United Nations
Commission on Sustainable Development

Background Paper

                             A FINANCING PERSPECTIVE


Environmental Sound Technologies (ESTs) offer advantages to business as well
as to the environment. Yet their uptake has been hampered by limited
availability  of finance, and this is particularly the case among small and
medium sized businesses.

This report seeks to find the views of financiers on ESTs, to identify why
they might be reluctant to provide finance to ESTs, and to identify ways in
which the public sector could encourage financiers to supply finance for the
purchase of ESTs by SMEs.

The report starts by summarising the different sources of general finance
available for ESTs and emphasises the very significant differences between
medium, small and micro businesses in their access to finance.

The report looks at both international and domestic sources of finance to
SMEs. Internationally the most relevant source of direct finance for SMEs is
venture capital, mostly for medium sized business. Here a sample of over 60
international venture capitalists (IVCs)were surveyed, representing a
substantial proportion of the international supply of venture capital.

The survey found that while there was some interest in EST among IVCs, there
was a shortage of information on ESTs from a business perspective. A
significant proportion of IVCs  were sceptical about the relevance of ESTs.

In examining deals, many but not all investors looked at the process
technology and eco-efficiency of the business, (whereas nearly all looked at
environmental risk). Lack of information was appeared to be an important

Few investors helped the companies they invest in access information on
environmental sound technology. However, a majority expressed interest in
doing so, if adequate information were made available to them, and this is an
area worthy of further support and action.

There was a high level of interest in receiving possible deals from sources
such as technology centres, suggested another area for future action. However,
investors were generally concerned about the quality of deals they received
(rather than the quantity) and put a high level of emphasis on aspects such a
good business plan and experienced management, and so these matters should be
addressed before prospective deals are passed to IVCs. Government financial
support in this areas would be useful.

In terms of the measures that IVCs thought would improve the attractive of
ESTs to them, investors were most in favour of fiscal measures such as tax
allowances and grants - given the immediate financial benefits to investors,
this is unsurprising. Other measures received mixed responses, with EST Rights
banks receiving least support.

In terms of sources of domestic finance, a country study was made of India,
where a number of initiatives to support the financing of ESTs have been
established. For smaller businesses, domestic finance will always be more
important than international finance (although  international capital may be
directed through intermediaries). A number of lessons can be drawn from these

      -     Achieving substantial impact requires persistence and ideally a
            high level of government support.
      -     A degree of focus in terms of industry and/or region is
      -     Reducing transaction costs to an acceptable level, for instance,
            through standardising procedures, is often important.
      -     Outside financial players, while becoming interested in EST
            related business, need clearer indications of the potential extent
            and profitability in financing ESTs
      -     In some areas, particularly with micro enterprises, while the
            finance may be viable, support activities such as advice may
            continue to need direct assistance.

The report then examines the role of the public sector in helping to improve
access to finance for ESTs by SMEs. These can include both fiscal measures and
financial measures. Fiscal measures such as tax allowances or tax incentives
for green investment can be very effective at "kick-starting" a market, but
they are expensive and their use should be carefully controlled. Improvements
in the tax system to internalise environmental costs and remove subsidies are
very effective in encouraging the use of ESTs, but are subject to political

Financial measures can be more targeted in their application, but can be
expensive and bureaucratic. Grants and direct subsidies are flexible and
powerful, but because of their costs should only be used to kick start
markets, or where other finance is unavailable. Making existing export finance
programmes more applicable to the needs of ESTs is a clear way that
governments could contribute to sustainable development and support their own
industries. Loan guarantees are effective at encouraging lending to SMEs and
could be linked to the acquisition of ESTs. Leasing is a major source of
financing for SMEs, and potentially could be very useful in EST financing,
thus supporting the develop of leasing initiatives in this area appears
sensible. EST rights banks appear to only have limited application, as they
involve the public sector undertaking many activities which are best left to
the private sector. More complex mechanisms such as performance contracting
are worth supporting, but success may prove elusive.

The report finds that while official support has made substantial progress in
supporting areas such as technology demonstration and partner-finding there is
now both potential and need to involve the financiers of SMEs, and in
particular to build linkages between them and EST owners and centres. In doing
this attention must be paid to the needs of financiers, including deal quality
and hard financial information.

Two models are proposed to encourage financiers to provide capital for SMEs to
acquire ESTs. An environmental problem based model works up from selected
environmental problems through the identification of technical solutions to
involvement of financiers in developing financial solutions. The objective is
the development of lines of business which are attractive to financiers.
Public sector support is involved in funding feasibility and start up costs, 
identifying partners, and potentially on-going support through risk-sharing. A
summary of  relevant financing mechanisms is provided in the report.

The alternative approach is a macro-level approach which aims to involve
financiers on a wider scale, through the dissemination of information on ESTs
and the establishment of linkages between financiers and technology centres.
As a next step, the provision of concessional finance to provide funds to
package individual deals and projects to the level of quality expected by
financiers offers the potential of achieving a very high level of leverage,
and accelerating the uptake of ESTs.

These models, taken in conjunction with continued developed of a supportive
business framework for SMEs, and adequate incentives to improve environmental
performance, offer the potential to greatly improve the access and use of ESTs
by SMEs.

                                TABLE OF CONTENTS

      Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . .

1.    INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.    EST, BUSINESS SIZE, AND ACCESS TO FINANCE. . . . . . . . . . . . . . .

3.    DESCRIPTION OF INTERNATIONAL SURVEY. . . . . . . . . . . . . . . . . .

4.    RESULTS OF INTERNATIONAL SURVEY. . . . . . . . . . . . . . . . . . . .

5.    DESCRIPTION OF DOMESTIC FINANCING. . . . . . . . . . . . . . . . . . .

6     ASSESSMENT OF DOMESTIC FINANCING . . . . . . . . . . . . . . . . . . .

7.    ANALYSIS AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . .

8.    RECOMMENDATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX 1:       Questionnaire and briefing note

APPENDIX 2: Respondents


Environmentally sound technologies (EST) provide a valuable opportunity for
the developing world to raise standards of living while protecting its natural
resource base.  ESTs make sense for an individual business, as they
simultaneously reduce impact on the environment while saving money over the
long term.  On a macro level,  widespread adoption of EST enables rapidly
industrialising regions to -leapfrog■ to state-of-the-art clean designs,
rather than undergoing the extended phase of heavily polluting industrial
patterns from which Western countries are only now emerging.

As the UN Commission on Sustainable Development (CSD) has recognised, the
opportunity provided by ESTs has yet to be fully exploited, as adoption of
these technologies in developing countries has lagged behind expectations.  A
chief obstacle may be lack of access to finance, particularly for small and
medium-sized enterprises (SMEs).   Unlike larger companies, SMEs are limited
in the scope that they can rely on internal financing and are therefore much
more dependent on private external sources, whether through joint ventures or
third parties.  The inherent limitations on private capital acquisition are
made even more binding due to ignorance about the financial advantages of

A key aim of this study, therefore, is to advance understanding of the
relationship between finance and adoption of ESTs in developing countries.  To
identify current private financial flows for ESTs (which are often
indistinguishable from broader general purpose finance), Delphi undertook two
surveys of private sector financial organisations:  an international survey of
venture capitalists and a survey of domestic finance in India.  Drawing upon
the results from these surveys, this paper analyses to what extent existing
private financial flows are taking account of the potential for
environmentally sound technology, and explores and evaluates mechanisms
through which EST finance can be accelerated for small and medium-sized
businesses in the developing world.  Key issues under analysis include the

(1) What are the principal sources of finance currently available to enable
small and medium-sized enterprises to acquire ESTs?

(2)  What is the current state of awareness of the chief financial players
with respect to investment in environmentally sound technology?  What is the
potential for greater financial sector involvement in encouraging the uptake
of ESTs through, for example, assessment measures, links with other forms of
finance, and the use of public-private partnerships?

(3)  Are there promising policy mechanisms or new institutions available to
bring about increased financial flows for ESTs?


2.1   Definitions

Environmentally sound technologies are difficult to define up front, as they
are more distinguished by the end results rather than particular design
features.  Indeed, some of the best ESTs on the market are not even identified
as such.

For purposes of this analysis, however, ESTs are defined as technologies,
including necessary support and services, which enable functions to be
fulfilled with reduced impacts on the environment yet still make sense in
business terms.  There are two principal types:  those designed to improve the
manufacturing process (including both -end of pipe■ clean-up technology as
well as clean process technology that prevents pollution from being generated
in the first place) and the technologies needed to manufacture environmentally
superior products, such as energy efficient light bulbs and CFC-free

The investment needs for EST fall into three general categories.  At one
extreme are the simple housekeeping and efficiency improvements available
requiring little or no increase in cost.  Almost by definition, there are few
financing issues involved here, although access to information about these
improvements remains important.  At the other extreme are the high-cost
investments which, although they make economic sense when all societal costs
are taken into account, are impossible to justify financially from the
perspective of the individual firm (at current resource prices).  Policy
action (such as a subsidy) is required to make these sorts of investments

In the middle are those measures which involve up-front investment in return
for cost savings down the line, and it is essentially these measures which
form the basis of this analysis.  Examples of the potential financial benefits

      -     reduced cost of raw materials and resources, including power and
      -     reduced waste and disposal costs
      -     improved compliance and reduced regulatory interference
      -     reduced future liabilities
      -     improved quality products and reduced defects
      -     improved working conditions and employee motivation.

ESTs in this category often encounter difficulties in gaining acceptance
within business, in part because current accounting systems may fail to
capture all the real benefits.  For example, waste disposal costs are often
treated as general overhead, rather than related to the production process
that actually produced them. 1/

In terms of EST transfer, there are a number of situations in which finance is
needed.  Most important are the companies buying EST from a domestic or
overseas supplier of EST (e.g. for plant modernisation or expansion). Many
types of industries can  benefit from incorporating ESTs into their
operations, with some of the most notable being the chemical, textiles,
cement, and semiconductor sectors.

Companies that manufacture and/or distribute EST also need capital.  While
these are often joint ventures (with some capital coming from the overseas
partner), the companies may still face difficulties in obtaining additional
equity, particularly if they are small and medium-sized enterprises (as many
are).  As well as their own capital needs, these technology companies are also
potentially helping their customers finance the technology.

Finance of EST transfer is also relevant to companies producing -green■
products for the retail market.  As the products are proprietary, additional
funding needs may arise to cover the intellectual property rights.  Joint
ventures and licensing are important ways such ventures can be developed
without these costs becoming prohibitive. These companies may also need to
consider providing consumer finance for their customers -- an example is rural
electrification through solar power, where finance is an important part of the

The final area where EST may be of relevance is in financing infrastructure
development. However, the sums involved are often large and most financing in
this sector falls outside the scope of this report.

2.2   Technology co-operation and ESTs

Much research has been done on the issues surrounding technology transfer.  It
is now generally accepted that the technology -hardware■ or physical equipment
cannot be looked at in isolation.  From the perspective of a business, the
whole package that goes along with the technology, including installation,
training, servicing, and other -software■ items, is relevant.  In many cases,
this software may be as important as the hardware.

