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Sustainable Investing Glossary

Product as a service (PaaS)

Product as a Service (PaaS), also referred to as a product-service system (PSS), is a circular economy business model focused on selling an underlying service or product function rather than the product itself. In many PaaS models, firms retain ownership over the physical asset and lease it to customers who pay a time- or use-based subscription fee.

After the subscription period ends, companies can collect products for re-sale or for reuse as inputs into other manufacturing phases. PaaS is often used in combination with other circular-based production cycles such as product repurposing, refurbishing, remanufacturing or recycling.

In many cases, PaaS extends the company-customer relationship from a one-time transaction to a long-term contract. The longer the subscription or use period, the greater the revenue streams. As a result, profit incentives shift from producing more volume to producing higher quality products with longer lifespans. Companies are incentivized to support product life extensions through predictive and ongoing maintenance as well as to offer competitive service/feature upgrades that offer customers more convenience and functionality. In some cases, the use of a physical device is eliminated completely; the replacement of answering machines (a physical device) with voicemail (data on a telecommunication providers’ server) is an illustrative example.

Types of models

While they are part of a growing movement to make companies less resource intensive and therefore more sustainable for the long-term, PaaS models are not new to the business landscape. They have been used already by many companies seeking to distinguish stand-alone products from competitors by offering a product-service mix. The dominant players in office printers and copy machines have operated on lease-service models for decades.

More recent examples include companies using PaaS models for passenger mobility, vacation-home rentals and even personal wardrobes. From residential and commercial lighting to jet engines, medical monitors, laboratory equipment and even industrial oil and fuel, PaaS models can be found across a diverse array of industries.

Longer use, less waste

Global warming, rising sea levels, environmental destruction, and loss of biodiversity are all visible signs of an economic system that takes, makes, and then disposes valuable assets. Circular business models such as PaaS seek to change that. Given their service focus, PaaS firms require far fewer physical assets and are far less resource intensive. Moreover, GHG emissions and pollution associated with mining and manufacturing are also reduced.

Robeco’s Circular Economy Equities Strategy invests in companies that are accelerating secular trends towards a sustainable, circular economy. In addition to product-as-a-service, the Strategy invests in other circular models including input re-design, refurbishment and repair, as well as digital marketplaces and recycling systems.

Opportunities for employing circular approaches can be found economy wide. The portfolio is capturing opportunities in industries as far ranging as slow fashion to simulation design software. As a result, returns are optimized, while risks are diversified.

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