The Cleaner Production Investment Process Day 1

1. The Cleaner ProductionInvestment ProcessDay 1 Prepared by: Gloucestershire Business School, University of Gloucester, UK ROSCAM Strategic Development Consultancy, Zimbabwe For UNEP, Division of Technology, Industry, and Economics FINANZAS AMBIENTALES, Lima, Perú ARMSA, Guatemala

2. Introduction

3. Course Background [15 min]

4. Development of the training materials Content has been developed by: • Gloucestershire Business School, UK • Finanzas Ambientales, Lima, Peru • The Illinois EPA • The Philippine Institute of CPAs • The Asian Institute of Management • UNEP Cleaner Production Financing National Project Coordinators in Guatemala and Zimbabwe

5. UNEP: Financing Cleaner Production — Support • United Nations Environment Programme (UNEP); Division of Technology, Industry, and Economics • Course support is from the project: “Strategies and Mechanisms for Promoting Cleaner Production Investments in Developing Countries” • Funding provided by the Government of Norway

6. Words of Welcome Introduction of Instructors [15 min]

7. Participant Introductions [30 min]

8. Who is here today? • What type of organization do you work for? • e.g., industry, government, other • If from industry, which sector and what size • What are your job responsibilities and areas of expertise? • e.g., management, accounting, finance, engineering, production, environmental • What is your investment perspective? • e.g., developer of investment proposals, one who funds investment proposals

9. Why are you here? • What work issues or concerns motivated you to come? • What are your learning goals for this course? • What are your expectations of this course?

10. Course Overview [15 min]

11. Focus of the course • Sustainable banking??? • Project financing • Also to incorporate your experiences, questions, and goals into the presentations, exercises, & discussions In the context of Cleaner Production

12. Cleaner Production is ... “The continuous application of an integrated preventive environmental strategy applied to processes, products, and services to increase overall efficiency and reduce risks to humans and the environment.” — UNEP

13. Cleaner Production is different • Much of current environmental protection focuses on what to do with wastes and emissions after they have been created, otherwise known as “end-of-pipe” disposal & treatment • The goal of Cleaner Production is to avoid generating pollution in the first place

14. Environmental management hierarchy • CLEANER PRODUCTION • Pollution Prevention • On-site recycling/reuse BEST LEAST Desirable Off-site recycling/reuse Control/Treatment Disposal

15. Cleaner Production benefits • Reduces costs (of raw materials, energy, waste, emissions) • Reduces risk (to employees, human health, and environment) • Identifies new opportunities for more efficient operations

16. CP4: Course aims (1) Entrepreneur’s perspective: • Prepare a ‘bankable proposal’ to justify economic feasibility • Manage the relationship with banks and other potential sources of finance

17. CP4: Course aims (2) Banker’s perspective: • Raise awareness on Cleaner Production investment proposals • Raise awareness on sustainable banking trends

18. CP4: Course content (1) • CP: a successful strategy towards sustainable banking • Introduction to project funding • Participants’ experiences with raising funds - problems and issues • The banker’s perspective - what banks look for from firms seeking finance 1- Economic viability of the project 2- Financial and economic position of the firm 3- General economic background

19. CP4: Course content (2) • Group exercise • Developing a bankable proposal • The banker’s response • Other potential sources of finance • Group exercise • Alternative sources of finance

20. CP4: Course content (3) • Eco-criteria for investment decision-making • Post-funding implementation and control: after the application has been accepted • Group Exercise • Implementation and management

21. Conclusion • Where to go for more information • Brief review of what we learned • Final questions and comments; Any other issues? • Course evaluation

22. Time for a break![20 min]

23. CP: a successful strategy towards sustainable banking

24. Economy is a sub-system of ecology

25. Towards a Sustainable Economy Growth Eco-efficiency Sustainability Yesterday Today Tomorrow Flora & fauna Mining Oil&Gas Industry Trade-Serv Agriculture $ clean polluting

26. The tools for the sustainable banker of the 21st century Economic: IRR, NPV, Ratio-Analysis, balance sheets, cash flows, guarantees, etc…. Environmental:Cleaner Production, Environmental Management Systems, Environmental Management Accounting, Eco-labelling, environmental risks analysis and classification, Life-Cycle Analysis, eco-balance, environmental reporting,etc…. Commercial information, public image, etc

27. A two-way bridge between two worlds Financial world Environmental world CP Common language Eco-risks Eco-dividends businesses