This raises two key issues with respect to SMEs and environmentally sound
technology.  First, assisting with the financing should be regarded as an
important part of the software.  This help can range from clearly articulating
the business benefits of the EST (thus making it easier for the purchaser to
raise finance) to providing a complete financing package with the EST -- for
instance, providing the equipment at a favourable rate.

Second, the importance of the software raises problems for financing, because
it is generally easier to finance hard physical assets (e.g. through secured
loans or leasing) than services or intellectual property, and further
innovation may be needed here.

2.3   Finance and Access to ESTs

Various sources of finance are available for small and medium-sized companies,
each with its unique combination of advantages and disadvantages.  Banks, for
example, are typically asset-based lenders, and focus strongly on security and
downside risk, rather than the upside potential.  Thus, for an asset-poor
company in the early stages of development, bank financing on reasonable terms
will often be difficult.  By contrast, a less risk-averse type of investor,
such as a venture capitalist, may be more willing to consider investing,
particularly if the business is offering good opportunities.  Here, the
obstacle may be more the size of the investment, as the amount of analysis
involved often precludes small capital needs.
For small and medium-sized companies, key sources of finance (and their
relevant attributes) include the following:


Overdraft:  Overdrafts provide a flexible, but limited and short-term, source
of finance.  The drawback of this form of finance is the high cost for the
funds drawn, making it an impractical source for regular expenditures or long-
term planning.  Guarantees may also be needed.

Secured Loans:   Compared to overdrafts, secured loans are a less expensive
source of finance.  The drawback is that the business must have hard assets to
use as collateral.  This type of financing can pose problems for service or
technology-dependent businesses that can lack such assets.  Sometimes,
government-guaranteed bank loans are available, which help small businesses
get around the collateral problem (although these sources also frequently
carry restrictions against the use of soft assets, such as intellectual
capital, as security).

Personal Loans:  Personal loans are one of the most generally available
sources of finance, but usually require the individual to have sufficient
assets to serve as collateral.  A major drawback of relying on personal loans
is that the owner is prevented from sharing the risk inherent in his business

Leasing:  Leasing finance is a short-term loan secured on a particular piece
of hardware, often initially arranged by the vendor.  This type of finance is
often tax-driven, as it may allow a company to use accelerated depreciation of
assets.  A related advantage is the ability to efficiently allocate these tax
allowances (i.e. a company that does not yet have the income generation to
take advantage of allowances can still recoup some of the benefit by leasing
to companies that can).

Export finance:  As the name suggests, export finance assists companies with
the risks associated with selling their product in foreign markets.  This type
of finance is often provided by governments as a means by which to improve
overall export earnings to improve a trade balance or increase foreign
exchange reserves.

Securitised debt:  Securitised debt includes bonds, loan stocks, and note
programs, and are tradable on the capital markets.  This is a good source of
low-cost finance, but is generally only available to large companies.


Personal:  Personal equity is the capital put up by the founder and his
family.  This type of capital has the advantage of flexibility and a low
imputed cost (given the limited alternatives to use the funds in other income-
earning pursuits).  If large sums are involved, it may pose a problem for the
family■s liquidity, however, and it also carries a high degree of personal
risk.  This may have the effect of preventing the entrepreneur from taking the
essential long-term perspective towards the business.

High Net Worth Individuals:  These types of investors generally fund projects
of special interest to them.  Often, these investors hope for a relatively
high rate of return before committing funds.  On the other hand, they are
often willing to accept variable conditions and invest for the long term.  The
level of analysis required is less rigorous than for professional investors.

Venture capitalists:  Venture capitalists are investors seeking high-growth,
high-return investments.  Whilst they are often willing to accept a high
degree of risk to earn these expected returns, venture capitalists aim to
reduce these risks whenever possible and conduct rigorous analysis to apprise
them of the risks.  Venture capitalists take a hands-on approach, and add
value to the firms in the process.  Typically, they expect to hold their
assets between three and seven years.

Institutional Investors:  Institutional investors (mutual funds, pension
funds, and so forth) are normally only interested in large, publicly traded
companies with earnings of over $10 million.  Institutional investors are
under pressure to perform well in the near term, which means they often lack
the patience to invest in private companies.  Some investors, however, are
prepared to  allocate a certain portion of funds to this type of company.

Strategic Investors:  Strategic investors are existing large industrial
companies seeking operational synergy in technology, markets, and products. 
They will typically be interested in joint ventures and will usually provide a
technology as part of the deal.  They have a long time horizon.  Typically,
strategic investors expect a rate of return comparable with their other
internal businesses.

Corporate ventures:  Corporate venturers can be thought of as a hybrid between
venture capitalists and strategic corporate investors.  These are quasi-
independent profit centres within a larger company.  Their mission is to
invest in other businesses where there may be some synergy, although the links
are generally not as strong as for a joint venture.

Note that the type of finance required for EST will also depend on
circumstances.  If a company is making a relatively modest outlay, for
instance, to improve one part of a factory, it may be able to finance
internally; if external finance is needed, it will either be incremental (e.g.
drawing down existing facilities) or stand-alone (e.g. leasing).  However, if
a business is undergoing large-scale modernisation or expansion and makes
major purchases of EST, it will need core capital including equity.  In this
case, the extent to which finance is available will depend on the overall
strength of the business, and the advantages of EST will form only a small
factor in the investors■ decision as to whether to invest.

2.4   Business Size and Access to Finance for ESTs

As the Commission on Sustainable Development has identified, gaining financing
for environmentally sound technologies is particularly problematic for small
and medium-sized businesses, compared to large companies which benefit from
well-developed capital markets.

In development literature, small and medium-sized enterprises are often
grouped together for purposes of analysis.  When it comes to access to
technology, however, the issues faced by the medium-sized business are quite
distinct from those of the smallest businesses (often called microenterprises)
made up of either sole traders or those employing a handful of people. It is
more meaningful to consider separately the capital needs of these very
different classes of business.

Medium-sized businesses  can be classified as having approximately $2-100
million 2/ in turnover, and 100-1000 employees.  These firms have capital
needs in the order of millions of dollars, which they obtain from a variety of
sources including venture capital, strategic investors (companies with a long-
term interest in the business area of the investee company), the founders, and
individual investors.  Businesses of this size typically have access to lines
of credit and term finance from banks, usually secured on the company■s
assets.  They may also have access to other finance sources, such as leasing
for new capital equipment, sales finance such as factoring, and trade credits.

To a more limited extent, they may have access to export finance.  However,
these more innovative forms of finance are not always available in developing

The finance side of the business is typically under the control of specialists
with reasonably high levels of expertise, as are the marketing, managerial,
and other business functions.  Medium-sized businesses usually have a
relatively good understanding of international competition and practices, and
are likely to already be exporting their products or investigating how to do

By contrast, small companies  have turnovers of up to a few million dollars
per annum 3/, and have tens of employees.  Their capital needs are likely to
be in the order of hundreds of thousands of dollars.  Staff may not be
specialised by key business function (finance, marketing, etc.), and the firm
may not have all the necessary skills within its staff.  Compared to medium-
sized companies, small firms have greater difficulty securing capital.  Equity
capital typically comes from private individuals, often known by the founders.

Venture capital or investment by strategic corporate investors is only
occasionally available.  Bank finance may be available from a few, local
institutions, and usually in exchange for a personal guarantee.  Small
businesses may have access to some of the more innovative financing described
above, but will often have problems managing cash flow.  The difficulty that
small companies experience in obtaining equity in the amounts they need from
mainstream financial sources (e.g. venture capitalists) has been identified as
the -capital gap■.

At the lowest rung of the ladder are the numerous microenterprises, often
working in the informal economy with a handful of employees.  Without access
to virtually any formal finance, these business are almost completely
dependent on the owner for capital needs.  (Some of the socially oriented
banks, such the Grameen Bank in Bangladesh, have provided small loans to this
market, and in many areas informal finance systems exist.)  Thus, any access
to mainstream finance will typically be asset-based, such as leasing, or
consumer finance (personal loans).  Although the capital needs of this group
are undeniably important, this group has not been the major focus of this

The following table summarises the types of finance available for medium-
sized, small, and micro-enterprises.

Type of Finance                       Medium        Small     Micro-
                                      -sized                  enterprise


 Personal                             *             **        **
 Private Investors                    *             **        (*)
 Venture Capitalists                  **            *         --
 Institutional                        *             --        --
 Strategic Investors                  **            *         --
   Overdraft                          *             **        *(*)
   Secured Term Loans 1/              **            *         --
   Personal Loans 2/                  --            **        **
 Leasing                              *             **        *(*)
 Factoring                            *             *         --
 Export Finance                       *             *         --
 Securitised Debt                     *             --        --

Major sources of finance are indicated with two stars and minor sources with
one star; no stars means that it would be very difficult for a business in
this category to obtain finance from this source.

1/  Loans secured on the assets of the company.
2/  Loans secured by the owner/manager or taken out by them.


The International Survey was designed to elicit a general view of the level of

understanding and interest in environmentally sound technology among providers
of international finance.

The survey focused on venture capitalists as the most important source of
international finance for medium-sized companies, and of increasing relevance
in the developing world.  Venture capitalists are also interesting because
they maintain a high degree of hands-on involvement in the investee company,
resulting in some influence when it comes to technology decisions.  Thus, they
may have a useful role in investing in (or disseminating information on)
environmentally sound technology.

In addition, Delphi surveyed a number of corporate venturers as well as some
financial advisors, investment banks, and development banks involved in
private equity.

The survey was sent to 62 organisations drawn from Delphi■s database.  While
not complete, it represents a significant proportion of international venture
capitalists interested in emerging markets. The geographical distribution is
shown in the table below.

REGION                        NUMBER OF SURVEYS SENT
Southeast Asia                      19
UK/Europe                           12
Eastern Europe                      5
US/North America                    10
Africa                              5
India                               15
TOTAL                               66

Note that the venture capitalists in OECD countries are those investing or
considering investing in emerging markets.  Note also that there may be a
small element of bias in the list, with the list members reflecting a higher
degree of environmental sophistication than venture capitalists at large. 
Indeed, the survey should not be taken or interpreted as an accurate
statistical poll, but instead as a series of illustrative discussions.

The main part of the survey covered five areas:  general knowledge about ESTs;
current investment practices; value added to investee companies with respect
to providing EST information and services; the deal-making climate; and
possible policy mechanisms to encourage ESTs.  In addition, respondents were
asked to provide general information about their operations and whether they
were willing to participate in a follow-up telephone interview.  (See Appendix

The questions were worded carefully to reflect the language used in the
investment community, rather than the policy world.  The survey itself was
accompanied by a two-page briefing note explaining environmentally sound
technologies and their cost-saving advantages, and the potential role of
finance as a limiting factor for adoption of these technologies.


