special issue on cleaner production financing
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Journal of Cleaner Production 11 (2003) 611613www.cleanerproduction.net
Special issue on cleaner production financing
Prevention is a better business that allowing inef-ficiencies to create losses. The cleaner production (CP)community knows and believes in this. Most of thesources of investment financing remain unaware, orunconvinced. While CP has made tremendous headwayin the engineering community in the last ten years,financing is still often seen as one of the main constraintsfor wider prevention practice.
There has, however, been a recent sharp increase inactivity and progress in this field. Research initiativeshave multiplied in issues related to sustainable finance,donor agencies have launched demonstration projects,and special financial mechanisms have emerged for CPinvestments in a number of countries in the last two tothree years.
Financial markets are also becoming more sensitive toissues related to sustainability, particularly environment.How companies address sustainability issues, influenceboth risks and returns. There is recent evidence that alsoinstitutional investors increasingly place financial sup-port on issues surrounding sustainability.
The 7th European Roundtable on Cleaner Production,held in Lund 2-4 May 2001, dedicated a one-day work-shop to financing issues. The workshop consisted of apanel with bankers followed by a series of sessionswhich discussed issues ranging from past experience totraining initiatives, funding schemes, accounting prac-tices and ethical investments. This special issue of theJournal of Cleaner Production presents updated versionsof some of the key papers submitted to that workshop. Theintegration of preventive approaches and efficient resourcemanagement is a very broad agenda and the issues coveredby these papers are by no means exhaustive. Several otherelements will be raised in the conclusions.
The first article by Ari Huhtala from UNEP/DTIEPromoting financing of cleaner production invest-ments UNEP experience reflects on the lessonslearned in implementing a four-year project in fivedeveloping countries in Africa, Asia and Central Amer-ica, and conclusions and recommendations reached onfinancing issues at the 6th International High-Level Sem-
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inar on Cleaner Production, held in Montreal, 16-17October 2000. It then identifies the key challenges forthe near future as seen in 2001, thereby setting the stagefor further dialogue.
This document is complemented by an article by Drs.Staniskis and Stasiskiene from Apini, Lithuania, onexperience with CP financing demonstration projects inLithuania, Vietnam and Zimbabwe. The article high-lights the importance of building national capacity todeliver training, targeted credit schemes, and a mix ofpolitical and industry based responses. In concludes thatthe environmental performance measured through theadoption of CP measures can be regarded as an indicatorof business health by the financial community.
Developing countries have specific constraints andneeds with regard to financing CP investments. Experi-ence gained in Guatemala and Zimbabwe are analysedin an article by Elena Ciccozzi from UNEP/DTIE sup-ported by UNEP National Project Coordinators Ana Vic-toria Rodriguez and Rosie Chekenya. The article pro-vides examples of the economic climate, political andlegal environment, status of financial systems, availableskills at enterprises, as well as attitudes, beliefs andvalues of waste. The importance of awareness raising infinancial institutions is particularly emphasised.
Various approaches to CP funding are being tried out.A number of revolving funds have been established andthe environment funds of several countries have beenpartly tailored to meet the increasing demand for CPinvestments. A series of briefs from four multilateralfinance institutions on their approach to and experiencein promoting CP is provided. This gives a snapshot ofselected banks practices, but can in no way cover theentire spectrum of initiatives already in place. The exten-sive article from the Asian Development Bank summar-ises interesting lessons learned and conclusions, manyof which apply to other regions as well. The ADB is amajor promoter of CP in the region, and their extensiveexperience has shown that while national-level policyreform and CP integration remain vitally important, it islocal government that is the real paying customer forCP and that has the greatest capacity to promote it. ADBwill use its capacities to help create positive incentivesthat reward CP behaviour. The greatest challenge will beinfluencing new investment, particularly among SMEs.
