Manual on the Development of Cleaner Production Policies ... - Unido

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DEVELOPMENT OF CP POLICY MODULE 5: POLICY TOOLS AND INSTRUMENTS Experience shows that the best intermediaries to stimulate an increased understanding of the benefits of Cleaner Production are financial institutions in donor countries. Even limited improvements in access to financing can lead to significant results in the introduction of Cleaner Production, provided the implemented activities yield encouraging environmental and financial improvements, serving as a model and reference for future projects. SLIDE: Some policy responses to encourage lending for CP • New emphasis on promoting CP; • Demonstration programmes for the finance sector and industry to show profitability of CP; • Capacity-building programmes and assistance in preparing financing proposals; • Need for innovative financing mechanisms. Referring to the barriers discussed in the previous slide, note that some new policy responses have been used to help both the finance sector, CP Centres and borrowers. Show that the issue of access to financing has been gradually gaining importance among CP practitioners and policy makers in recent years. Background According to estimates of UNEP and the Asian Development Bank, between 30 and 70 per cent of current industrial pollution results from: wastage and inefficiencies from the use of obsolete technologies; a lack of knowledge of CP potential; a low level of environmental awareness; and poor enterprise management. Still, the demand for CP from industry has been rather limited, especially in those countries with lax and poorly enforced environmental regulations, subsidized resources and low environmental awareness. In order to stimulate interest in CP, there has been a change of emphasis in promoting the concept towards businesses and the financial sector. This is well illustrated by the following definition of CP, presented by UNEP during a workshop for Financial Services Initiative in Manila in 2001: “Cleaner Production is a preventive approach applied throughout the life-cycle of a process to reduce the unproductive costs associated with remedial action.” Investments in CP can be economically attractive thanks to the reduction of costs for input materials, energy and water, expenditures on waste treatment and disposal, as well as increased production and better output quality. Their payback period may, however, be longer than is customary in a typical new investment. On the other hand, some experts observe that, except for the low-cost housekeeping and management improvements of Cleaner Production, there is little to separate Cleaner Production investment from ordinary technology replacement. It can be argued, therefore, that Cleaner Production investments should be included into the mainstream business rather than handled through a dedicated credit line. Regardless of the above dilemma, the issue of financing has been gaining prominence in recent years. During the CP6 meeting in Montreal in October 2000, a special session was held on CP financing. The meeting panel recommended that: • Accounting practices of enterprises should be improved to reflect actual costs; PAGE 130
DEVELOPMENT OF CP POLICY MODULE 5: POLICY TOOLS AND INSTRUMENTS • It is necessary to strengthen capacity of financial institutions, business schools, academia and media to understand the benefits of preventive strategies; • Innovative financing mechanisms (e.g. revolving funds, dedicated credit facilities) should be created to promote implementation of bankable CP projects. Moreover, a recent UNEP study on past investment practices recommended that: • Governments could signal change towards mainstreaming CP into national strategies, and use instruments that promote CP in retrofitting and new investments; • Industry could act to create ongoing demand for CP measures that will encourage continued progress; • Educational institutions should integrate preventive approaches into formal education programmes; • Organizations providing finance and financial services could view CP as an investment opportunity and seek financial innovation. Investors and financial institutions could increase capacity for bankable project preparation, mainstream CP into a bank’s portfolio and create and promote credit schemes designed especially for CP. Efforts to develop innovative financing mechanisms are on the increase. One strong incentive for CP implementation would be a requirement that any financial assistance offered by a bank for industrial investments should require a prior CP assessment. This would help improve the quality of project preparation, reduce investment costs and stimulate demand for better environmental management in enterprises. A less radical approach would be to modify existing environmental funding mechanisms by adding a mandatory CP component (e.g. not providing support for end-of-pipe investments without a prior CP assessment). For example, the Czech National Environmental Fund considered a specific financing mechanism for CP projects. SLIDE: Examples of pilot CP-financing programmes • UNEP’s CP Financing Initiative; • Nordic Environment Finance corporation (NEFCO) Revolving Fund; • Mexico’s FUNTEC for SMEs; • Technical assistance programmes. With this slide, highlight some successful programmes on financing CP. Depending on the audience and the objectives of the session, you may wish to provide more details on how the mechanisms work, and what kind of projects are financed (see the relevant web pages for further details). Background Several initiatives have been launched in the last few years to demonstrate the benefits of CP. In 1999, UNEP’s Division of Technology, Industry and Economics launched the project “Strategies and mechanisms for promoting Cleaner Production investments in developing countries”, financed by the Government of Norway. The project aims to demonstrate how helping financial institutions PAGE 131
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Manual on the Development of Cleaner Production Policies ... - Unido

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