http://www.epa.gov/p2/docs/edbank.txt
741K93004
Pollution Prevention and Profitability
A Primer for Lenders
Northeast Waste Management Officials' Association
What's Inside
Page Title
No.
2-3 How does pollution prevention differ from pollution control?
4 How do companies benefit from investing in these changes?
Case Studies:
5 Hubbardton Forge
6 National Chromium Co., Inc.
7 Other Success Stories
8 What are the primary obstacles to implementing a pollution prevention prog
9 As a lender, what can I do to encourage pollution prevention?
10 Where can I get more information?
11 Acknowledgments
The views expressed in Pollution Prevention & Profitability: A Primer for Lenders do
necessarily reflect those of NEWMOA, NEWMOA's member states, or the U.S. Environment
Protection Agency. Mention of any company or product name should not be considered a
endorsement by NEWMOA, NEWMOA's member states, or the U.S. EPA.
Contrary to popular thinking, protecting the environment and improving business prof
are compatible objectives. In fact, taking a proactive approach to environmental ma
based on preventing rather than controlling pollution — enables companies to lower
liability risks, and improve operating efficiency.
For lenders, the threat of exposure to a customer's environmental liabilities is a d
business. After numerous cases of unforeseen involvement, banks have placed some ind
and types of projects "off-limits," and carefully scrutinize borrowers for complianc
environmental regulations. But this focus on current risk and compliance may fail to
account what potentially valuable customers are doing to limit future risks and prob
In the following pages, you will learn how pollution prevention can enhance traditio
evaluation criteria. Specifically, this booklet explains how a company's investment
prevention
—Provides an indicator of management competence
--Generates both direct and indirect cost savings
--Enhances profitability and competitiveness as well as environmental quality.
How does pollution prevention differ from pollution control?
Throughout the 1970s and 1980s, pollution control was the primary means for achievin
environmental protection. Control strategies include the treatment and/or disposal o
byproducts or waste and discharge to the air, water, or land. This approach, however
drawbacks including:
--High costs for treatment equipment, waste disposal, and regulatory compliance, an
—Increased liability risk for any company that uses, transports, or disposes of haz
materials and wastes.
In fact, for many U.S. firms (especially smaller companies), the costs and risks of
control approach have led to impaired competitiveness and reduced creditworthiness—
therefore limited access to financing.
Today, a shift to strategies and practices designed to prevent, instead of control,
imperative in the face of
--the soaring costs of regulatory compliance
--the principle that the "polluter pays," and
--the growing number of environmental tort lawsuits.
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In contrast to control strategies, pollution prevention (also known as waste minimiz
source reduction) limits the generation of waste during the process of producing goo
services. As such, pollution prevention is similar to Total Quality Management (TQM
TQM emphasizes "building in" quality during production rather than repairing defects
of the line, pollution prevention strategies adjust the process to reduce the genera
rather than treat waste as it leaves the plant.
Both TQM and pollution prevention improve efficiency and quality by eliminating acti
inputs that cost money and add no intrinsic value. Pollution prevention practices ca
changes in the design, inputs, production, and delivery of a product. In particular,
—Raw material substitution: switching to less hazardous materials
--Process modification: changing the production process to improve efficiency and re
use of toxic substances
--Equipment upgrade: installing more efficient equipment to reduce raw material cons
and produce less waste
--Product redesign: reducing certain raw materials in products or packaging, or impr
manufacturability.
How do companies benefit from investing in these changes?
Pollution prevention strategies can generate immediate, highly visible savings as we
longer-term, less tangible benefits. According to a survey by the New Jersey Departm
Environmental Protection, facilities that had prepared pollution plans projected sav
for every $1.00 invested.
Among the direct gains from investing in pollution prevention projects are cost savi
--raw materials
--production labor
--compliance costs, and
--waste disposal and transportation.
In addition, pollution prevention investments can provide indirect cost savings by r
--special handling and storage requirements
--hazardous materials training
—paperwork involved in monitoring, record keeping, permitting, and disposing of to
materials, and
--insurance expenses related to storage of flammable or hazardous materials.
