Finance and the Sustainable Enterprise

8/12/2019 Finance and the Sustainable Enterprise

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STEPHEN M. ROSS SCHOOL OF BUSINESS [DRAFT]ANN ARBOR, MI 48109-1234

FIN 637: Finance and the Sustainable EnterpriseFall B, 2005, 2.25 Credits

Monday/Wednesday, 12:50 pm - 2:10 pm, Michigan

Gautam Kaul Kari Walworth, TAOffice: D6213 Email: [email protected]: 764-9594E-mail: [email protected] Hours:By appointment.

COURSE DESCRIPTION

The past decade has witnessed the emergence of the notion of sustainable businessin both corporate and academic circles. Although still nebulous, a reasonablecharacterization of a sustainable enterprise is emerging. In perhaps its broadest sense,a sustainable business is one that achieves an optimal balance between profit andshareholder value, on the one hand, and broader economic, social, and environmentalvalues, on the other. So, why is there this need for studying a sustainableenterprise? This relatively recent, though increasingly visible and important, trend

would seem to imply that most (or at least a significant fraction of) current businessesare not sustainable. As a result, some business schools offer courses that deal withthe strategic, marketing, and policy aspects of sustainable business. We will go a stepfurther and explore the financial valuation aspects unique to sustainability issues

confronted by businesses.

We will begin the course with a study of the evolution of the modern firm, andexplicitly establish the fundamental basis of the well-accepted objective of maximizingshareholder value. The objective of maximization of shareholder value has hadremarkable success because, apart from being based on the powerful principle of theinvisible hand, it is relatively easy to implement by rational individuals in a well-functioning competitive market. To fulfill this objective, a corporation simply needs topursue ideas/projects whose perceived benefits are greater than the perceived costs;or equivalently, firms need to pursue projects that create value on a net basis. And the

well-developed fields of economics and finance have provided us with verysophisticated valuation frameworks and techniques that help us determine whether

an idea is value-creating or not.

This course will begin with the assumption that the frameworks provided byeconomics and finance can, with appropriate modifications, help us understand anddeal with the unique issues faced by a sustainable business. Since the issues thatchallenge the sustainability of the modern enterprise are both varied and complex,this course will largely (though not solely) focus on environmental issues. We willaddress the financial and valuation issues from the perspective of a typical firm whose


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objective is to maximize shareholder value, but is now increasingly confronted by aslew of environmental issues that have real effects. We will critically evaluate theviability of the assumptions and institutions necessary to ensure the success of anymodern firm in achieving its objective of maximizing shareholder, without adverselyaffecting broader economic and societal values. More importantly, we will modifyexisting economic and financial frameworks to evaluate the effects of new and

emerging regulatory and strategic environmental issues on the value of projects andfirms.

COURSE PEDAGOGY

There are two unique and important pedagogical features of this course that I wouldlike to highlight. First, we will have to deal with a lot of ambiguity in this course;yet we must create as much structure as possible to help us confrontsustainability issues. I am used to teaching Finance, which is very structured. Overthe past several months I have realized that in this course both I, and you, will need todeal with nebulous and open-ended issues. And this starts with the very concept ofsustainability. But we must strive to make the course as analytical and numbers-oriented as possible. If we fail to achieve a healthy balance between the philosophicaland analytical issues involved, I will consider the course to have fallen short on one ofits major goals.

The second unique feature of this course (at least for me) is its pedagogy. Whilewe will rely heavily on the emerging literature at the intersection of ecologicaleconomics, traditional economics, and modern finance, we need to learn and create alot of new material. There is a dearth of quality teaching material that is both rigorousand applied in nature. We will need to create a new course together by not onlyframing the issues, but often by collecting and creating course materials that containrich examples and analyses of the important issues involved.

This course is therefore an experiment in co-creation.We already have benefitedtremendously from the contributions of Nicholas Cucinelli and David Foley. WithoutNicks conviction and persistence this course would not have been created. He worked

with me over an entire year to create both the structure and the content of last yearsversion of the course. David, with help from Diviya Sharma, took responsibility forcreating the content for a Micro Finance module. And last years class made thecourse a success and executed some great projects.

