The Cleaner Production
Investment Process
Day 1
Prepared by:
Gloucestershire Business
ROSCAM
School,
Strategic Development
University of Gloucester, Consultancy, Zimbabwe
UK
FINANZAS AMBIENTALES,
Lima, Perú
ARMSA,
Guatemala
For UNEP,
Division of Technology,
Industry, and Economics
1
Introduction
2
Course Background
[15 min]
3
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
4
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
5
Words of Welcome
Introduction
of Instructors
[15 min]
6
Participant Introductions
[30 min]
7
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
8
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?
9
Course Overview
[15 min]
10
Focus of the course
 Sustainable banking???
 Project financing
In the context of
Cleaner Production
 Also to incorporate your experiences,
questions, and goals into the
presentations, exercises, & discussions
11
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
12
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
13
Environmental management
hierarchy
CLEANER PRODUCTION
BEST
 Pollution Prevention
 On-site recycling/reuse
Off-site recycling/reuse
LEAST
Desirable
Control/Treatment
Disposal
14
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
15
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
16
CP4: Course aims (2)
Banker’s perspective:
 Raise awareness on Cleaner
Production investment proposals
 Raise awareness on sustainable
banking trends
17
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
18
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
19
CP4: Course content (3)
 Eco-criteria for investment decisionmaking
 Post-funding implementation and
control: after the application has been
accepted
 Group Exercise
– Implementation and management
20
Conclusion
 Where to go for more information
 Brief review of what we learned
 Final questions and comments;
Any other issues?
 Course evaluation
21
Time for a break!
[20 min]
22
CP: a successful strategy
towards sustainable banking
23
Economy is a sub-system of
ecology
24
Towards a Sustainable
Economy
Growth
Yesterday
Mining
Oil&Gas
Eco-efficiency
Today
Sustainability
Tomorrow
Flora &
fauna
Industry
Trade-Serv
Agriculture
$
clean
25
polluting
The tools for the sustainable
banker of the 21st century
26
A two-way bridge between
two worlds
Financial world
Environmental world
Ecorisks
Common language
businesses
Ecodividends
CP
27
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
28
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




29
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
30
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”
31
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
32
Sustainable banking - (2)
Some banks are moving from a traditional
defensive position:
- non-active
- deny banks’ responsibilities for
environmental impacts
- resist environmental legislation
towards …..
33
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
34
Opportunities for the clients and FI
Business’ derived
environmental
liabilities and risks
 Capital costs
 Operating
costs
 Market share
Reduced
assets value
CP opportunities
for client
IMPACT ON FI
Financial
 Repayment 
u Asset value
u New business
Legal Liability
Potential legal
liability
u Fines
u Clean up
 Long term
 efficiency
 costs
New market
opportunities
Inherent
preventive
approach
pollution liabilities
Damaged
reputation
 REPUTATION
Better
35
reputation
Introduction to Project
Funding
36
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
37
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
38
Internal funds
Internal funds can be generated
from:
– Capital introduced by the owner
– Profits & cash flows generated by the
business and retained within it
39
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)
 ...
40
Capital from the government
sector
 Grants
 Subsidies
 Government-managed
development funds
41
Firms’ criteria in raising
finance
 Profitability
 Risk of excessive debt
(‘Leverage’, or ‘gearing’)
 Matching duration of finance to
duration of project
 Procedures for application
42
Participants’ Experiences
of Financing Projects
43
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?)
44
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?
45
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?
46
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
47
…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
48
…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
49
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
50
Time for lunch!
[60 min]
51
The Bank’s Perspective
52
Commercial banks: Purposes
and profile (1)
 Transfer funds from ultimate lenders
to ultimate borrowers
 Acquire funds by receiving money from
savers: savings accounts, deposit
accounts, etc.
 Provide funds to borrowers through
term loans, lines of credit, bonds, etc.