What's more, pollution prevention programs offer some longer-term, less tangible ben
are difficult to quantify, such as
--reduced long-term liability risk associated with cradle-to-grave responsibility f
use and disposal
—improved public image as an environmentally responsible business
—new potential to take advantage of "green market" trends
—improved employee health and safety
—enhanced relationships with local communities, and
—reduced regulatory headaches.
The following company profiles illustrate how actual businesses have managed to achi
of these benefits.
Hubbardton Forge: Immediate Environmental and Efficiency Returns
Hubbardton Forge is a manufacturer of wrought-iron lighting and fireplace accessorie
Castleton, Vermont. For years, Hubbardton painted its products with a conventional
solvent-based lacquer spray. Problems with the quality of the finish, the difficulty
applying the spray, and chronic environmental and safety issues arising from the use
flammable, toxic substance) then led the company to consider alternative approaches.
Hubbardton invested in an electrostatic powder coating system, a relatively new tech
uses static attraction to draw powder (paint) onto an unfinished iron surface—provi
efficiency, better quality, and lower environmental impact.
Hubbardton funded half the $80,000 project cost internally and borrowed the balance
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Vermont Bank, where the company had been a customer for five years. Although the com
financial condition and business prospects were sufficient to justify the loan, the
benefits of the powder coating project and the company's environmental management ph
provided the bank with an added margin of comfort.
The loan officer understood the immediate gains as well as the longer-term, more int
benefits of the company's proactive approach to environmental management. Most impor
recognized that, given the bank's exposure to Hubbardton's liability risks, it neede
attention to the company's environmental management strategy. The lender believed th
attention to a firm's approach to environmental responsibilities is "important becau
your feeling about management and their capacity for taking a long-term perspective
business."
After almost two years of operation, the new system has generated environmental qual
efficiency gains including:
—Elimination of toxic emissions
--98 percent reduction in use of toxic material
—Lower labor and materials costs for coating
—Faster production speeds
—Improved product quality
Based on operating data, Hubbardton estimates that the project has a payback period
and an internal rate of return (IRR) of 24 percent.
National Chromium Co., Inc.: Renewed Profitability Through Pollution Prevention
National Chromium Co., Inc., located in Putnam, Connecticut, is another example of a
that improved its performance while meeting its environmental responsibilities. This
chrome-plating company serves customers with a variety of surface-finishing needs, r
from single, multi-ton steel shafts to thousands of one-ounce parts for household ap
chromium used in the plating operations is highly toxic and strictly regulated.
In 1988, National faced an uncertain future: its antiquated facility had severe grou
contamination and substantial chromium air emissions, and its wastewater treatment s
not satisfy state regulators. Without major investment in new process equipment and
control technologies, the business would not survive. To make matters worse, the con
the site and the status of legal actions filed by the state obstructed access to ext
With no viable options, other than closing down the plant, the owner of National Chr
able to forge a consent decree with the Connecticut Department of Environmental Prot
based on a credible plan to achieve compliance. In exchange for greater flexibility
the site, the owner agreed to a significant investment in new plant and equipment. B
National Chromium was nearing completion of its new 10,000 square-foot facility inco
structural design features, upgraded production equipment, and refined process techn
minimize raw materials usage and maximize internal recycling. These changes produce
significant dollar savings in:
--plant heating costs
—water usage
--raw materials
The new operations eliminated the source of site contamination, reduced chromium air
99.5 percent, and significantly improved the effectiveness of wastewater treatment.
National Chromium's strategy of proactive environmental management played a key role
establishing the conditions (the consent decree) under which Citizens National Bank
willing to loan the company $600,000. It also influenced the bank's assessment of an
in management's ability and competence. Despite the potential risks of making a loan
collateralized by property that was severely contaminated, CNB was nevertheless assu
National Chromium's commitment to cleaner production under the terms of the agreemen
the state.