Responses were returned by 28 respondents, and 25 of these submitted completed
questionnaires.  This represents a satisfactory response rate in view of the
peripheral nature of the survey to their core business of the respondents. 
The quality of responses was very good, however, as many of the largest and
most important emerging markets venture capitalists were among the
respondents.  From the supplementary information provided it is clear that the
total assets managed by the respondents is several billion dollars.

Section One:  Overview -- Knowledge of Environmentally Sound Technologies

OVERVIEW QUESTIONS                                   Yes    No      Don■t Know

Q1.1  Are you familiar with the concept of
      environmentally sound technologies?            21     4       N/A

Q1.2  Do you think that the advantages of
      EST are significant from a business/
      investment perspective?                        18     2       5

Q1.3  Do you have adequate access to
      information on ESTs?                           8      15      2

The first part of the survey attempted to elicit the general state of
awareness of environmentally sound technologies.  As indicated above,
awareness of the concept is high, and it is considered a significant issue
from a business and investment perspective.  It is possible, however, that the
high degree of awareness represents some degree of self-selection bias, with
those venture capitalists most familiar with the concept the most likely to

Less than a third felt that they had adequate access to information on these
technologies, however.  This strongly suggests that venture capitalists would
be receptive to receiving additional information on this topic to aid their

Section Two:  Investment Practices

The next section asked investors to describe the level of assessment made of
the operational plans of the businesses in which they invest.

INVESTMENT ANALYSIS QUESTIONS                        Yes    No

Q2.1  Do you conduct due diligence on the
      process technology being used by
      companies you are involved with?               22     3

Q2.2  Does this due diligence specifically
      look at and compare the resource
      efficiency or cleanliness of the
      process technology?                            20     5

Q2.3  Do you assess, at present, whether
      companies you are involved with are
      efficient in their use of raw
      materials, energy and water, in
      comparison with their competitors?             16     9

Q2.4  Do you assess whether companies you
      are involved with may be running
      significant environmental risks?               23     2

While environmental risk is the most important for venture capitalists, there
is also a high level of assessment of clean technology and eco-efficiency.  
But as only five respondents felt their access to information on EST was
adequate, information scarcity appears to be a limiting factor constraining
the level of rigour of these assessments.

Section Three:  Adding Value to Companies

The third part of the survey asked venture capitalists whether they were
currently helping the companies in which they had invested to access
information on environmentally sound technology, and if so, to describe the
sources of information they provided.

ADDING VALUE TO COMPANIES                            Yes    No

Q3.   1 Are you currently helping companies
      you are involved with access information
      on ESTs?                                       8      17

Of the 13 investors surveyed, less than a third indicated that they provided
such assistance.  This is interesting in light of the response to Q2 in which
20 companies reported conducting due diligence on the resource efficiency and
cleanliness of process technology.  Of the companies that provided assistance,
two reported using all the listed categories of information 4/, one used all
but business sources, and one indicated that it used only trade
press/commercial information sources and business sources.

The respondents that answered no to Q3.1 were then asked whether they would be
interested in helping investee companies access information on ESTs if they
themselves had better access to information.

                                                     Yes    No
Q3.1B If you answered no to Q3.1, would you
      be interested in helping companies access
      such information if you had access to it?      9      3

A significant proportion were interested in helping companies access
information, and as a result this suggests an area for further action.

Respondents were then asked to assess the usefulness of four types of
information -- regulatory, technological, managerial, and marketing -- on a
scale of one to five, with one being the most useful.


Q3.2: How useful would the following
      types of information be?             1     2     3     4     5
- Regulatory                               8     6     3     1     1
- Technological                            11    5     1     1     2
- Managerial                               7     5     5     0     2
- Marketing                                2     5     0     4     1

The slight pattern that emerged from this question was that technological
information is thought to be the most useful, and marketing information the
least useful.

Overall, this section indicates that there is scope for venture capital
companies to provide information to investee companies and a reasonable degree
of willingness to do so.

Section Four:  Finding Deals

The next part of the survey focused on the deal-finding process.

Q4.1  How significant are the following      Large      Some     No
      constraints on the development of 
      your business?

- Quantity of deals you receive                2        11       11
- Quality of deals you receive                 12       10       2
- Availability of capital                      5        12       7
- Internal resources
 (e.g. experienced professionals)              8        12       4

The first question in this section sought to determine the constraints on
deals.  The respondents indicated that they are generally satisfied with the
quantity of deals that present themselves.  By contrast, the quality of the
deals they receive is the most significant constraint.

Availability of capital was only a moderate or no constraint in most cases. 
The exception was the more difficult markets of Africa and Eastern Europe --
and this is probably due to macroeconomic factors and the need for further
reform in these markets.  Interestingly, while many SMEs may feel capital is
difficult to obtain, there is no shortage of capital per se.  Rather, venture
capitalists are constrained from allocating capital because of deal quality. 
In other words, the factor which limits SMEs■ access to capital is the way in
which they present their business propositions to venture capitalists. 
Internal resources were a more significant obstacle, particularly with those
venture capitalists operating in emerging markets.

In the following question (Q4.2), the respondents were asked whether they
would like to receive deals from a third party source, such as a technology
transfer centre involved in promoting ESTs.

                                               Yes      No       Don't Know
Q4.2  Would you like to receive deals
      from a third party source, such as
      a technology transfer centre involved
      in promoting ESTs?                       18       3        2

Respondents expressed a very high degree of interest in learning more about
deal opportunities associated with environmentally sound technology.  This
suggests that there is scope for such centres to establish links with the
financial community to help promote deals, keeping in mind the critical
importance of deal quality.

Q4.3  If such an organisation were to
send you deals, how important is it that
they ensure potential deals have the
following attributes?                      1     2     3     4     5     Avg.

- Good business plan/well-packaged
  proposal                                 16    2     4     0     2     1.8
- Good financial prospects/rate-of-return  15    7     1     1     1     1.6
- Strong partners and existing backers     11    9     3     0     1     2.3
- Experienced/professional management      16    6     1     0     1     1.9
- Strong technology rights (e.g. patents)  7     9     6     1     1     2.3
- Good business agreements
 (e.g. licence/JV)                         8     7     7     1     1     2.3
- Good marketing proposition               11    10    1     1     1     2.2

Question 4.3 presented a list of potential attributes inherent in such
hypothetical deals and asked respondents to rate the importance of them.  With
the one exception (who did not believe that any of the listed factors were
important!) the respondents generally thought that all of the attributes were
relatively important, again emphasising the importance of deal quality.  The
most important factors were `experienced management', 'good business plan' and
`good financial prospects'. The least important factors (although still
important) were `strong technology rights', `good business agreements' and
`strong partners'.  It is interesting to note that technology rights, a major
concern to the international community, is less important to investors than
good management and a strong business proposition.

Question 4.4 sought to assess the level of interest in investing in various
types of environmental companies. 

Q4.4  Assess your level of interest in     
the following classes of company:          1     2     3     4     5

a.  General companies requiring capital
    to invest in EST (e.g. for
    modernisation or expansion)            6     6     6     0     4

b.  Companies developing and
    manufacturing EST, including
    joint ventures                         8     6     6     0     2

c.  Companies producing 'clean' retail
    products, including through
    joint ventures                         5     7     7     3     1

d.  Companies/projects requiring
    capital for infrastructure projects    8     5     3     3     3

The responses to this question suggests that there is no strong preference for
a given type of company -- all types generated strong interest from some
venture capitalists.  On average, companies seeking capital to develop and
manufacture ESTs and those requiring capital for infrastructure elicited
slightly more interest than those seeking either to modernise/expand or to
produce clean retail products.  Because of the small sample size, however, the
key conclusion that can be drawn from this question is the importance of
tailoring a particular proposal to the individual venture capitalist■s

Section Five:  Encouraging the Use of Environmentally Sound Technologies

The final section in the survey asked respondents to evaluate possible policy
options in terms of their effectiveness in increasing the venture capitalists■
interest in environmentally sound technology.  It should be borne in mind that
most venture capitalists are unlikely to be fully aware of all the policy
ramifications involved in this measure.  Nonetheless, their first reactions
are relevant and useful.

Q5  How effective do you think the
    following policy mechanisms would
    be in increasing your interest in
    investing in ESTs?                     1     2     3     4     5

5.1  Improving information on the
     availability and benefits of ESTs     9     4     3     5     3

5.2  Technical assistance and pre-
     investment financial assistance,
     for instance, to help companies
     improve their documentation           7     6     7     1     3

5.3  Tax allowances on installing ESTs     7     7     8     1     1

5.4  Public sector subsidies/grants
     for ESTs                              6     7     6     3     1

5.5  Tighter regulation and enforcement of
      environmental matters                8     8     1     4     3

5.6  Specialised financial mechanisms
     such as leasing                       5     5     7     4     2
5.7  EST Rights Banks                      4     6     5     4     4

All of the first five measures were assessed a relatively high level of
interest. Improving information and tighter regulation were seen as the most
effective. The need for tighter regulation seen by two-thirds of the sample
highlights the need for measures to improve the  demand for ESTs. 

It was not surprising to see the relatively high degree of interest in direct
fiscal measures (tax allowances and public sector subsidies/grants).  Clearly,
from the immediate perspective of investors (who see only the benefits of such
measures), such measures are quite attractive.  On a policy level, of course,
these measures would have to be weighed in terms of their fiscal costs and
benefits. Nonetheless, these views confirm that such measures can accelerate
the uptake of EST, as has been demonstrated in a number of cases.

Specialised financial instruments, such as leasing, were given a slightly
lower rating. There is undoubtedly potential to use innovative financial
mechanisms to provide additional sources of capital, particularly if it is
tailored to the requirement of EST.  The respondents here, however, may regard
such sources as potentially competitive, or less relevant to the overall
financing need they are usually considering.

EST Rights Banks received the lowest effectiveness rating overall. This
reflects the fact that while EST Rights Banks may help to decrease the cost of
technology overall, from an investor■s perspective they fail to create
businesses attractive to investors.  EST Rights Banks supplant the potential
for attractive EST ventures, and reduce the scope for EST users to gain
competitive advantage.


Unlike the international survey, the domestic survey concentrated largely on
players within one country, India.  This was designed to get a more complete
picture of the relationship between access to finance and access to ESTs in
one region.

India provides a good test case for the following reasons.  First, as one of
the major emerging markets, the results are important in and of themselves. 
India is undergoing rapid industrialisation under severe resource constraints.

It is a good example of both the urgency and the opportunity provided by the
rate of change.  The differences between markets make it quite difficult to
apply the results across countries, so it was thought to be critical to select
a country for which the results would be useful.

With that disclaimer, however, it is hoped that some of the results from this
survey will help advance understanding of developing countries in general.  In
reviewing the results of this section, it is useful to keep the following
characteristics about India in mind.  First, India is a large and
heterogeneous country.  Alongside the many entrepreneurs, established
businesses and well-educated middle classes are vast pockets of poverty little
affected by the rapid economic growth rates.  Thus, ensuring that
macroeconomic growth also yields higher living standards for the masses is of
urgent concern.

