing a standardized system for green leasing holds dual significance: first, it addresses the current inadequacy of precise statistical data in green leasing; second, it establishes conditions for these ventures to fairly benefit from national policies

The swathe of current green financial incentives, such as preferential green credit limits from banks, carbon reduction support tools from the central bank, and local government subsidies, all necessitate that applicants and projects acquire the requisite “green” certificationsWithout established definitions and standards for green leasing, financing leasing firms engaged in these activities struggle to validate their “green” credentials.

Given this backdrop, the future trajectory of green leasing and essential initiatives to foster its high-quality evolution can be outlined through three levels of strategy, encompassing seven primary dimensionsFirst, at the strategic level, there’s a need to expedite the formulation of ESG (Environmental, Social, and Governance) and green finance strategic plans, alongside crafting relevant organizational structures, management frameworks, and regulations