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                                                                                 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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