Compared to many developing countries, India benefits from an established and
strong legal and finance system.  Contract law is established and in the
Anglo-Saxon tradition, there are several thriving stock markets and, for
instance, some 40,000 companies involved in leasing.

Moreover, there is now tremendous opportunity to put into place a more
environmentally sound infrastructure.  Much of the equipment in use in India■s
business is outdated, due largely to previous policies.  The current
liberalisation and modernisation underway means that the nation■s businesses
have the opportunity to leapfrog the technological mistakes of the West and
adopt state-of-the-art technology.

The India survey was not as homogenous as the international survey of venture
capitalists.  It consisted of a number of elements:

      -     a survey of domestic India venture capital firms along the lines
            of the international survey
      -     discussions with participants in the Indian financial markets,
            including commercial banks and leasing financiers
      -     three relevant Indian case studies
      -     a case study from the UK of relevance to India and other markets.


One general comment is that the overall level of response from the Indian
financial community was lower then expected. Out of 15 venture capital houses
only 4 responded, and only 3 returned questionnaires, despite telephoned and
faxed reminders. Similarly, some 16 financial organisations were formally
contacted for information about their general activities in terms of financing
ESTs in SMEs, but only 6 responded, 4 usefully. This represents a lower level
of response than the international questionnaire. In view of India's
reputation as a leader in this area, the reaction from the Indian financial
markets was disappointing, and may indicate that despite some leading edge
initiatives, much of the Indian financial community remains unconvinced about
the merits of ESTs and the opportunities to provide finance. However, some
useful informal information and intelligence was also obtained and has been
used below, together with the formal responses received.

Compared to the overall results of the international survey, the Indian
venture capitalists■ responses were fairly similar.  Notable differences
include a slightly increased focus on  technology rights as a key attribute of
deals (Q4.3) and a stronger interest in technology-based companies (Q4.4). 
Indian venture capitalists also felt a particularly strong need for better
information. However, more significant was the fact that many private sector
venture capital institutions declined to respond. The venture capital scene in
India is very rapidly developing and so many organisations may have higher
priorities than ESTs at present. Changing this perception is the first
challenge in seeking to encourage financing of ESTs.

The banking scene in India is also fast changing, as newcomers challenge the
role of the state owned financial institutions. The main state owned financial
institutions such as ICICI and IDBI (with its smaller companies subsidiary
SIDBI) are aware of and sympathetic to potential of ESTs and the need to
provide suitable finance. They have established some targeted programs,
although much of the finance for ESTs is dependant on their general financing
arrangements. Case study 3 highlights the work of the Indian Development Bank
of India.

Despite substantial interest in the idea of ESTs, it appears the level of
practical awareness and use of information was lower than that of the
international venture capitalists.  The need for better information is clearly
very strong and there is particular scope to expand activities in this area,
particularly with information related to financial aspects of ESTs.  As the
financial market in India is further liberalised, there is a danger that in
the more competitive market that will result financial institutions will be
reluctant to focus on ESTs unless their advantages are apparent, there are
profitable lines of business, or appropriate support is provided by the public
sector for particular actions.

However, if the advantages are apparent, for instance in the better quality of
businesses that result from the use of ESTs, then banks can justify action to
support their transfer. For instance, one approach which banks could adopt is
for banks to support the development of networks of technical experts in ESTs
and actively refer customers to them.  Such a model is provided by Cooperative
Bank in Britain (see case study 4 below).  This model is particularly
interesting as it is was done independently of public sector intervention and
in a competitive financial market, albeit by a institution with a high sense
of public duty.

India has a particularly large leasing market.  Leasing companies are
generally receptive to EST, and are specifically quite interested in the idea
of providing integrated leasing facilities for such technologies.  For leasing
to be effective in promoting the uptake of EST, however, the market must be
large enough to ensure that leasing companies■ costs are reasonably low. 
Thus, there was a strong feeling that EST-related programmes need to
demonstrate a sufficiently large market to ensure a good business for leasing
companies.  If this is done, leasing could prove to be very effective in
increasing capital flow to EST.  It should be noted that although the
purchaser assumes responsibility for the contract, normally the initial
contact with the leasing company is arranged by the vendor.  Thus, links need
to be built between leasing companies and the technology vendors, possibly
though technology centres.

In addition, flows of leasing (and other forms of finance) to smaller, riskier
businesses could be further enhanced if guarantees were to be provided by
third parties, such as governments. Case study 2 illustrates such a
relationship. This type of policy measure has the additional advantage of
targeting government support toward specific and preferred technology.

6.1   Case Study 1:  Indian Micro Enterprise Development Fund

The premiere global business associations dedicated to the environment, the
Business Council for Sustainable Development 5/, has recognised the
potential contribution of smaller enterprises to sustainability in India and
helped establish a promising mechanism to assist them.  The BCSD realised
that, although smaller companies are currently responsible for a
disproportionate share of industrially caused pollution, they represent a
tremendous opportunity to further sustainability, due to their flexibility to
remain at the cutting edge technologically and move quickly into new areas of

Sustainable Project Management (a spin-off organisation of BCSD) is preparing
to launch the Indian Micro Enterprise Development Fund (IMEDF), a for-profit
financial institution to serve technology-based micro, small, and medium-sized

In late December, Sustainable Project Management published the first business
plan for the IMEDF.  In the initial stages of operation, IMEDF will target
businesses with capital needs on the order of $750 to $7500.  Services on
offer to businesses include the following:

      -     credit (through loans, loan-guarantees, or a combination)
      -     technological, managerial, financial, and entrepreneurial
            assistance, with particular emphasis on eco-efficiency
      -     assistance with procuring raw materials and technology
      -     links with trade organisations and other financial institutions,
            both within India and abroad.

The IMEDF will be divided into two entities, a charitable foundation to
provide the technical assistance services and the fund-manager itself to
handle the financial aspects.  The fund management will be split between a
private sector financial organisation (Escort Financial Services) focusing on
small businesses and experienced NGOs focusing on microenterprises.

In addition to Sustainable Project Management, other major promoters of IMEDF
include the Asian Development Bank and the International Finance Corporation. 
Promoters provided the initial funds to finance administration and set-up
costs; within several years, IMEDF aims to go public and become financially

If successful, the IMEDF could provide a valuable model of a country-specific,
self-sustaining mechanism geared to provide EST finance for microenterprises
and small and medium-sized enterprises.

6.2   Case Study 2:  Solar Electric Light Company (SELCO)

SELCO is a innovative project designed to mobilise capital in acceptable form
to provide relative poor off-grid households and microenterprises with access
to technology - in this case photovoltaics. It shows how a combination of
financial resources can be brought to bear to help provide finance for a
particular problem.


The Indian government is keen to increase the use of renewable energy and in
particular is interested in off-grid power systems, such as small scale
photovoltaics. The World Bank and the GEF have provided a $55million line of
credit to the Indian Renewable Energy Development Authority to finance small
solar electricity systems (SES). These funds are made available at
concessional interest rates to "empanelled" intermediaries such as Tata
Finance Limited (TFL). However, TFL in itself is not in a position sell
systems directly to all potential customers and so relies on distributors and
others to bring it acceptable business.

SELCO has been set up to accelerate the sales of solar electricity systems to
households, and to offer a complete package of finance including finance and
maintenance. Backing has been provided by the Solar Electric Light Fund
(SELF), an initiative of the Rockerfeller Brothers Foundation, a charitable
foundation based in the United States. SELCO intends to operate as follows:

1.    SELCO signs up a block of 25 or 50 SES customers for solar systems and
      collects a 25% deposit. 

2.    SELCO forwards the deposits to TFL and applies for lease financing of
      the systems (with SELCO as counterparty).

3.    SELCO arranges underwriting of the leases using a Letter of Credit from
      SELF as a credit enhancements/guarantee.

4.    SELCO orders solar systems from TATA BP Solar at a special pre-arranged
      distributor price as exclusive agents for specified districts.

5.    TFL approves leases and forwards payment to TATA BP which ships the
      systems to SELCO.

6.    Selco arranges for head of household to sign a 3 year purchase agreement
      with SELCO, and this is endorsed by TFL (who continue to own the systems
      until they are paid for in full).

7     SELCO installs the systems and provides a 1-year maintenance contract. 

8     Local SELCO agents make monthly payment and collection visits.

9     Collections are pooled and sent to TFL.

SELCO is essentially "on-leasing" the systems to its customers and charges an
interest premium as well as its margin as a SES supplier. As such it is hoped
to establish a profitable, growing business that will no longer need external

SELCO has currently demonstrated the system and is looking to raise external
finance to accelerate the program. The project is built around a core of lease
financing as the most appropriate financing arrangement, but external support,
from government agencies or in this case a charitable foundation (through
SELF), is helping in three areas:

-     Reduced interest costs for TFL, using the IREDA funds.
-     SELF is covering the start up and business development costs of SELCO
-     SELF is providing guarantees through its Letter of Credit.

The case study demonstrates the development of a complex response to a
particular financing problem. Similar types of models could be developed for
other problems.

6.3   Case Study 3:  Industrial Development Bank of India

IDBI focuses on medium and large scale sector, and thus is relevant to the
bigger companies in the SME sector. It has not formulated specific programmes
for the support of ESTs in SMEs as such. However, IDBI has always funded EST
related projects which are found financially viable. In addition, projects
based on ESTs are supported under a number of specific programmes of the IDBI.

The IDBI has contracted two specific lines of credit from the World Bank/IDA,
one of $90m under the Industrial Pollution Control Project (IPCP), the other
of $95.5m under the Industrial Pollution Prevention Project (IPPP). The IDA
component of $4m in the former is for grants in the are of waste minimisation,
resource recovery, or pollution abatement, and a number of innovative projects
have been supported, including a plant to treat distillery spent wash by a
"Drying Incineration and Energy Generation" technology, offering significant
cost and environmental advantages, and a plant to treat dry sugar waste and
press mud from a sugar mill based on anaerobic composting.

The lines of credit also include a component for Common Effluent Treatment
Plants ($16m under the IPCP line, $18m under the IPPP line). This is intended
to help finance the establishment of effluent treatment plants for groups of
SMEs based in individual estates or clusters. They are seen as an important
way towards achieving pollution mitigation among SMEs who are unable achieve
this objective individually. So far IDBI has extended loans aggregating $14.7m
to 20 such plants around the country.

IBDI has also established a venture capital fund to finance more risky
ventures, including those involving comparatively unexploited technologies,
and a number of projects involving ESTs have been financed from the fund,
including a plant to process municipal solid waste and produce organic manure,
and another to process rice straw liquor, with energy and chemical recovery.
IDBI has also helped project finance a number of ESTs, including 22 wind power
generation projects, and various bagasse co-generation projects.

6.4   Case Study 4:  Cooperative Bank■s National Centre for Business and

Although financial players have been somewhat slow to recognise the benefits
of EST, their broad business knowledge and contacts place them in an excellent
position to bring companies into contact with EST expertise.  In Britain, an
interesting case study of such involvement is provided by Cooperative Bank■s
National Centre for Business and Ecology, launched in October 1995.  The
concept is eminently transferable to the developing world.