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Other Success Stories
Along with Hubbardton Forge and National Chromium, many other firms and organization
achieved business success with highly visible pollution prevention initiatives. Amon
3M Company
Since its inception in 1975, 3M's employee-based Pollution Prevention Pays (3P) prog
prevented more than 650,000 tons of pollution worldwide and saved more than $750 mil
example, 3M's electronic products plant in Columbia, Missouri makes flexible electro
from copper sheeting. In the past, 3M used various hazardous acids and other chemica
the sheets before they could be used in the production process. They replaced these
with a specially designed machine with rotating brushes that scrubbed the copper wit
the first year of operation, this new process saved $15,000 in raw materials and dis
and continues to eliminate 40,000 pounds of hazardous waste each year that would oth
generated.
Polaroid
Polaroid's Toxic Use and Waste Reduction (TUWR) program was launched in 1988 largely
response to negative publicity. TUWR is now credited with a significant drop in toxi
use as well as gains in operational efficiency and improvements in manufacturing pro
product design. For example, Polaroid's film assembly plant in Waltham, Massachuset
and implemented a new method for removing grease from metal parts. This new procedur
dramatically reduced the plant's use of a common industrial solvent, trichloroethane
switching to an aqueous solvent-based washing, the plant has reduced the facility's
TCE by more than 85 percent and saved thousands of dollars in solvent purchase and d
costs.
Hyde Tool
Hyde Tool, a family-owned business that manufactures hand tools, managed to restore
competitive position by relentlessly focusing on pollution prevention supported by n
accounting practices. The company has cut its annual discharge of process wastewater
million gallons to 1 million—on the way to zero. Hyde Tool has also reduced its pot
liability by diverting 1,000 tons of the solid waste generated from its tool-grindin
from a landfill to use as an ingredient in the production of blacktop.
What are the primary obstacles to implementing pollution prevention programs?
The adoption of pollution prevention has been hampered by the persistence of the pol
control mindset embodied in existing regulatory and corporate policies and practices
surveys and anecdotal evidence indicate that access to financing has been a barrier.
cases, this is an internal company issue. Unlike mandated pollution control, discret
pollution prevention projects must compete on overall financial grounds with other d
capital.
External financing can also be a constraint, especially for smaller firms. The diffi
stem from lack of creditworthiness, liability exposure, or insufficient knowledge ab
requirements and procedures. In addition, project-specific issues can create obstacl
example, equipment specialized for a single site may have limited value as collatera
In some cases, an improved understanding of pollution prevention can have important
implications for a financing decision. In particular, banks should keep the followin
mind when evaluating applications:
--Management competence: Viewing pollution prevention as an integral part of Total
Management, rather than an environmental control strategy, can help distinguish forw
thinking managers from reactive ones.
—Cash flow: Many of the costs of environmental compliance are lumped into overhead
and are generally "hidden" from project analysis. Recognizing how a pollution preve
project can reduce these costs can support cash flow projections that might otherwis
optimistic.
--Long-term competitiveness: By taking a prevention-based approach, a company is se
on the path toward improved competitiveness through reduced risk, improved efficien
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focus on value-adding activities.
As a lender, what can I do to encourage pollution prevention?
As the case studies presented here demonstrate, environmental protection and financi
are compatible objectives. Proactive environmental management can enhance efficiency
competitive advantage. Understanding the basic principles and benefits of a prevent!
can help you identify and support those companies that will likely succeed in today'
competitive economy.
To augment the information provided in this booklet, you may want to examine the rol
pollution prevention in industries and companies with which your institution has len
relationships. Of particular interest might be the specific savings in overhead cost
prevention initiatives have generated. As a starting point, the next page provides a
organizations and publications to consult for additional information.
And you can help potential loan customers make smart investments in pollution preven
asking the right questions:
--Does the firm appear knowledgeable about environmental compliance requirements?
—Does the customer have a proactive approach to managing environmental risks and
responsibilities?
—Has the customer fully evaluated pollution prevention opportunities? (Many states
technical assistance programs that offer free help.)
--Does a proposed project reduce environmental liabilities and risks?
—Does the customer understand all the potential savings a pollution prevention proj
generate—particularly in those environmental costs that are included in overhead?
Where can I get more information?
The two pollution prevention examples presented in this primer summarize longer case
that you can order from NEWMOA by calling the phone number listed below. The follow
organizations will provide additional information about pollution prevention and ide
resources to consult in your region or for a specific industry.