53
Commercial banks: Purposes
and profile (2)
 Commercial banks aim to:
– Maximize their returns
– Minimize the risks they accept
 Expertise in evaluating borrower
credit-worthiness
 Competition between commercial
banks helps to keep down lending
rates
54
Project finance from banks:
the main options
 Term loans:
–
–
–
–
Related to specific projects
Specific amount and term
Rate will reflect risk
Rate may be fixed over time or variable
 Lines of credit:
–
–
–
–
Limited amounts
Flexible in use
Higher interest rates
Interest charged only on finance actually used55
Loan application and approval
procedure (1)
1. Research and review potential
sources
2. Initial informal discussions with
bank loan officer
3. Fill out bank’s loan application form;
obtain all necessary data
4. Submit to bank the loan application
and supporting documents
56
Loan application and approval
procedure (2)
5.
6.
7.
8.
Review of application by bank
Negotiate specific terms of loan
Bank sends commitment letter
Bank sends a “term sheet” which
defines the specific lending terms
9. Sign the loan agreement
10. Receive the funds
11. Proceed to implement project
57
Bank will usually require...
Procedural
 completed loan application forms
 additional documentation as required,
e.g. the firm’s accounts
Financial
 acceptable repayment plan
 proven economic viability (of both
project and firm)
 collateral (i.e. security such as mortgage)
58
Banks’ information needs
To assess loan applications, banks need
information on :
1- Economic viability of the specific project
2- The firm’s overall financial and economic
situation
3- The general economic and political
background of the country and sector
59
Banks’ information needs
1- Economic viability of the specific project
2- The firm’s overall financial and economic
situation
3- The general economic and political
background of the country and sector
60
Information on the project
 Purpose of the loan
 Expected cash flows from project
 Expected profitability of project
(NPV, IRR...)
 Assessment of risks of project
 How project relates to the
firm’s business generally
61
Purpose of the loan:
to demonstrate:
How will the CP Investment produce the perceived...
cost reductions and
increase in revenue?
• Reduce energy use
• Reduce material input costs
• Reduce penalty fees
sales and production
levels increase?
• Increase in sales and production
and establish increase in demand
• Improve product quality
reduced risks?
• Environmental compliance and
regulation costs
62
Cash flow forecast/projection
• Look at the likely future cash
position of the company.
• Examine the possible effects of
changes in the cash flow components.
63
Profitability analysis:
Profitability indicators
A profitability indicator, or “financial
indicator”, is: “a single number that is
calculated for characterisation of
project profitability in a concise,
understandable form.”
Common examples are:
• Simple payback period
• Return on investment (ROI)
• Net present value (NPV)
• Internal rate of return (IRR)
64
Assessment of risks:
Sensitivity analysis
– What could go wrong with the plans for
the project?
– What will be the effect on NPV if
different assumptions are made re
sales demand, costs, length of
project life, etc.?
65
Banks’ information needs
1- Economic viability of the specific project
2- The firm’s overall financial and economic
situation
3- The general economic and political
background of the country and sector
66
Concern about the financial
facts of a business includes:
 Organization's ability to meet current
obligations
 The nature of liabilities
 The company’s ability to stand pressure from
both internal and external sources
 The true worth of the various assets of the
business (accurate picture)
67
The bank’s information needs
To demonstrate a company’s creditworthiness, bank will require:
 past financial statements (balance
sheets, income statements, etc.)
 forecast future financial statements
 past credit history and references
 information on the firm’s
management
68
Business plan: Objectives
 To show to outsiders to help to raise
money
 To use within the business
– As a guide to future action
– To control the firm by using the business
plan as a benchmark against which to
compare performance
69
Business plan: content
 past and forecast future financial
statements
 brief overview of business
 markets, customers and competitors
 products and services
 distribution
 management
 sales forecasts
 how the firm is to be financed
70
Information: what makes it
useful









relevance
reliability
consistency
completeness
comparability
timeliness
understandability
materiality
feasibility and cost-effectiveness
71
Interpretation of financial
statements
RATIO ANALYSIS
•Is useful to virtually all readers of financial accounting
statements.
•Ratios are like a thermometer which takes the actual
temperature of a business in relation to some standard
measure.
Ratio analysis can help to identify problem areas but
in itself cannot offer solutions: these must be
72
provided by the businessman.