This years version of the course has changed dramatically, with at least a half a dozencases being added to the schedule. I would like to thank Professors Benjamin Estyand Forest Reinhardt of the Harvard Business School for helping me with their advice

in identifying and obtaining cases that would be appropriate for this course. KariWalworth has very graciously agreed to help me with the course this year. We willwork together to make this another rewarding and successful year.


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ADMINISTRATIVE DETAILS

Class Size: 30. Both the experimental nature of the course, and its pedagogy, dictatea small class size.

Required Materials:

Most materials, except three articles that are Reserve in the Library, will be availableon the course website. You will also be required to purchase some copyright materials,e.g., book chapters and cases. I strongly urgeyou to use all materials only forclassroom discussion purposes; please do not copy or distribute any of the materialsthat are made available either in the packet or on the web site. To access the web site,please click on the following:

https://ctools.umich.edu/portal/site/3dbc93b0-aa0b-4a65-8091-7e2deb34adcf

Note: You are responsible forprintingyour own copies of the materials on the courseweb site. I have organized all the materials under the Resources Link; they are arrangedin alphabetical order by the last name of the first author of the specific resource. Thereare some articles from Economist and McKinseys journal, and they will be referred to bejournal name and year. The copyright cases and notes are provided in a packet for youto purchase. All materials in the packet are marked with a Pin the attached classschedule. The articles in the Library Reserve Section are indicated by an R.

EVALUATION

Note: Each module will be facilitated by either me or one of you (typically working withyour team). The teams will be formed at the beginning of the course. Each week, there isa set of pre-assigned reading material and/or cases. Please be prepared well-prepared

for class, as your participation is key to the success of this course.

The grades for this course will be based on two main components: class participation(40%) and in-class group presentations (60%). There is no final exam.

Class Participation:This course belongs to all of us. The quality of discussion inclass will be a leading indicator of the quality of the course. Hence, there is a 40%

weight on general class participation, which does not include any required formalpresentations. This is the only part of your grade that will be based on your individualperformance.

In-Class Presentations:Your group will have at least one major opportunity to leadan in-class discussion. While you have the freedom to choose the format of this

presentation, you will have to demonstrate mastery of an important concept and/orapplication that is scheduled to be covered in the course. This presentation willtypically include your analysis of one of the cases we will be covering in class. It willgive you the opportunity to expose the class to new insight(s) and analysis pertinent tothe general area of sustainability and finance. You will also be graded on your abilityto handle questions from your colleagues.


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The presentations will be made by teams/groups. Each team will be comprised of fourstudents; with a mix of MBA2s and MBA1s in each team. In keeping with theexploratory spirit of the course, I expect each group to conduct research that goes wellbeyond the articles/materials provided in the syllabus.

Background Reading for the Course

I would encourage you to read the following articles between now and mid-Novemberto understand a very important set of issues that, at a minimum, must be confrontedto make any type of dent in the sustainability domain. Even if you have already readthese articles before, please review them again.

Aldo Leopold, excerpts from A Sand County Almanac, with Essays on Conservationfrom Round River, (1966). Read pp. 137-141, 188-190, and 237-246. [Read the wholebook when you have the time.]

Ronald Coase, The Problem of Social Cost, Journal of Law and Economics (October

1960). Read pp. 1-19, 42-44.

Garrett Hardin, Tragedy of the Commons, Science (1968). Read entire article.

Alfred E. Kahn, The tyranny of small decisions: market failures, imperfections, andthe limits of economics, Kylos (1966). Read entire article.

Note: All these readings are in a separate folder titled Background Readings under theResources Link. They are arranged in alphabetical order by the last name of the firstauthor of the specific article.


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CLASS SCHEDULE

MODULE I: FUNDAMENTALS

In the first major module of the course, we will address some fundamental concepts,related to sustainability, the role of the modern corporation, and the theory and

practice of finance. The discussions will start off at a theoretical/conceptual level, butwe will move on quickly to detailed valuation exercises.

Monday, October 31, 2005

Course Description, Expectations and Administration (including formation of teams)

Main Topic: Sustainability

Purpose:To grapple with the complex concept of Sustainability. Please do not expectto get a clear idea of the concept because there is no clear definition out there.

This is both terrifying and exciting!

Readings:

Robert Solow, Sustainability: An Economists Perspective, (1991).

Robert Solow, An Almost Practical Step Toward Sustainability, (1992).