Pollution Prevention Information Clearinghouse (PPIC)
U.S. Environmental Protection Agency
401 M Street SW
Washington, DC 20460
(202) 260-1023
Enviro$en$e, EPA's full-spectrum environmental information system. Via World-Wide We
http://es.inel.gov. Via BBS, with modem and communications software: (703) 908-2092
National Roundtable of Pollution Prevention Programs
2000 P Street NW Suite 708
Washington, DC 20036
(202) 466-7272
(The National Roundtable can put companies in touch with state and local agencies th
free technical assistance on pollution prevention.)
Northeast Waste Management Officials' Association (NEWMOA)
129 Portland Street
Boston, MA 02114
(617) 367-8558
The following list presents a sample of the publications available on the subject of
prevention and financial analysis of pollution prevention projects. The organization
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can also provide additional references.
A Primer for Financial Analysis of Pollution Prevention, American Institute of Pollu
Prevention, 1993, available through PPIC.
An Introduction to Environmental Accounting as a Business Management Tool: Key Conce
and Terms, U.S. EPA, 1995, available through PPIC.
Improving Your Competitive Position: Strategic and Financial Assessment of Pollution
Prevention Projects, Training Manual, NEWMOA, 1994, available through NEWMOA.
Green Ledgers: Case Studies in Corporate Environmental Accounting, World Resources
Institute, 1995.
Beyond Compliance: A New Industry View of the Environment, B. Smart, World Resources
Institute, 1992.
Acknowledgments
NEWMOA is indebted to the U.S. Environmental Protection Agency for its support for t
project. The Northeast states provided additional in-kind support.
For their advice and assistance in preparing this booklet, NEWMOA would like to than
members of the Project Advisory Committee: Andy Andrews, Citizens National Bank (CT)
Mark Arienti, Maine Metal Products Association; Liz Armstrong, Fleet Bank (ME); Ron
Blanchette, HADCO; David Boyer,Vermont Small Business Development Center; Bob Brown,
ConnTap; Jim DeWitt, GZA; Richard Girasole, Rhode Island Department of Environmental
Management; Deborah Hall, Business for Social Responsibility; Emily Hess, WasteCAP;
Heart, 1st Vermont Bank; Peter Hollingsworth, Massachusetts Small Business Developme
Center; James Kammert, Barnett Bank; Mitchell Kennedy, The Pollution Prevention
Cooperative; Jared Keyes, Brown Brothers, Harriman; Sally Mansur, U.S. EPA-New Engla
Loch McCabe, Environmental Capital Network; Andrew Miniuks, EPA-New England; Mike
Murphy, Fleet Bank; Stuart Myers, Mercantile Bank; Brian O'Connor, Fleet Bank; Rick
Reibstein, Massachusetts Office of Technical Assistance; Donald Rielly, Massachusett
Business Development Center; Deborah Savage, Tellus Institute; Helen Scalia, Coastal
Enterprises; Christine Siegrist, Bank of Boston; Dan Stulac, Arthur Anderson; Liz Ta
Maryland Department of Environmental Protection; Dick Torborg, Massachusetts Office
Technical Assistance; and Mike Wilson.
NEWMOA is particularly grateful to the management and staff of the Hubbardton Forge
Company and National Chromium Company, Inc. for their participation.
About NEWMOA
The Northeast Waste Management Officials' Association is a nonprofit interstate gove
association providing a forum for increased communication and cooperation among the
states, a vehicle for the development of unified positions on various issues and pro
source of research and training on hazardous and solid waste management and pollutio
prevention. NEWMOA's members are the program directors of the hazardous and solid wa
and pollution prevention programs for the state environmental agencies of Connecticu
Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont.
Writer: Samuel Perkins
NEWMOA Project Manager: Terri Goldberg
EPA Project Manager: Edward Weiler
Design and Production: FINELINE Communications Group, Inc.
Printed on recycled paper.
For more information on NEWMOA and its Pollution Prevention Program, contact:
Terri Goldberg
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Northeast Waste Management Officials' Association
129 Portland Street, 6th Floor
Boston, MA 02114
Tel: (617) 367-8558
Fax: (617) 367-0449
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