Ratio analysis
For financial analysis purposes, it is useful
to classify ratios under five headings:
Profitability ratios which measure the overall
effectiveness of managers as shown by the
returns generated on sales and investments.
Liquidity ratios which judge whether a
business is likely to run out of cash in the
short term.
73
• Solvency
ratios which measure the extent to
which a business is financed by borrowed
money and the risk involved.
•Activity ratios which measure how effectively
the business is using its resources.
•Growth ratios which measures the business’s
past rate of growth and assess the potential
for future growth.
74
Profitability ratios
 key question: at what rate does the business
generate profit from its activities?
 Test 1: What is the proportion of direct
trading profit contributed by every dollar
worth of sales?
 Test 2: What is the amount of profit
generated out of every dollar invested in the
company?
75
Profitability ratios:
Examples
 Test 1: Gross profit percentage on sales :
Gross profit
=
Gross sales
 Test 2: Return on capital employed :
= Profit before interest & tax
Capital employed
76
Liquidity ratios
 definition: ability to meet shortterm operating liabilities
 key question: how much is the total
of the firm’s short-term liabilities?
 Test 1: are the liquid (short-term)
assets sufficient to cover adequately
these short-term liabilities?
 Test 2: are the regular operating cash
inflows adequate to cover short-term
liabilities, as they fall due for payment?
77
Liquidity ratios:
Examples
 Test 1: Current ratio :
Current assets
=
Current liabilities
 Test 2: Acid test quick ratio :
Current
assets
stock
=
Current liabilities
The acceptable ratios depend upon the type of
industry in which a company operates.
78
Solvency ratios
 definition: ability to meet long-term
liabilities such as debt
 key question: how much is the total
of the firm’s indebtedness?
 Test 1: what are the relative proportions
of (1) equity, and (2) debt?
[“gearing”, or “leverage”]
 Test 2: are operating profits adequate
to cover the interest that has to be paid
regularly on the debt?
79
Solvency ratios:
Examples
 Test 1: Debt ratio :
Total debt
=
Total assets
 Test 2: Times interest earned :
= Earnings before interest & taxes
Interest charges
80
Activity ratios
 Key question: How effectively does the firm
use its resources?
 Test 1: What is the turnover of stocks?
 Test 2: What is the quality of debtors and
credit policies of the business? How many day’s
sales represented by debtors?
81
Activity ratios:
Examples
 Test 1: Stock turnover ratio :
Sales revenue
=
Stocks (at period end)
 Test 2: Debtors turnover ratio :
= Debtors (Balance sheet)
Average daily sales
Sales as per income statement
Average daily sales =
Days (365)
82
Limitation of ratios
(A) differences found among the accounting
methods used by various companies, which
make comparisons difficult even when talking
about the same industry
(B) financial statements are based upon past
performance and past events, we must
project our evaluation from this basis
83
Conclusion
• Though with limitations, ratios still provide guides
and clues in spotting trends towards better or poor
performance and in finding significant deviations
from average or an acceptable standard, if any is
available.
• It is in the interpretation of such trends and
deviations that the analyst will use his skills and
experience to determine what is likely to happen in
the organization.
84
Banks’ information needs
1- Economic viability of the specific project
2- The firm’s overall financial and economic
situation
3- The general economic and political
background of the country and sector
85
General economic background
National and world economy:
- forecasts of economic growth
- forecasts of inflation
- political or economic instability
Sector-specific background:
-
developing new technologies
changes in product markets
new legislation and regulation
level of competition in the sector
86
Conclusions (1)
 Banks have specific demands for
information due to their loan
application/approval procedures
 Most information should be provided
by applicants
 Banks will maintain some data
themselves (e.g. general economic
data)
87
Conclusions (2)
 banks obtain information on firms
through:
– the application forms and supporting
documents submitted by the firms
– face-to-face contacts and visits to the
firm
– the history of the bank’s relationship with
the customer
 post-funding control enhances the
relationship and facilitates future
borrowing
88
Conclusions (3)
 Firms should set up and maintain
adequate information systems:
Before
They are needed !