The Centre provides businesses with access to low-cost, high-quality advice
and assistance on environmental technology and practices by pooling the
resources of four universities. The Bank recognised that the universities
harboured a vast amount of expertise of great use to businesses, but lacked a
mechanism to make this expertise available to the outside world.  Cooperative
Bank serves as an intermediary link, referring its customers and other
interested businesses to the Centre.

The Centre is designed to fill a gap in existing environmental services for
small and medium-sized businesses.  As a socially oriented financial
institution, Cooperative Bank encourages all of its corporate customers to
take a responsible attitude towards the environment.  At the same time, it
recognised the difficulty that smaller businesses often have in obtaining
technical assistance since many private environmental consultants are geared
toward the needs of large businesses.

Cooperative Bank is investing ť1 million (around $1.5 million) in the Centre
over five years.  The services of the Centre will be available to all
businesses at low cost, with Cooperative Bank customers receiving preferential
rates.  Key areas of emphasis include improving the ecological quality of
products, reducing costs, and where applicable, developing new, ecologically
sound products.  Areas of expertise include ecosystems, waste disposal, energy
conservation, climate change, and numerous other environmental issues that
affect industrial processes. The Centre is based at Salford University in
Manchester, and also involves Manchester University, Manchester Metropolitan
University, and UMIST.  The Centre is directed by a noted environmentalist
with expertise in ecologically renovating some of the most polluted sites in

6.5   Conclusions

A number of conclusions can be draw from these examples:

Given the scale of the problems, achieving substantial impact can require
persistence. Finding the right approach can be take several attempts, and even
then may take time to have the desired effect (e.g. in case study 2, even if
successful SELCO will have only tapped 5% of its potential market in five
years). A high level of government support and commitment can help here.

Success is more likely to be achieved, particularly with more involved
financing mechanisms, if there is a degree of focus in terms of industry
and/or region, as this will ensure that actions can be tailored to specific
needs most successfully.

Transaction costs, both for financial organisations and their clients, can be
an obstacle to providing finance. Reducing them to an acceptable level, for
instance, through standardising procedures, is often important.

Private sector financial organisations, while becoming interested in EST
related business, need clearer indications of the potential extent and
profitability that will arise from financing ESTs before they are prepared to
commit their own resources.

In some areas, particularly with micro enterprises, while some aspects of
financing may be viable on their own, support activities such as advice may
continue to need direct assistance.


The previous sections have indicated that there is a potential role for the
public sector in providing support in the financing of ESTs. This section
looks in more detail at some of the mechanisms the public sector can use to
support EST transfer. 

Firstly, it is worth reviewing why governments may feel they have some
justification in becoming involved financially in supporting the uptake of
ESTS by SMEs. The more important reasons appear to be:

Levelling the playing field - subsidies are often difficult to remove for
political reasons, yet may encourage unsustainable behaviour. Unsupported
ESTs, whose benefits include saving subsidised resources, are at a competitive

Gaining a public good - Using ESTs may generate a major public good (e.g.
clean air), but the user of the technology does not directly benefit.

Opening the market - existing market structures may be prejudiced against new
technologies or methods, creating high barriers to entry, so supporting
measures get the market started makes sense.

These justifications suggest that governments have a valid role to play. In
suggesting where they should take action, it is necessary to consider where
SMEs, or their financiers, may be failing to invest in ESTs, and for what
reasons. The following four areas appear most important.

Capital Costs

The initial costs of ESTs can be prohibitive for SMEs and the returns
insufficient to justify investment. If there are wider public benefits, the
government can justify actions which effectively reduce the costs of EST to
SMEs, thus making ESTs attractive investments for small businesses.

Required Returns

Similarly, small businesses often require very quick paybacks and seek high
rate of return on their capital. Governments can help with actions to reduce
the cost of financing for such business. Most effective are measures which
involve dedicated finance or make it possible to pay for EST on a "pay as you
go" basis, particularly through off-balance sheet financing.

Transaction Costs

From the perspective of financial institutions, the costs of dealing with a
large number of small financing requests (i.e. analyzing individual deals,
administration etc) can act as a major deterrent to significant investment in
small businesses and ESTs. Action to reduce these "financial overheads" can
make loans to SMEs more attractive to financiers. Similarly, from the
perspective of the small business, unless the EST under consideration is
central to the business, they will not want to spend substantial time
arranging finance, so streamlined financial procedures can also increase their
willingness to acquire ESTs

Reducing Risks

In addition, financial institutions can be deterred from lending for EST use
by SMES, because the risks (real or perceived) are seen as too high - these
may include both business risks and technology risks. Financial institutions
tend to place a high premium on new or unknown areas of business. Thus
governments can help private finance by taking direct action to reduce the
risks, through a variety of mechanisms.

Below we analyse some of the mechanisms that the public sector can use to
encourage the financial sector to increase investment in ESTs in small
businesses, by addressing one or more of these obstacles. Government action
can take the form of either fiscal measures, involving changes to the tax
code, or financial measures, involving direct expenditure by the public



Offering 100% allowance on "green" capital expenditure is one mechanism which
can make it much more attractive to invest in ESTs, by reducing the effective
capital costs to business. It has been tried in a number of different regimes,
and in certain cases the effect has been dramatic.

Advantages:       Can be very effective in opening the markets
                  Relatively easy to administer (does not need specific

Disadvantages:    Expensive to the government (although the costs are hidden)
                  Often results in quantity not quality
                  Does not reward operational performance.
                  Limited to hard technologies, and can be difficult to focus.
                  Does not, in itself, provide addition capital.
                  Less effective in the informal economy or where businesses
                  are already not paying much tax.


Tax allowances are a very effective way of kick starting markets, and can lead
to a rapid growth. However, in the longer term they can distort the market and
are expensive, and so should not be maintained indefinitely. However, it is
important to ensure that the tax regime is not prejudiced against ESTs, and
indeed a moderate bias in favour of ESTs can be useful.


Many countries have favourable regimes for investment in SMEs, including
reduced tax rates, special allowances and the ability to offset SME investment
against income tax. These regimes have proved useful in attracting investment
in SMEs. There is scope for these incentives to be extended or focused on
environmentally sound investments in particular. For instance, the Dutch
Government has recently created a major green investment scheme where
investment, through approved funds, in areas such as organic farming and
renewable energy, receives very favourable tax treatment.

Advantages:       Attracts external finance
                  Can mobilise large sums of capital quickly.

Disadvantages:    Can again cause a focus on quantity not quality
                  Need to define eligible areas carefully.


If specific areas can be clearly identified where substantial external
financial needs exist, then green investment incentives can be very effective.
Overwise, a general focus on a favourable tax regime for investment in SMEs
generally is likely to be more appropriate.


There is widespread recognition that the governments should improve the
working of market mechanisms through ensuring that environmental costs are
included in prices. This can be done through a variety of ways, the two most
common being subsidy removal and environmental taxation. Such mechanisms will
have a direct effect on the attitude to SMEs to ESTs, as they directly improve
the bottom line benefits that ESTs can bring.

Advantages        Enhances Market forces
                  Revenue generating
                  Address the end result directly, rather than the means to
                  that result

Disadvantages     Political difficult to implement
                  On their own, are negative than encouraging.


Correcting market prices to account for environmental externalities is an
essential part of progress towards sustainable development. Practical
limitations will dictate the rate of movement in this area, and indicate the
need for other activities and mechanisms. In seeking to implement such
changes, authorities should aim to recycle any revenue generates to reduce the
immediate impact on SMEs, and so enhance their acceptability.



The public sector can directly support the costs of Environmentally Sound
Technology. While there is a general consensus that governments are best
advised to move aware from subsidies and grants, direct financial support can
be justified in the area of ESTs if the benefits are large enough. 

Advantages:       Effective at eliminating financial obstacles
                  Can be useful in opening new markets
                  Can apply to "soft" technologies
                  Can be integrated with bilateral or international aid

Disadvantages:    Expensive to the public sector
                  Can be difficult to define suitable areas for support
                  Often bureaucratic in administration (to prevent fraud)


With "hard" technology, grant finance is best used to open markets and to
achieve critical mass in particular industries. It is particularly important
to achieve maximum leverage, for instance by getting commitments from
industry, or by applying grants high up the value chain. Carefully evaluation
of the benefits is essential. Plans for a gradual withdrawal of support should
be developed and made public from the start, to avoid industry developing
dependency on government support.

With "soft" ESTs, i.e. knowledge based, grant financing may be more useful.
Supporting activities such as advice centres, or providing partial support for
advisory services, such as environmental audits, can be useful and effective,
and is likely to help in areas where other finance is not really available. In
most cases, the recipient business should make a contribution to costs. Often
a number of phases of support may be needed, but the contribution of the SME
should increase in subsequent stages, as the benefits to the SMEs are
increasingly identified. 

A useful extension or alternative to pure grant financing is the idea of a
revolving fund where the grant funds are returnable if profitable use is made
of them - e.g. if an environmental audit identifies saving greater than its
cost. The advantage of revolving funds is that they can be used several times
over, thus making much greater use of the available resources, although
eventually they will still be depleted.


Most OECD countries offer forms of government supported export finance. At a
minimum, such support involved covering most of the country risk involved with
payment. However, most export finance agencies go beyond this and offer
financial packages to the overseas purchaser, which not only makes exporting
more attractive for the domestic company, but also enables them to win
business by offering a more complete package. However, little has been done to
focus export finance schemes on ESTs in general. In particular, SMEs rarely
benefit from such programs as sums involved are generally too small (i.e. less
than $1m). 

Advantages:       Supplier focused
                  Links to trade promotion

Disadvantages     Applies to international traded products.
                  Size limitations.
                  Can be bureaucratic


Export finance offers substantial potential for financing ESTs, and would
enable the sponsoring governments to support both their own industries and
sustainable development generally. Appropriate mechanisms are needed to work
with the smaller amounts required, for instance, using standardising contract
terms and using approaches such as leasing.


A number of governments have introduced schemes to guarantee loans made by
banks to small companies, with the intent of encouraging greater lending to
the sector. Such schemes normally involve the government providing a guarantee
for the majority of the sum lent in exchange for a premium. Such schemes
removes much of the risk of lending to the small business sector from banks,
and thus encourages them to increase lending. There is potential to focus loan
guarantee schemes on ESTs and other areas of particular eligibility.

Advantages        Can increase lending significantly
                  Can be applied across a wide range of businesses

Disadvantages:    Often limited to "hard" assets
                  Avoids banks having to analyse risks properly
                  Can be expensive if guarantees activated.
                  May freeze out companies who don't meet requirements.


A loan guarantee scheme can be a highly effective way of encouraging lending
to small businesses. There would appear to be substantial potential for
targeting the loan guarantee schemes at key technologies or industries, or
making environmental factors a key element in approving applications. In
additions, loan guarantee schemes could be linked to some of the other
programmes suggested here - for instance, the guarantee premium could be paid
out of a grant scheme if the funding was for ESTs.