Questions:

Please consider the following questions, and any others that come to mind, as you

carefully read through the assigned articles.

1) How is sustainability defined by Solow?2) What are the two or three distinctive features of this definition?3) In the second article, Solow suggests a way to account for the depletion of our

natural capital. Even if we could correctly alter the measurement of ournational product, how will it help the goal of achieving sustainability?

Wednesday, November 2, 2005

Main Topic: The Role of the Modern Firm

Purpose:To understand the main objectives of the modern corporation, as they haveevolved in the U.S., and increasingly also in the rest of the world.

The readings below are the introductory chapters of the most popular book onValuation. Although there is some overlap, reading both of them will give you a verygood sense of both the issues and the evolution of thought (albeit, largely in the U.S.)on this important matter.


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Readings:

The following two articles published in the McKinsey Quarterlywill help you developan understanding of the role of the modern corporation.

Why Value Value? (1994). This is the first chapter of the McKinsey book, Valuation:Measuring and Managing the Value of Companies, 2ndEdition.

Why Value Value? (2000). This is the first chapter of the McKinsey book, Valuation:Measuring and Managing the Value of Companies, 3rd Edition.

Questions:

Please consider the following questions, and any others that come to mind, as youcarefully read through the assigned articles.

1) What is the main objective of the modern corporation?2) What assumptions are necessary to achieve this objective?3) What are the benefits and costs to society of having an economy comprised of

private corporations? [Think of the message of the movie The Corporation.]

Monday, November 7, 2005

Main Topic: The Role of Discounting

Purpose:To understand the basis of interest, time value of money, and discounting.We also need to develop an appreciation of some of the deeper issues involved; though

we may not come to an agreement about what is the right thing to do!

Readings:

Irving Fisher, Theory of Interest, (1930), pp. 1 117.

A Classic! This forms the foundation of modern finance. Ironically, the father ofdiscounting also developed a definition of income that is the most sustainabilityfriendly! This is a long document, so read the following pages carefully (browsethru the rest quickly): 1-7, 23-28, 30-46, 63-74, 77-85, 93-100.

Deep Discounting, Economist, (1999). Read carefully; just two pages.George Loewenstein and Richard H. Thaler, Anomalies: Intertemporal Choice,

Journal of Economic Perspectives, (1989). Quickly browse through.

Questions:

Please consider the following questions, and any others that come to mind, as youcarefully read through the assigned articles.

1) What are the sources of the (typically) positive interest rate?2) How is Fishers analysis related to modern methods of valuation?


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3) Critically evaluate the Economist article, with specific emphasis on theargument in the third paragraph.

4) Is a positive interest rate inherently inconsistent with sustainability? This is atough(er) question.


Main Topic: Valuation CASE: Columbia Alloy [P].

Purpose:To bring everyone up to speed on Valuation using a case that was alreadycovered in the core, Columbia Alloy. This case, though quite standard, does have someimportant issues related to valuation practices followed in the real world and theireffects on sustainability.

Questions:

1) Calculate the IRR for the conservative strategy.2) Calculate the IRR for the aggressive strategy.3) Based on the IRR calculations, which strategy do you recommend that Columbiafollow?4) Is the strategy suggested by the IRR analysis the right one to follow? Why or whynot?5) What is the right way to choose between the two strategies?6) Assume you are making your decision as of today, and calculate the discount ratefor this firm based on real world data. Calculate the NPV of the two strategies, andrecommend the one you will choose. [This last part requires you to do analysis basedon real world data that is not provided in the case. The core course should have

prepared you to do most, if not all, of this analysis. Also, your group members who havedone Valuation should be able to explain stuff to you.]


Main Topic: Valuation CASE: Tree Values [P].

Purpose:To do a valuation exercise directly related to sustainability. This is a caseabout the valuation of trees. We will first do a hypothetical analysis, followed by amore detailed analysis based on data provided in the case. We will then furtherexpand the scope of the case by considering the value of preserving natural capital.

This case is quite important to the course as it covers both financial techniques andsustainability issues. We will therefore devote two classes to it.


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(Hypothetical) Questions:

Please use BOTH NPV and IRR analyses to answer all questions below.

