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

2. 2 Introduction

3. 3 Course Background [15 min]

4. 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. 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. 6 Words of Welcome [15 min] Introduction of Instructors

7. 7 Participant Introductions [30 min]

8. 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. 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. 10 Course Overview [15 min]

11. 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. 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. 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. 14 Environmental management hierarchy Disposal Control/Treatment CLEANER PRODUCTION  Pollution Prevention  On-site recycling/reuse BEST LEAST Desirable Off-site recycling/reuse

15. 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. 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. 17 CP4: Course aims (2) Banker’s perspective:  Raise awareness on Cleaner Production investment proposals  Raise awareness on sustainable banking trends

18. 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. 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. 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. 21 Conclusion  Where to go for more information  Brief review of what we learned  Final questions and comments; Any other issues?  Course evaluation

22. 22 Time for a break! [20 min]

23. 23 CP: a successful strategy towards sustainable banking

24. 24 Economy is a sub-system of ecology

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

26. 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. 27 A two-way bridge between two worlds Financial worldEnvironmental world CP Common language Eco- risks Eco- dividends businesses

28. 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. 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. 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. 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. 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. 33 Sustainable banking - (2) Some banks are moving from a traditional defensive position: - non-active - deny banks’ responsibilities for environmental impacts - resist environmental legislation towards …..

34. 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. 35 IMPACT ON FI CP opportunities for client Business’ derived environmental liabilities and risks  Capital costs  Operating costs  Market share Reduced assets value Potential legal liability Damaged reputation efficiency costs New market opportunities Better reputation Legal Liability Financial REPUTATION Repayment  Asset value  New business  Fines  Clean up   Opportunities for the clients and FI Inherent preventive approach   Long term pollution liabilities   

36. 36 Introduction to Project Funding

37. 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. 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. 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. 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. 41 Capital from the government sector  Grants  Subsidies  Government-managed development funds

42. 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. 43 Participants’ Experiences of Financing Projects

44. 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. 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. 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. 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. 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. 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. 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

51. 51 Time for lunch! [60 min]

52. 52 The Bank’s Perspective

53. 53 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.

54. 54 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

55. 55 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 used

56. 56 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

57. 57 Loan application and approval procedure (2) 5. Review of application by bank 6. Negotiate specific terms of loan 7. Bank sends commitment letter 8. 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

58. 58 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)

59. 59 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

60. 60 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 Banks’ information needs

61. 61 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

62. 62 Purpose of the loan: to demonstrate: cost reductions and increase in revenue? sales and production levels increase? reduced risks? Reduce energy use Reduce material input costs Reduce penalty fees Increase in sales and production and establish increase in demand Improve product quality Environmental compliance and regulation costs How will the CP Investment produce the perceived...

63. 63 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.

64. 64 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)

65. 65 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.?

66. 66 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 Banks’ information needs

67. 67 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)

68. 68 The bank’s information needs To demonstrate a company’s credit- worthiness, 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

69. 69 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

70. 70 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

71. 71 Information: what makes it useful  relevance  reliability  consistency  completeness  comparability  timeliness  understandability  materiality  feasibility and cost-effectiveness

72. 72 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 provided by the businessman.

73. 73 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. Ratio analysis

74. 74 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.

75. 75 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?

76. 76 Profitability ratios: Examples  Test 1: Gross profit percentage on sales : =  Test 2: Return on capital employed : = Profit before interest & tax Capital employed Gross profit Gross sales

77. 77 Liquidity ratios  definition: ability to meet short- term 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?

78. 78 Liquidity ratios: Examples  Test 1: Current ratio : =  Test 2: Acid test quick ratio : = Current assets Current liabilities Current assets - stock Current liabilities The acceptable ratios depend upon the type of industry in which a company operates.

79. 79 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?

80. 80 Solvency ratios: Examples  Test 1: Debt ratio : =  Test 2: Times interest earned : = Interest charges Earnings before interest & taxes Total debt Total assets

81. 81 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?

82. 82 Activity ratios: Examples  Test 1: Stock turnover ratio : =  Test 2: Debtors turnover ratio : = Sales revenue Stocks (at period end) Debtors (Balance sheet) Average daily sales Average daily sales = Sales as per income statement Days (365)

83. 83 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

84. 84 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. Conclusion

85. 85 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 Banks’ information needs

86. 86 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

87. 87 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)

88. 88 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

89. 89 Conclusions (3)  Firms should set up and maintain adequate information systems: Before They are needed !

90. 90 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?