28. Current trends in commercial banking • Financial institutions are becoming • increasingly similar • Commercial banks’ activities are • expanding in developing countries • and countries with economies in • transition • Increasing interest in sustainable • banking

29. Types of financial institutions (FIs) • commercial banks • savings and loan associations • life insurance firms • state and local government pension • funds • sales and consumer finance companies • mutual funds • insurance companies; credit unions

30. Financial institutions - increasing similarity • Traditionally, different types of FI • specialized narrowly in their own • areas • Still true to some extent, but less so • Many FI’s are expanding their • product-ranges into others’ areas

31. Sustainable banking - (1) • banks and other FI’s are becoming • more aware of their environmental • responsibilities - both in banks’ own • operations, and in lending • 1992 Earth Summit: “UNEP • Financial Initiative on the • Environment and Sustainable • Development”

32. UNEP Finance Initiatives (UNEP FI) • Conceived at the 1992 Rio Earth Summit, UNEP FI has grown from from 6 banks to some 270 financial institutions by 2001. • The UNEP FI is a voluntary pact between UNEP and some 270 financial institutions globally • UNEP FI promotes sustainability excellence across the finance sector • UNEP FI builds the business case for Financial Institutions and Insurers to become sustainability leaders

33. Sustainable banking - (2) Some banks are moving from a traditional defensiveposition: - non-active - deny banks’ responsibilities for environmental impacts - resist environmental legislation towards …..

34. Sustainable Banking - (3) …. Sustainable banking : - Proactively seek environmental cost savings - Recognize possible environmental effects on project’s and firm’s risks - Set up special environmental funds

35. CP opportunities for client Opportunities for the clients and FI Business’ derived environmental liabilities and risks IMPACT ON FI é Capital costs é efficiency Operating é é Financial costs ê costs ê Market share é ê Repayment u Asset value New market Reduced New business u opportunities assets value Legal Liability Inherent preventive approach u Fines Potential legal u Clean up liability Long term pollution liabilities ê Damaged Better é ê REPUTATION reputation reputation

36. Introduction to Project Funding

37. The firm’s business environment - Relevant factors • Government policy • Fiscal policy and legislation • Financial sector • Macro-economic developments • Past and current practices in project financing

38. Options for project financing • Internal funds • Private sector: 1. Commercial banks 2. Development corporations 3. Equipment vendors & subsidiary finance Companies 4. Trade finance (suppliers and customers) 5. Equity • Government sector

39. Internal funds Internal funds can be generated from: • Capital introduced by the owner • Profits & cash flows generated by the business and retained within it

40. Capital from the private sector • Long-term loans to purchase fixed assets: secured or unsecured • Short-term loans (including lines of credits without conditions on use) • Leasing • Equity (issue of shares/stock) • ...

41. Capital from the government sector • Grants • Subsidies • Government-managed development funds

42. Firms’ criteria in raising finance • Profitability • Risk of excessive debt (‘Leverage’, or ‘gearing’) • Matching duration of finance to duration of project • Procedures for application

43. Participants’ Experiencesof Financing Projects

44. Project finance - Issues and questions (1) • What was the project? • Which sources were considered? • Which sources were then approached? • What information did they require? • Could you provide this information? • What were their criteria? (Were these clear to the firm?)

45. Project finance - Issues and questions (2) • Was the application successful? If not - why not? • Did any problems arise during the process of applying? • What requirements did the financier set concerning post-funding project management?

46. Project finance - Issues and questions (3) • What do you consider the firm did well? … and not-so-well? • Would you do anything differently another time? • What advice can you offer to others from this experience? • Does this experience prompt any questions?

47. Some typical project finance issues and problems ... • The project is not considered to be economically feasible (i.e. profitable) • The firm is unable or unwilling to issue more shares or to raise debt • The firm does not yet have contacts with commercial banks • The firm is in public ownership and private sources of finance are not accessible

48. …and some possible solutions (1) • Problem: the project is not considered to be economically feasible • Solution: Total Cost Assessment of project • Problem: the firm is unable or unwilling to issue more shares or to raise debt • Solution: Leasing

49. …and some possible solutions (2) • Problem: the firm does not yet have contacts with commercial banks • Solution: contact chamber of commerce, local accountants, NGOs funds managers, for assistance • Problem: the firm is in public ownership and private sources of finance are not accessible • Solution: contact local national CP centre for institutional assistance

50. A few general points of advice... • consider the effect of the current business environment • search widely for possible alternative sources of finance • seek advice from experts and from contacts in other firms