Leasing is one of the most popular ways of providing finance for SMEs. The key
features of leasing are that security comes from the asset being financed, and
it is often initially offered by the equipment supplier, as part of its sales
effort. It has been widely used in areas such as computer equipment, motor
vehicles telephone systems. If leasing of ESTs could be encouraged and
established as viable, it would make it much easier for SMEs to acquire ESTs.
However, before offering lease finance on ESTs, leasing companies need to be
convinced that the markets are large enough to justify the effort involved in
establishing new lines of business and that the risks are acceptable (note
that if the technology fails to perform, companies will not make their
payments). Public sector finance can help overcome these risks by helping to
underwrite the initial costs of new leasing programmes and by proving forms of
risk protection.

Advantages:       Offers substantial leverage.
                  Can be distributed through the equipment seller, reducing
                  bureaucracy and overhead charges.
                  Intrinsically a low cost form of finance.

Disadvantages:    Largely limited to physical goods

Where applicable this is one of the most effective ways of leverage and using
public sector funds to transfer ESTs. For certain issues and technologies (two
key examples are small scale renewable energy systems, and low pollution motor
vehicles), they could be a very potent way of leveraging millions of dollars
of private sector capital. However, leasing cannot generally be used for
"soft" technology.


Public funded technology guarantees have been suggested as an effective way of
encouraging the uptake of new technologies, by explicitly absorbing the
technology risks which a major obstacle to finance.

Technology guarantees could be particularly important in project financing,
where investment cycles are long, and concern over technology risks can act as
important barrier to finance, such as in the energy sector. However, this is
likely to be relatively rare with SMEs.

Where technology guarantees may be important in terms of with SMEs is
indirectly in areas such as leasing, where there may be some concern over the
performance of new technologies. By including technology guarantees as part of
the overall support package, the potential to attract finance can be greatly
enhanced. However, in providing guarantees of new technology, the public
sector guarantor should undertake a very careful evaluation of the technology
and the risks involved, include indemnities from the technology vendor.


The idea of Environmental Sound Technology Rights Banks have been suggested as
a way of encouraging the dissemination of EST technology. The suggestion is
for public sector bodies to purchase the rights to key technologies, where
cost is seen as an obstacle to their wider use. The technologies would then be
disseminated at a lower cost to a wider range of businesses. Underlying this,
is a sense that developers of ESTs may be interested in profit maximisation by
selling to a limited set of customers at high profit "cherry picking" rather
than selling to a wide range of customers at a low profit, which is clearly in
the broader public interest.

For EST Rights Banks to make sense, the "intellectual property" component of
the price has to be significant (if the EST is expensive to produce anyway,
then the ability of an EST rights bank to reduce costs will be limited without
grants or subsidies), and there has to be clear evidence of "cherry picking".

In most areas of EST the markets are fairly competitive, as a number of
different technologies compete for market share, and rarely does a new
technology appear which is dramatically better than its competitors, thus
competition tends to limit the scope for profit maximisation. Even where new
technologies emerge, prices tend to be limited by the need to make the product
attractive to purchasers, and indeed technology suppliers are increasingly
adept at creating selling strategies to both make high margin, low volume from
key customers and low margin, high volume sales from the mass market if the
potential exists.

Advantages        Reduction in costs to end purchaser

Disadvantages     Lack of commercial pressures driving product dissemination
                  Difficulty in selecting appropriate technologies
                  Risk of technology being superseded.
                  Potential for conflicts of interest, if government is both
                  technology owner and regulator.


It does not appear immediately apparent that there are many cases where an EST
rights bank would act as a significant incentive to dissemination of ESTs.
Even should cases arise, better mechanisms are likely to exist for ensuring
the accelerated develop of ESTs, including use of some of the other mechanisms
discussed here. In general, if technologies are identified where there is a
concern over technology dissemination, it is likely to be most appropriate to
develop a partnership approach to solving the problem - most companies are
likely to be interested in working with governments if the mutual goal is to
accelerate market penetration.


Venture capital provides equity capital to medium sized companies seeking to
expand and develop. Venture capital is normally a high risk, high return
investment and is normally best undertaking by the private sector with little
government involvement. The public sector can help indirectly by ensuring
there is an appropriate regulatory framework, supporting training, helping
with the initial costs of fund development and provide some investment. There
is some interest in ESTs by venture capitals, and governments can help
increase this by explaining the business advantages of ESTs to venture
capitalists, supporting linkages between venture capitals and EST technology
centres, and providing pre-investment grants to enable EST related deals to be
prepared to a high quality.

Advantages        High level of leverage
                  Applicable to most industries
                  Able to attract external finance, including international

Disadvantages     Primarily relevant to medium sized business
                  Less relevant to non-core expenditure


While venture capital is only appropriate in certain cases, action to increase
the awareness of the venture capital industry of the benefits of ESTs would be
an effective way using public funds. However, any activities should be very
sensitive to the needs of venture capitalists themselves.


Performance contracting involves an intermediary providing a complete package
to the customer, which may include equipment sales, financing, training,
monitoring etc. In many cases the intermediary is paid out of the benefits
accrued. For SMEs, by offering them a complete package, such contracting is
often very attractive. It is most developed in the area of Energy Service
Companies. A highly entrepreneurial activity, some successful models have been
developed, but many others have struggled - the challenge is to find a robust,
profitable and highly replicable model. The public sector can help support
such initiatives through, for instance, supporting initial costs and
feasibility studies.

Advantages        Potential to have a major impact
                  Addresses business needs 

Disadvantages     High risk
                  Requires entrepreneurs and successful formula
                  Not appropriate in all circumstances.


Despite the risks, supporting the development of enterprises in this area
appears well worth considering, given the high risks and costs involved and
the potential for major public benefits. In providing support funds, the
public sector will need to ensure that applicants have the right
entrepreneurial streak, are highly ambitious, and want to create a wide
ranging business. Suitable applicants may not always emerge.


While there are a wide variety of different of financing mechnaisms for ESTs
that can be supported in various ways, public sector assistance for these
mechanisms comes in a relatively small number of different forms. These are
summarised below. 

Direct Funding                Grants, full or partial to cover EST costs
Information Dissemination     Supporting the costs of information gathering
                              and disemmination
Partner Identification        Supporting the costs involved in searching for
                              partners (technical or financial) 
Start up costs                Covering the costs involved in developing new
                              financial products and programmes
Deal Packaging                Funding the costs of preparing individual deals
                              or projects to a level where they are "bankable"
Risk Sharing                  Sharing the risks involved in certain financial
                              products, either directly or through third


The findings of the survey are encouraging in that they show there is
significant interest in ESTs among financial organisations involved in
supporting SMEs and the case studies demonstrate that there are already a
variety of possible ways that financial institutions can become involved
helping to accelerate the transfer of ESTs to SMEs. It appears probable that
appropriate action by the public sector authorities to develop linkages
between financial institutions and those interested in promoting ESTs will
yield positive results. There is also scope for the public sector to support
the development of a number of more direct financing mechanisms, which would
aim to encourage financiers into this area and help overcome obstacles such as
financial market inertia and risk-aversion. The result of such actions should
be to help achieve the objective of increasing the flow of capital into ESTs. 

While improving linkages and support mechanisms can help enhance the
functioning of the current system, there is only so far that such measures can
go. For further progress, the "playing field" has to be shifted, by improving
the overall climate both for small business finance and for EST use. The
greatest impact is likely to come from a co-ordinated approach involving the
"carrot" of support mechanisms to enable the acquisition and use of
environmentally sound technologies, combined with the "stick" of measures to
prevent use of polluting practices, whether market based or regulatory. If
effective measures to improve the financing of environmental sound technology
are in place, they will increase the impact of regulatory or other measures
which address the environmental problem directly, as well as potentially
reducing the level of opposition to stronger measures.

It is therefore appropriate to repeat two general recommendations that have
been made on many other occasions, but are still relevant in the context of
financing of ESTs transfer to Small and Medium sized businesses.

Recommendation    Increase the market for ESTs
      There is no doubt that the uptake of EST would be enhanced if the
      reasons to install them were strengthened.  Promising strategies
      include more effective and consistent enforcement of existing
      regulation and full-cost pricing of resources. Judicious further
      regulation and reforms may also be needed, but while not bowing to
      the needs of industry, industry should be consulted and involved
      to ensure environmental objectives are achieved at least cost. A
      predictable, systematic and gradual tightening of standards can be
      particularly effective.

Recommendation    Improve the financial regime
      While EST financing faces particular constraints, many of the
      obstacles are similar to the conventional difficulties faced by
      small and medium-sized businesses in the emerging markets. Thus
      priority should be placed on improving the overall availability of
      finance to SMEs, through deregulation, capacity building, and
      favourable tax regimes. Focus should be placed on venture capital
      and other risk-taking investors, lease financing, and
      microenterprise financing.

These two measures will not only help improve the macro-economic framework to
encourage the acquisition and financing of ESTs by SMEs, they will also help
ensure that more direct intervention is not needed permanently and as a result
does not become a drain on public resources.

Thus, in directly supporting the creation of linkages and other mechanisms to
promote the financing of EST acquisition by SMEs, the aim of public sector
sponsors should be to be catalytic: to help to open new markets, bring
together participants and overcome start up risks.

As we have identified, there are clearly many different ways that public
sector support could take place. However an analysis of the various different
mechanisms suggests they fall into two broad categories:

      Information related Mechanisms
      These aim to improve the level of information on the financial benefits
      of ESTs, to channel that information to the financial community (to
      improve there internal analysis), and to encourage the financial
      community to disseminate that information to their SME customers (to
      help SMEs access ESTs) - at the very least, financial institutions
      should be able act as a referral agency, advising companies on where
      they can get help on ESTs. In addition, support could be provided to
      mechanisms which aim to identify potential financiers for ESTs, for
      instance by building links between technology transfer centres and
      financial institutions.

Deal related Mechanisms
      In contrast there are a number of more specific mechanisms where public
      support is more directly involved in the preparation of deals and the
      mobilisation of finance. These include funding start-up costs of new
      financial mechanisms, covering the costs of deal packaging and other
      transaction costs, sharing risks financial markets are reluctant to
      assume, and even action to reduce capital costs (through either direct
      funding or tax allowances).

These two different types of mechanism suggest (but do not equate to) to two
different approaches to public sector support to improve the financing of ESTs
in SMEs. Because the  more specific measures are relatively expensive and
require a high level of commitment their use is best restricted to areas where
there is a strong need. In contrast, the broader, information based measures
can be applied much more generally. As a result, we recommend the use of the
following two models to develop programs to support and encourage the
financing of ESTs:

1:     The environmental problem driven model 
            This "bottom up" model identifies key environmental problems and
            then mobilises finance in response to them on a detailed, specific

2:     The macro model
            This "top down" model aims to generally encourage the flow of ESTs
            to SMEs by improving information and financial market awareness,
            and by helping to create linkages.

The two models are described in more detail in the final section. 