91. 91 Time for a break! [15 min]

92. 92 Developing a Bankable Proposal: Acme Electroplaters Part 1

93. 93 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

94. 94  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 Group exercise - Acme: Part 1 Criteria for success

95. 95 Checklist: “Funding Application Format Checklist” Refers to the checklist document

96. 96 Review of what we have covered today

97. 97 Final questions or comments?

98. 98 The Cleaner Production Investment Process Day 2 For UNEP, Division of Technology, Industry, and Economics Gloucestershire Business School, University of Gloucester, UK ROSCAM Strategic Development Consultancy, Zimbabwe Prepared by: FINANZAS AMBIENTALES, Lima, Perú ARMSA, Guatemala

99. 99 Any questions?  Arising from day 1 ?  Looking ahead to day 2 ?

100. 100 Developing a bankable proposal: Group presentations

101. 101 Time for a break! [15 min]

102. 102 Developing a bankable proposal: the banker’s response

103. 103 Time for lunch! [60 min]

104. 104 Other Potential Sources for Project Financing

105. 105 Checklist: “Funding Options”

106. 106 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

107. 107 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

108. 108  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 Internal funds (2)

109. 109 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

110. 110 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

111. 111 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

112. 112 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

113. 113 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 Micro Credit example

114. 114  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 Grameen Bank (2) Micro Credit example

115. 115 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 Micro Credit example

116. 116 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 Micro Credit example

117. 117 Development banks (1)  examples: – World Bank – International Finance Corporation – Inter-American Development Bank – Asian Development Bank  wide and diverse range of programmes and projects

118. 118 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)

119. 119 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

120. 120 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

121. 121 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

122. 122 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?

123. 123 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

124. 124 Acme Electroplaters: Part 2

125. 125 Time for a break! [15 min]

126. 126 Eco-criteria for investment decision-making

127. 127 Criteria (+): activities to encourage Bio-pesticidesBio-control Bio-fertilisersRenewable energies Efficient energyClean fuel AquacultureOrganic agriculture Health & safety Environmental management Pollution control Pollution prevention Recycling Waste management ReforestationEco-tourism Eco-data accessCorporate eco-donations Eco-educationNomad forest products

128. 128 Sectors of major concern:  Energy and Mines  Petroleum and Chemicals  Agribusiness  Transportation  Recycling  Eco-Tourism Where CP can highly contribute to reduce risk and increase efficiency and profitability

129. 129 Energy  Risks –Atmospheric emissions –Water contamination –Acoustic pollution –Safety  Opportunities –Alternative energies –Cost reduction

130. 130 Mining  Risks –Environmental: air and water pollution –Occupational: health and safety  Opportunities –Genuine wealth creation –Production of quality durable goods

131. 131 Agribusiness  Risks –Solid waste –Water and ground contamination –Public health  Opportunities –Organic Brands and distribution channels –Exportation opportunities through international standards

132. 132 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

133. 133 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 2001

134. 134 Sustainable banking: trends  Avoid eco-risks, identify eco-business opportunities;  Internalise environmental costs & debts in company’s decision-making;  Total environmental accounting;  Capital markets increasingly value “green” capital;  Use of eco-criteria in decision-making;  New financial eco-products (eco-funds, eco-mortgage, renewable energy credits);  CP: prevention is better than end-of-pipe solutions  Efficient use of resources (water, energy);  Fewer, bigger banks.

135. 135 Dow Jones Sustainability World Index Dow Jones Global Index (USD, Price Index) 330.00 280.00 230.00 180.00 130.00 80.00 12/936/9412/946/9512/956/9612/966/9712/976/9812/986/9912/996/0012/006/01

136. 136 Financial eco-innovations Personal bankingCorporate banking Eco-mortgageEco-shares Eco-autosEco-financial derivatives Home-office: 2x1ESCO, Energy Service Co Eco-savingsBuild, Operate, Transfer Eco-leasingEco-loans Swap for debtEco-credit cards Eco-investment funds

137. 137 Post-funding management and control

138. 138 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

139. 139 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

140. 140 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

141. 141 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

142. 142 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

143. 143 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

144. 144 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

145. 145 Analyzing FRs: comparators  over time –‘vertical’, or ‘trend’, analysis  against other (comparable) firms –‘horizontal analysis’, or ‘benchmarking‘  against other standards

146. 146 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 the firm

147. 147 5-Evidence of good internal management  performance indicators  budgeting  costing and cost control  ex-post audit of projects

148. 148 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

149. 149 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?

150. 150 Acme Electroplaters: Part 3

151. 151 Conclusion

152. 152 Review of what we have covered in this course

153. 153 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

154. 154 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

155. 155 Final questions and comments?

156. 156 Course evaluation

157. 157 Thank you for attending! Please keep in touch with us regarding your Cleaner Production efforts