The paper from the European Bank for Reconstruction
612 Introduction / Journal of Cleaner Production 11 (2003) 611613
and Development (EBRD) describes study and pilottechnical assistance project in Poland and mixed resultswith financial intermediaries. The short report from thefield by the German development bank Kreditanstalt furWiederaufbau (KfW) provides examples of how supportfor CP is included in their SME support programmes.KfW observes that many improvements in companies donot need investment but rather an improved managementapproach (which CP can represent). The last article by adevelopment bank, the Nordic Environment Finance Cor-poration (NEFCO) provides a financiers perspective tothe revolving fund described in the case study on Lithu-ania above. NEFCO has been running a facility forfinancing CP investments in the Baltic States and North-East Russia which owes at least part of its success torelated training activities and partnerships with well func-tioning advisory services which assist enterprises in pre-paring investment project proposals and loan applications.
The perspective of the private banking sector is pro-vided in the short report from the field by Paul Clements-Hunt, Coordinator of the UNEP Finance Initiatives. Thearticle lists a number of considerations of particular rel-evance to commercial financial institutions and identifiestwo fundamental steps that the CP community mightachieve to secure more favourable financing opport-unities: firstly, more effectively build CP language intobusiness mainstream, and secondly, engage in a moretargeted process of international lobbying to promote CPas essential business practice which forms the foun-dation stone for a responsible companys sustainabilitygovernance approach.
Energy efficiency is highlighted as a particularly rel-evant element in promoting CP in the commercial fin-ancial sector. Energy Service Companies (ESCOs) canalso play a role in promoting CP investment financing.The article by RIS in Denmark identifies barriers, andoutlines some possible solutions. A successful ESCO inthe Republic of Korea provides an example of how it isnot sufficient to overcome the financing barrier, but alsoto lift the institutional barrier for energy efficiencyinvestment. In this regard, the role of government as amarket creator as well as a rule setter is emphasised.
How can company leader respond? The increasinginternalisation of environmental risk into corporateaccounting will allow proactive companies to benefitfrom economic, ecological and social changes. At thesame time, it will reduce the risk of unpleasant surprisesfor their shareholders by managing environmental andsocial challenges in a transparent way. The article by Dr.Christine Jasch from IO W, Austria, describes the corefocus of EMA as assessment of total environmentalexpenditure on emission treatment, disposal, environ-mental protection and management. In addition, thematerial purchase value of all non-product output and itsproduction can be added. This total sum often providesa frightening picture of total annual costs of inefficiency
and gets companies to improve their information systemsand material efficiency options, which is the goal of CP.
One of the main ways to bridge the gap betweendemand for CP investment funds by companies and sup-ply by financing institutions is capacity building. In anarticle on human resource development initiatives AriHuhtala from UNEP/DTIE, Dr. Jan Jaap Bouma fromErasmus University, Dr. Deborah Savage from TellusInstitute and Martin Bennett from Gloucester BusinessSchool, University of Gloucester describe tools andinstruments which have been designed for this purpose.The article also discusses four different strategic man-agement approaches which banks can take towards sus-tainability. This includes examples of defensive, pre-ventative, offensive and finally sustainable banking.
The last article of this special issue is authored byAnastasia ORourke. She addresses socially responsibleinvestment focussing on ethical products with potentialto influence many stakeholders. Is the message and tech-niques of ethical investment capable of effectivelyinfluencing corporations towards more sustainable pat-terns of production and consumption, and is it consistentwith the principles of CP? The paper gives an overviewof some of the definitions of ethical investment and thescale of activities under this umbrella term, then exam-ines screening methods and their application, and finallyproposes a reflexive model of corporate and finance sec-tor learning based on the screen.
An analysis of these articles provides the followinghighlights and issues which can guide the various stake-holders in the years to come:
New language, tools and instruments need to be intro-duced to mainstream the preventive strategies into theinvestment decision making process.
CP must be recognised and promoted as behaviour,not a technical solution. CP requires thinking about thelife cycle of consumptio