89
Group exercise - Acme: Part 1
Preparing a ‘Bankable’ Proposal
 Read the Acme case, it is detailed in
your handout
 You will be working in a small group
with others
 The task is to develop a proposal to a
bank for finance for acme’s project
 Your group will present this to the
banker
 Plan ahead - what points to include?
90
Time for a break!
[15 min]
91
Developing a
Bankable Proposal:
Acme Electroplaters
Part 1
92
Group exercise - Acme: Part 1
The task
1. Prepare presentation to a bank
making the case for finance for
Acme’s project
2. Complete the standard application
bank loan application form, located
in your handout
3. Anticipate possible questions from
the banker
93
Group exercise - Acme: Part 1
Criteria for success
 firm’s current financial position
 history of firm
 the project’s expected returns and
risks
 availability of relevant information
 firm’s ability to implement the
project
94
Checklist:
“Funding Application Format
Checklist”
Refers to the checklist document
95
Review of what we have
covered today
96
Final questions or comments?
97
The Cleaner Production
Investment Process
Day 2
Prepared by:
Gloucestershire Business
ROSCAM
School,
Strategic Development
University of Gloucester, Consultancy, Zimbabwe
UK
FINANZAS AMBIENTALES,
Lima, Perú
ARMSA,
Guatemala
For UNEP,
Division of Technology,
Industry, and Economics
98
Any questions?
 Arising from day 1 ?
 Looking ahead to day 2 ?
99
Developing a bankable
proposal:
Group presentations
100
Time for a break!
[15 min]
101
Developing a bankable
proposal:
the banker’s response
102
Time for lunch!
[60 min]
103
Other Potential Sources for
Project Financing
104
Checklist:
“Funding Options”
105
Further potential sources
 Internal funds
 Equity (owners’ capital)
 Leasing / equipment vendors and
subsidiary finance companies
 Trade credit (suppliers, customers)
 Micro-credits
 Development bank loans
 Government finance
106
Internal funds (1)
 Internal funds = retained profits
(‘reserves’)
 Size of reserves depends on:– Past profitability of business
– Minimizing tax liabilities
– Proportion of profits retained
vs.
Paid out to owners in dividends
107
Internal funds (2)
 avoids having to approach external
sources (and transaction costs)
 preserve borrowing power for future
projects
 have an indirect opportunity cost
 not available to new firms
 must be built up over time
108
Equity capital
 Equity = ordinary shares, i.e. owners’
capital
 Potential sources of new equity:– more capital from the current owners
(shareholders)
– new shareholders, by private approaches
– venture capital
– a public share offering
109
Equipment vendors and
subsidiary finance companies
 Leasing has become a major source of
financing that is provided by some equipment
vendors and subsidiary finance companies
(‘lease-providers’).
 With ‘financial leases’ (or ‘capital leases’):
– Title to the equipment is held by the firm
which operates it (the ‘lease-holder’)
– The lease-provider retains a first security
interest in the equipment
– The lease-holder faces the risks and receives
the rewards of ownership
110
Trade finance
 potential sources
– suppliers of raw materials
– suppliers of other goods and services
– key customers
 their motive: to secure a key
customer or source of supply
 risk: being tied to a particular
supplier or customer and unable to
develop business freely
111
Micro-Credits (MC)
 aim: ‘to match appropriate technologies
and financing, through the development
of packages that build on community
values’
 local initiatives, depending on MC
managers’ knowledge of their own
localities and markets
 an expanding source for socially
desirable projects - but little-known
112
Micro Credit example
Grameen Bank (1)
 Grameen Bank,Bangladesh: the pioneer
(founder: Mohammed Yunus)
 core belief: the credit-worthiness of
the poorest members of a community
 aim: to break out of the poverty
cycle, using innovative technologies
 a model for many similar banks
operating across the world
113
Micro Credit example
Grameen Bank (2)
 finance derived from international
sources (e.g. development banks)
 Grameen uses this to make ‘soft’
loans to local borrowers
 several projects in renewable
energy and other environmental
investments
 website: www.Grameen-info.org
114
Micro Credit example
Grameen’s lending policy
 no requirement for security