A third approach might be a technology driven model which focused on
particular technologies and sought to accelerate their dissemination. Such a
model is not seen as appropriate as a basis for public support, because
without first justifying the need, appropriateness and importance of a
particular environmentally sound technology there is no particular reason why
such technologies merit special support.

PRINCIPLE RECOMMENDATION:     Develop mechanisms to encourage the Financing of
                              ESTs by SMEs

      There is substantial scope to develop mechanisms to encourage the
      financing of EST acquisition by ESTs. Such mechanisms should be
      based on one of two models outlined above. In addition, account
      should be taken of the key points outlined below to ensure a
      positive response from financial institutions. Finally, success
      more likely to be achieved if there is a degree of focus, but even
      so will take persistence and commitment.

   Key considerations in dealing with financing institutions

-     The financial market is probably even more impatient and intolerant of
      bureaucracy and delays than general industry. Thus, any proposed
      mechanisms need to be efficient and as user-friendly as possible - for
      instance, it is preferable for the management of any mechanisms to be
      done by the private sector.

-     If deals or financing propositions are presented to potential investors,
      emphasis must be placed on ensuring they are of sufficient quality.
      While general training and support can help, deals may need individual
      support to ensure they meet investor needs.

-     Information on ESTS should be targeted to the needs of financiers. This
      means a 99% focus on the business/finance-related benefits and 1% focus
      on the environmental benefits. While progress has been made in this
      area, there is room to increase the demonstration of the overall impact
      on the business of EST and the competitive advantages gained.

-     In many cases a focus on building partnerships with EST suppliers and
      financiers may be better than focusing on the users/purchasers.
      particularly if the EST is not central to the business of the
      purchasers. This offers the advantage of concentration: far fewer
      organisations need to become  involved. If suppliers can offer a
      packaged service including finance, they are much more likely to win
      sales. The finance involve export finance, lease finance arrangements or
      more complex techniques such as performance contracting.

Even using the two models, there are clearly a wide variety of ways of
actually implementing linkages and support mechanisms. The most appropriate
financial mechanism will vary depending on both the size of the business and
the scale and type of EST being contemplated. Then the most appropriate form
of public sector support will vary depending on the financial mechanism. In
following section, a table is provided which summarises the most appropriate
financial mechanisms for different types of EST needs, and the most
appropriate public sector response, and will help provide an overview for
policymakers of the options applicable to them. However, in view of the
potential complexity and variety of the possible financial mechanisms, it is
important that the international community shares and compares information on
the practicalities and effectiveness of various initiatives. As a result the
final recommendation is:

Recommendation:   Co-ordinate information on EST financing mechanisms

      An international organisation should take the lead in sponsoring a
      centralised source of information on establishing linkages to the
      financial markets. The different types of linkages should be
      gathered, and their performance monitored. Ongoing analysis should
      be conducted on the success factors of individual linkages, and
      advice provided to those seeking to develop new linkages.

In conclusion, this report has found that while official support and funding
over the transfer of ESTs has reasonably successfully moved into areas such as
technology demonstration, information dissemination, and partner-finding,
there is now both potential and need for such action to build linkages between
financiers of small and medium enterprises and EST owners and centres, and
provide support mechanisms to encourage the development of financial flows.
Such linkages offer the potential to accelerate the transfer of ESTs, and to
enhance the leverage obtained by public sector finance in a time of budget




      Major environmental problems associated with relatively narrow sectors
      of industry or small regions. Ability to be addressed by technology.


1     Identification of critical environmental problems for action and

2.    Identify priority areas to address in terms of industries. Ideally
      should be relatively few  sectors involved. Begin industry dialogue as
      to how to address these problems.

3     Identify key solutions, including ESTs. Assess for appropriateness and
      cost-effectiveness. Analyse whether EST are currently financial viable
      in their own right, if not, consider what regulatory or fiscal action is

4     Identify key financial sources, given the industry type and the proposed
      EST solutions (See table below). Assess total market potential, key
      suppliers etc.

5     Begin dialogue with financiers, possibly in conjunction with EST
      supplier and/or industry. Develop financial proposals that are:

      -     Potentially large (in total volume) and profitable.
      -     Well packaged and of high quality: this may involve financial

6     Identify additional support mechanisms that may be necessary - risk
      sharing, guaranteed markets etc. Assess cost effectiveness.

7.    Monitor and review performance against specific environmental problem.



      Broad development of market for financing of ESTs.


1     Identify broad market areas of concern - e.g. general sectors known to
      be have significant polluters, cross-sectoral issues of importance (e.g.
      energy efficiency)

2.    Identify what the role of ESTs is likely to be and gather both general
      information and specific, practical examples of the financial benefits
      of ESTs.

3.    Disseminate information on financial benefits of ESTs in case studies to
      financiers. Thus could include seminars and workshops, but emphasis must
      be on the financial bottom line. Demonstrations of competitive advantage
      should be given. Also focus on the negative - businesses losing
      competitiveness through failure to invest in ESTs

4.    Establish links between EST dissemination bodies and financiers -
      including: educating those responsible for technology dissemination
      about the needs of financiers.

5.    Provide funds for deal packaging (a revolving fund model appears most
      sensible here), to ensure deals are developed to high standard, if
      technology centres are to send deals to financiers.


Business size           Type of EST       Appropriate type     Public support
                        need              of finance           mechanisms

Medium                  Major             Venture capital      DP, ID, PI
Sized                                     (strategic investors PI
Enterprises                               (Bank Financing)     ID, RS

                        Minor, hardware   Leasing              SU, RS, (DP)
                                          Performance cont'tg  SU, DP, (RS)
                                          (Balance sheet)      ID

                        Minor software    Balance sheet        ID
                                          Revolving funds      DF
                                          (grant funding)      DF
                                          (bank financing)     ID
                                          (Performance cnt'g)  SU, DP, RS

Small                   Major, plant      Bank financing       RS, ID
Sized                   modernisation     (venture capital)    DP, PI, ID
Enterprises                               (strategic investors) PI

                        Minor, hardware   Leasing              SU, RS, (DP)
                                          (Performance con)    SU, DP, (RS)
                                          (Balance sheet)      

                        Minor, software   Grant funding        DF
                                          Revolving funds      DF
                                          (Balance sheet)      ID

Micro-                  Major/ general    Special lending      SU, DF
Enterprises                               Bank financing       ID, RS

                        Hardware          Leasing              RS, SU, (DP)
                        Software          Grant funding        DF

Recommended sources of financing are indicated, with additional sources in
brackets. Balance sheet funding means through companies existing financial
resource mechanisms.
The public sector support mechanisms are:

      DF    Direct funding of costs
      ID    Information dissemination, especially on financial benefits of
      PI    Partner identification (Financial, technical as appropriate)
      SU    Funding start up costs of new financial initiatives.
      DP    Funding deal packaging or proposal development costs
      RS    Risks sharing, including technology or business risk.

                                   APPENDIX 1

                         QUESTIONNAIRE AND BRIEFING NOTE

Enclosed is the questionaire as sent to the international venture capitalists.
A slightly modified version was sent to the India based venture capitalists. 


                                  BRIEFING NOTE

As a professional involved in the finance of high growth companies in the
emerging markets, you are well aware of the commercial pressures companies are
under to reduce costs and improve performance. You may be less aware of the
environmental pressures that rapid development can produce, except as a source
of additional costs and bureaucracy. Reconciling these pressures is a
significant challenge. However, technological developments are starting to
offer a solution by making it possible for businesses to reduce environmental
impacts while reducing business costs. These technologies are called
Environmentally Sound Technologies (ESTs).

A substantial body of evidence is emerging to illustrate the business benefits
of EST. However, despite this, the uptake of ESTs by business has been
disappointing, particularly among small and medium sized businesses. One
potential reason may be access to finance, as acquiring ESTs can involve
additional capital expenditure. Obtaining this finance can be difficult, even
if there is a rapid payback on the investment. This study is looking at the
financial markets to assess whether this is the case and if so what actions
can be done about.

What are Environmentally Sound Technologies?

Technologies, including necessary support and services, which enable functions
to be fulfilled with reduced impacts on the environment, while making sense in
business terms. There are two principal types of EST. Firstly, there are those
technologies which help improve the manufacturing process - this includes both
"end of pipe" technology and clean process technology, but with an emphasis on
the latter. Secondly, there are those technologies which are needed to
manufacture environmentally superior products, for instance, energy efficient
light bulbs or CFC free refrigerators. 

It should be noted that the best environmental technology may not even be
perceived as environmental, it is merely the best technology. Clean technology
is a term sometimes used instead of ESTs.

What are the advantages of ESTs?

-     Reduced costs of raw materials and resources, including power and water
-     Reduced wastage and disposal costs
-     Improved compliance and reduced regulatory interference
-     Reduced future liabilities
-     Improved quality products, reduced defects
-     Improved working conditions and employee motivation.

Some of these advantages will have immediate bottom line benefits. Others may
be of more indirect advantage but should still result in improved business
performance. Note that there is emphatically no altruism here: companies are
not expected to use ESTs if the benefits are purely external. Note also that
there are clear links to many other management themes such as quality, cost
minimisation, and employee motivation. However, it should also be noted that
the advantages of ESTs, while real, may not be readily apparent in many
companies accounting systems - (for instance, waste disposal costs may be
treated as a general overhead, rather than related to individual costs of

What are financing needs for ESTs?

For the use of ESTs to become widespread, there are a number of different
types of financing needs. These include:

-     The general manufacturing company needs capital to finance its
      acquisition of ESTs which improve its manufacturing process.
      Modernisation or expansion can provide an opportunity to incorporate
      ESTs. Normally these technologies will be purchased from industrial
      suppliers. Most industries have the potential to use ESTs, including
      important sectors such as: Chemicals, textiles, cement and

-     Companies involved in manufacturing and distributing ESTs have capital
      requirements for business development. It should be noted that we are
      not here interested in funding the development of new technologies, but
      instead the distribution of proven technologies, particularly into new
      markets. One area of special interest is the funding of joint ventures
      to accelerate access to specific markets. 

-     Companies involved in manufacturing clean products also need capital for
      business development and for the acquisition of technology. Because the
      technologies are often proprietary, licensing and joint ventures are an
      important way of distributing these kinds of technology.

-     Companies involved in developing infrastructure such as power, water and
      mass transit are often significant users of ESTs, with special funding
      needs (however the bulk of the investment required will be not usually
      be for ESTs).

Note also that our focus is particularly the small and medium sized companies,
rather than the largest companies where access to finance is less of a
problem. We are also primarily interested in such companies in the emerging

About Delphi International

Delphi International is a financial advisory group specialising in the sectors
of clean energy and environmental businesses, with particular expertise in the
emerging economies of Asia. We help companies and projects secure equity and
debt finance, notably for strategic business alliances and joint ventures. We
also work with sponsors on the development of private equity funds, growth
funds and other innovative funding vehicles. Please contact us if you would
like more details about our activities.