 repayable in weekly instalments
 eligibility for subsequent loans
depends on full repayment of any
earlier loans
 transparency in bank transactions
helps to encourage repayments by
borrowers, through social pressure
115
Micro Credit example
Grameen - the results
 2.34 million borrowers in Bangladesh
 94% are women
 loans for projects in 39,000 of
86,000 villages in Bangladesh
 1977-1997, total lending - US$2
billion
 now, 223 Grameen-type programmes
in 58 countries
116
Development banks (1)
 examples:
–
–
–
–
World Bank
International Finance Corporation
Inter-American Development Bank
Asian Development Bank
 wide and diverse range of
programmes and projects
117
Development banks (2)
development banks aim:
– to lend large amounts…
– … but at lower transaction costs
 therefore, traditionally, mainly
large projects in the public sector
 stringent guidelines on project
characteristics and lending criteria
(e.g. to be environmental, social,
developmental, technically innovative)
118
Development banks (3)
Benefits of development bank finance:
 can help with technological and
managerial advice on the project
 project packaging
 liaison with other potential sources
of finance
119
Raising finance from
government schemes
 identify the available schemes
 find out:
– the criteria and conditions of the
scheme
– the procedures for application
 develop the firm’s application:
– to match the scheme’s criteria
– to identify how the project supports
public policy objectives
120
Grants
 low or zero cost of capital
 may be available for only part of a project,
or on restrictive terms
 preserves borrowing power for other
purposes
 accessible via local brokers and/or
international development agencies
 BUT:
– can conceal true long-term costs
– misses opportunity to build long-term
relationship with financiers
121
Past funding experience
 successful past experiences with
financing projects?
 how might CP projects be
different? Why might they be ...
– more difficult to finance?
– easier to finance?
 could these further sources be
relevant? If so - when and how?
122
Summary
 a wide range of potential sources
means:
– more likely to be able to raise finance...
– … and on better terms
 the range varies between countries
and over time
 an early search for a wide range
of sources can be very worthwhile
 each source will have its own criteria
and procedures
123
Acme Electroplaters:
Part 2
124
Time for a break!
[15 min]
125
Eco-criteria for investment
decision-making
126
Criteria (+): activities to encourage
Bio-pesticides
Bio-control
Bio-fertilisers
Renewable energies
Efficient energy
Clean fuel
Aquaculture
Organic agriculture
Health & safety
Environmental management
Pollution control
Pollution prevention
Recycling
Waste management
Reforestation
Eco-tourism
Eco-data access
Corporate eco-donations
Eco-education
Nomad forest products
127
Sectors of major concern:
Where CP can highly contribute to reduce
risk and increase efficiency and profitability






Energy and Mines
Petroleum and Chemicals
Agribusiness
Transportation
Recycling
Eco-Tourism
128
Energy
 Risks
–
–
–
–
Atmospheric emissions
Water contamination
Acoustic pollution
Safety
 Opportunities
– Alternative energies
– Cost reduction
129
Mining
 Risks
– Environmental: air and water pollution
– Occupational: health and safety
 Opportunities
– Genuine wealth creation
– Production of quality durable goods
130
Agribusiness
 Risks
– Solid waste
– Water and ground contamination
– Public health
 Opportunities
– Organic Brands and distribution channels
– Exportation opportunities through
international standards
131
Banks’ requirements to obtain
services in
 Environmental risk
assessment of
business activities
 Environmental
footprint of
investments,
guaranties, leasing
 Training for local bank
staff
 Development of new
eco-products (capital
risk investment fund,
forest funds)
 Identification of new
business opportunities
within client database
132
Competitive banking
“In today's hyper-competitive financial services
environment, incremental improvement is no
longer enough.
To be successful, firms need to undertake
massive change - a fundamental reinvention of
their strategies and operations that will allow
them to delight customers, exceed investor
expectations, and attract and retain the best
and the brightest professionals.”
Reinventing FINANCIAL SERVICES
Succeeding With Corporate Transformation
Deloitte Consulting and Deloitte & Touche
133
2001
Sustainable banking: trends
 Avoid eco-risks, identify
eco-business opportunities;
 Use of eco-criteria in
decision-making;
 Internalise environmental
costs & debts in company’s
decision-making;
 New financial eco-products
(eco-funds, eco-mortgage,
renewable energy credits);
 Total environmental
accounting;
 CP: prevention is better
than end-of-pipe solutions
 Capital markets
increasingly value “green”
capital;
 Efficient use of resources
(water, energy);
 Fewer, bigger banks.
134
Dow Jones Sustainability World Index
330.00
280.00
230.00
180.00
130.00
80.00
12/93 6/94 12/94
6/95
12/95 6/96
12/96 6/97
12/97 6/98
12/98
6/99 12/99
6/00 12/00 6/01
Dow Jones Sustainability World Index
Dow Jones Global Index
(USD, Price Index)
135
Financial eco-innovations
Personal banking Corporate banking
Eco-mortgage
Eco-shares
Eco-autos
Eco-financial derivatives
Home-office: 2x1
ESCO, Energy Service Co
Eco-savings
Build, Operate, Transfer
Eco-leasing
Eco-loans
Swap for debt
Eco-credit cards
Eco-investment funds
136
Post-funding
management and control
137
Aims
 ensure repayments are made in full
and on time
 avoid foreclosure / calling in security
 comply with all loan contract
conditions
 build strong credit history and
relationship for the future
138
Post-funding management and
control: issues
1-implementation phase
2-security for loans (collateral)
3-other loan contract conditions
4-regular financial information
5-evidence of strong internal
management
6-keeping the lender informed
139
1-Implementation
 need to synchronize:
– receiving the finance
– acquiring the new asset(s)
– starting the new business activities
 project management techniques and
skills, e.g. ‘critical path’ analysis
 clear organizational responsibilities
140
2-Security for loans
 usually requested by banks, though
less crucial than the firm’s ability to
repay
 can include owner’s personal assets as
well as the firm’s assets
 need to protect assets used as
security
 Third-party guarantee
141
3-Loan contract conditions
(‘covenants’)
Examples:
- adequate liquidity
- adequate solvency
(gearing / leverage)
- no significant changes in:
- nature of business
- ownership
- no sales of major assets without the
prior agreement of the lender
142
4-Regular financial information
Financial Reports (FR’s): rules
 based on legal rules and accounting
standards
(‘Generally Accepted Accounting Practice’)
 required annually by law
 lenders may require more frequently
– and promptly
– with supporting analyses
143
Analyzing FR’s




FR’s can be analysed by readers to
evaluate the firm’s likely return and
risk position, as reflected in:
liquidity
solvency
profitability
operating efficiency
144
Analyzing FRs: comparators
 over time
– ‘vertical’, or ‘trend’, analysis
 against other (comparable) firms
– ‘horizontal analysis’, or ‘benchmarking‘
 against other standards
145
Preparing FR’s: guidelines for
management
 disclose accounting policies, especially if
different from normal
 be open where estimates and approximations
have been necessary
 indicate if any amounts in the FR’s are no
longer realistic
 ensure reliability of the accounting systems
which collect the data
 thoroughly review FR’s before sending outside
146
the firm
5-Evidence of good internal
management
 performance indicators
 budgeting
 costing and cost control
 ex-post audit of projects
147
6-Keeping the lender informed
Keep lenders informed about any
significant changes in:





trading
the firm’s risk factors
key personnel
nature of the business
any other factors relevant to risk and
return
148
Post-funding experiences
 any experience during this phase?
 what terms did lenders impose?
 were any difficulties met, in
complying with these terms?
 how did the firm deal with them?
149
Acme Electroplaters:
Part 3
150
Conclusion
151
Review of
what we have covered
in this course
152
The CP investment process (1)
 introduction to the course
 CP: a successful strategy towards
sustainable banking
 introduction to project funding and
participants’ experiences
 banker’s perspective and information
needs
153
The CP investment process (2)
 developing a bankable proposal
 other potential sources of finance
 eco-criteria for investment decision
making
 post-funding management and control
 conclusion
154
Final questions and comments?
155
Course evaluation
156
Thank you for attending!
Please keep in touch with us
regarding your Cleaner
Production efforts
157