About the United Nations Commission on Sustainable Development

The UN Commission on Sustainable Development was set up as the official
follow-up to the Earth Summit in Rio de Janeiro in 1992. One of the "leaner"
UN organisations, it is responsible for developing policies to implement
sustainable development. It has direct ministerial access in most countries,
and its policy recommendations carry significant weight.


Once you have completed this questionnaire please fax it to Mark Mansley 
on (44) 171 404 0326 by the 16th December 1995.

Name:    ________________           Organisation:      _________________

Position:   ________________        Fax no:      _________________


1.1   Are you familiar with the concept of environmentally sound technologies
      (EST)?                                                 Yes:      ■
                                                             No:       ■

1.2   Do you think that the advantages of EST are significant from a
      business/investment perspective?                       Yes:      ■
                                                             No:       ■
                                                             Don't know:    ■

1.3   Do you have adequate access to information on ESTs?
                                                             Yes:      ■
                                                             No:       ■
                                                             Don't know:    ■

Comments:   __________________________________________________


2.1   Do you conduct due diligence on the process technology being used by
      companies you are involved with?                       Yes:      ■
                                                             No:       ■

2.2   Does this due diligence specifically look at and compare the resource
      efficiency or cleanliness of the process technology?   Yes:      ■
                                                             No:       ■

2.3   Do you assess, at present, whether companies you are involved with are
      efficient in their use of raw materials, energy and water, in comparison
      with their competitors?                                Yes:      ■
                                                             No:       ■

2.4   Do you assess whether companies you are involved with may be running
      significant environmental risks?                       Yes:      ■
                                                             No:       ■

Comments:   __________________________________________________


3.1   Are you currently helping companies you are involved with access
      information on ESTs?                                   Yes:      ■
                                                             No:       ■

3.1A  If Yes what sources of information on EST do you currently use?
         International Organisations (e.g. World Bank, UN)   A lot  Some   
         Government / regulators
         Universities / Technology centres
         Trade press / Commercial information sources
         Trade associations / Chambers of commerce etc
         Other (please specify)                                    

3.1B  If you answered No to 3.1, would you be interested in helping companies
      access such information if you had access to it?       Yes:      ■
                                                             No:       ■

3.2   How useful would the following categories of information be? 
            Regulatory                                      1   2   3   4    5
            Other (please specify)                              

Comments:   __________________________________________________


4.1   How significant are the following constraints on the development of your
                                                       Large   Some    No
            Quantity of deals you receive
            Quality of deals you receive
            Availability of capital
            Internal resources, e.g. experienced professionals

4.2   Would you like to receive deals from a third party source, such as a
      technology transfer centre involved in promoting ESTs?      Yes:      ■
                                                                  No:       ■
                                                                  Don't know■

4.3   If such an organisation were to send you deals, how important is it that
      they ensure potential deals have the following attributes before
      contacting you?
                                                       Very            Not
                                                        1    2    3    4    5
            Good business plan / well packaged proposal
            Good financial prospects / rate of return
            Strong partners and existing backers
            Experienced / professional management
            Strong technology rights (e.g. patents)
            Good business agreements (e.g. license/ JV)
            Good marketing proposition 
            Other (please specify) ________________________

4.4   Assess your level of interest in the following classes of company:
                                                       Very            Not
                                                       1     2    3    4    5
4.4a  General companies requiring capital to invest in EST, e.g. for
      modernisation / expansion:
4.4b  Companies developing and manufacturing EST such clean process
      technology, including joint ventures:
4.4c  Companies producing "clean" retail products, including through joint
4.4d  Companies/projects requiring capital for infrastructure projects

Comments:   __________________________________________________


How effective do you think the following policy mechanisms would be in
increasing your interest in investing in ESTs?
                                                 Very             Not
                                                 1     2     3    4    5
5.1   Improving information on the availability and benefits of ESTs
5.2   Technical assistance and pre-investment financial assistance, for
      instance, to help companies improve their documentation
5.3   Tax allowances on installing ESTs
5.4   Public sector subsidies/grants for ESTs
5.5   Tighter regulation and enforcement of environmental matters.
5.6   Specialised financial mechanisms such as leasing
5.7   EST Rights Banks.
      (these are public owned bodies which would acquire the rights to various
      ESTs and then distribute the technologies at a reduced cost to
      businesses in a particular country).

Comments:   __________________________________________________


This information will be kept strictly confidential and only used for
analytical purposes within the scope of the project.

6.1   What type of companies (e.g. start up, 
      expansion) do you invest in? 

6.2   What is your deal size range?

6.3   Which sectors are you 
      most active in?              

6.4   In which sectors do you avoid

6.5   Which countries and regions
      are you predominately active

6.6   How many companies do you invest 
      in / have you helped

6.7   How much funds / assets do you 
      have invested / have you


7.1   Would you be prepared to take part in a telephone interview of
      approximately twenty minutes?                      Yes:  ■
                                                         No:   ■

  (If you have any additional comments or suggestions please enclose them on a
separate sheet)

                                   APPENDIX II

                          RESPONDENTS TO QUESTIONNAIRE


The following is a list, and brief summary where possible, of those
organisation who responded to the questionnaire. The information has been
provided on the understanding that it would be treated as confidential.


Equator Bank
Equator Investment Bank is UK based, and interested in start up & expansion
companies. They are predominantly active in Sub Saharan Africa, concentrating
in mining, agriculture and industrial sectors. Equator avoids the military
sector. Their deal size ranges between $4.5k - $100k, to date they have
invested and helped well over 30 companies .

Advent International
Advent is an independent venture capital firm based here in the UK.  They have
over $1bn under direct management in the UK with a portfolio of more than 200
companies . They invest in all stages of company development, deal size
ranging between $5-$50M. The respondent was predominantly active in E and
Central Europe, but Advent covers most markets. Advent International engages
in all sectors with the exception of armaments, tobacco and alcohol.

Oxford International Associates
Their main interest is the emerging markets and venture capital.  Deal size
ranges between $2-$5m, and they are active in infrastructure and manufacturing
sectors. Oxford is active in South Asia, Southern Africa and the Caribbean. To
date Oxford has helped over 120 companies and has over $200M invested (1993-

Murray Johnston
Based in the UK, their deal size ranges between ť500k-ť15M. Active in a number
of sectors however they avoid high technology. They have helped over 500
companies since 1980 and invested well over ť500M. Mainly active in the UK
although with interest in the emerging markets. 

The DEG (German Development Bank) active in a number of sectors, particularly
manufacturing, mining, energy. DEG focuses on the emerging markets, their deal
size ranging between 2-45m Dm. The DEG has invested in well over 300
companies,  funds invested to date is well over 2,366mDm.

Commonwealth Development Corporation (CDC)
The CDC focuses on the emerging markets, their deal size ranges between ť2m-
ť3m and they are active in the agriculture and industry sectors, avoiding
armaments and broadcasting. They have helped directly well over 380 companies
and invested over ť1.5Bn.

Hancock International
Private equity management company, with the emerging markets as a growing area
of interest. Have worked on a number of development projects, deal size ranges
between $10-$100m. Have helped or invested in over 30 companies.

Oppenheimer & Co
A large venture capital house covering most markets.

First Analysis
First Analysis is an investment research organisation managing the oldest
environmental private equity fund in the US. Interested in companies at
different stages of development,   operating mainly in the environmental
sector. Active in the US and Europe they have helped / invested in over 70
companies. (Invested funds over $250m) Increasing interest in Eastern Europe
and the emerging markets

Global Environment Fund
The Global Environment Fund is an investment partnership, engaged in
development , manufacturing, and distribution of environmental products,
technologies sectors. Their deal size ranges between $1--$10m, to date they
have invested  in well over 50 companies and invested over $140m.

Intermatch Corporation
Intermatch Corporation is a developer / promoter of business opportunity and
financial advisor. Main area of interest is the emerging markets. Active in
mining, manufacturing among others. They did not disclose funds placed.

India Responses

TATA Industries
Interested in start up / expansion companies, area of interest telecom,
electronics aviation etc. Active in India they have invested in over 10
companies (did not disclose funds placed to date).

Commonwealth Development Corporation (India)
Invest in start ups / expansion companies
Deal size ranges between ť3m-ť30m in India
To date they have invested well over ť140m in India and have invested in
/helped over 30

Industrial Credit Investment Corporation of India ICICI
Indian based financial institution, they invest in start up/expansion
companies. Deal size ranges between ť.2m-ť1m and they have helped well over 10
companies to date. Engage in paper, steel, leather sectors and have invested
over  ť3m.

South East Asia Responses

Preferred Energy Investments
Environmental / financial advisory company. Deal size ranges between $2-$5m
Most active in renewable energy, water/solid waste sectors. To date have
invested in about 7 companies (however did not disclose amount of funds

Philippine Venture Capital Investment Group
Venture Capital group based in the Philippines, deal size ranges between $1-
$10m. To date they have invested in over 10 companies, in both services and
the manufacturing sector. 

H & Q Asia Pacific
Singapore based venture capital group, interested in start up/expansion
companies. Deal size ranges between $2-$6m, engaged in technology sector.
Operate in the ASEAN region, well over $320M invested. Part of one of the
largest venture capital groups.

Yayasan Binausaha Lingkungan
Interested in expansion companies, deal size ranges between $125.000-$350.000.
Most active in renewables, ecotourism sector avoiding sustainable forestry and
agriculture. Have invested/ helped about 5 companies, funds invested to date
total $600.000.

Transpac Capital
Interested in companies at all stages of development, their deal size ranges
between $1m-$50m. They are active across most sectors e.g. manufacturing.
Invested in over hundred companies. $400m invested to date.

Africa Responses

Cavemont Merchant Bank
Small Zambian based Merchant Bank, active in export oriented sectors. Cavemont
is interested in start up/expansion. Deal size ranges between $100.000-$5m.
Have over $10m and have invested in about 10 companies.

Zimbabwe Development Bank
Development Bank, interested in start ups /expansion. Minimum project size Z$
200.000, active in a number of  sectors agriculture, mining, manufacturing
etc. 1995 approved over 71 loans, loans valued at Z$14.6m.


1/ A US-based organisation, the Tellus Institute, has been working with the
   USEPA and several large companies to develop an alternative ■total cost
   assessment■ approach to evaluating clean technology investments.  See Allen
   White, Deborah Savage and Monica Becker, Total Cost Assessment: 
   Accelerating Industrial Pollution through Innovative Project Financial
   Analysis, USEPA, 1993.

2/ The figures are based on developed country figures; those for developing
   countries will be correspondingly lower.

3/ Again, these are figures for developed countries.

4/ International organisations, governments/regulators,
   universities/technology centres, trade press/commercial information
   sources, trade association/Chambers of Commerce, and businesses

5/ The Business Council for Sustainable Development is now the World Business
   Council for Sustainable Development.


This document has been posted online by the United Nations Department of Economic and Social Affairs (DESA). Reproduction and dissemination of the document - in electronic and/or printed format - is encouraged, provided acknowledgement is made of the role of the United Nations in making it available.

Date last posted: 3 December 1999 10:27:35
Comments and suggestions: DESA/DSD