1. Consider a 50-year old tree that is 10 in DBH and grows one inch in DBHevery five years. Assume that the cost of capital is 6.5% per year and there is no

change in grade for the hypothetical tree. When would you recommend cuttingthis tree, if the harvest decision is made every ten years? What if it takes ten

years to grow one inch in DBH? If you would recommend different times to cutthe tree, please explain why you reach different conclusions.

2. Consider the same problem as above, except that the tree now increases onegrade with each 2 growth in DBH and the price per MBF also grows at the rateof 2% per year in real terms. How would your recommendation change?

3. Assume that you are faced with this problem today, how would you go aboutdetermining the cost of capital? Conduct a cost of capital analysis and redoquestions (1) and (2) above. How does your analysis change, if at all? [This lastpart again requires you to do analysis based on real world data that is notprovided in the case. Also, your group members who have done Valuation shouldbe able to explain stuff to you.]

(Real) Questions

4. If Mr. Smith simply lets his trees grow, would they increase in value? Whenwould you recommend cutting the trees if they are simply left to grow? Assumethat the trees grow at a rate of 1 in DBH every ten years. The relevant cost ofcapital for Mr. Smith is 6.5% per year, and all the trees have to be cut at thesame time. Half of the trees were 12 in DBH and the other half 14 in DBH.

The 12 trees were 100% grade 4, and the 14 trees were 40% grade 4 and 60%grade 3. The increase of tree grade occurs after each 2 DBH growth and up to20 DBH, according to the probability distribution in Exhibit 3. The BF/treegrows at 10% per inch for DBH larger than 24. Evaluations on the tree-cuttingdecisions take place every 10 years.

5. If Mr. Smith decides to manage his forest from now on, how would this affect itsvalue? Assume that half the trees are thinned and that the remaining treesgrow at the rate of 2 in DBH every ten years. Also assume that a forestersmanagement costs are offset by the value of the thinned trees. What forestmanagement strategy, if any, would you recommend to Mr. Smith? Does thisstrategy change if the cost of capital is 7.5% instead?


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Main Topic: Valuation CASE: Tree Values (P) (contd.)Valuing Biodiversity CASE: Science (2000)

Purpose: A more detailed analysis of the case covered last time based on real data

provided in the case. We will also go beyond the scope of the case by considering thevalue of preserving natural capital by doing an exercise within the context of the caseandcritically evaluating a solved case presented in Science based on Madagascarrain forests.

Questions:

1. So far, we have considered the decision over one harvesting cycle. All trees arecurrently 50 years old and new trees are planted at the end of each harvestingcycle. Assume that history repeats itself for an infinite number of times and thepresent value of harvesting proceeds is identical at each harvesting cycle. How

would you recommend differently?

2. Built upon the assumptions made above, we further assume that there issignificant biodiversity value of owning the forest such as the flood controlvalue, the value of recreational activities and the value of developing medicinefrom the forest. Mr. Smith just agreed with an outside contractor who willdeliver the biodiversity value (BDV) at the end of each growth cycle (10 years) on

the basis of BDV age , where is the thinning fraction of trees, 500 is

the value factor, and age is the tree age. The biodiversity value will be lost

forever upon even a single harvest. When do you recommend cutting the trees?What if 10000 ?

3. Read and the Science article carefully and be prepared to critique the financialanalysis and also present the main insights that can be gleaned from theanalysis.

MODULE II: THE MODERN FIRM, MARKET FAILURES, AND SUSTAINABILITY

In the first part of the course we hopefully realized that sustainability requires that we,at a minimum, operate efficiently. That, in turn, means that we maximize value of allactivities at a minimum cost, where both value and costs include private andsocialeffects. Markets fail because they are not designed to maximize/minimize the social

value/costs. Again, we will start at the broadest level, but move on quickly to detailedfinancial analysis. Even in the cases involving broad issues, we will try and dofinancial analysis. Since this course is using environmental issues as the mainbackdrop, this entire module is based on the experiences of (largely) the U.S. inconfronting the Acid Rain problem. This module has the advantage of being verytopical and relevant for us as we confront the bigger problem of global climate change.


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MODULE III: THE REAL OPTIONS FRAMEWORK

The goal of this module is to understand the real option framework, with an eyetoward its applicability to sustainability issues. This is an intellectually demanding(but really powerful financial] topic that is surprisingly application to many issues

related to sustainability. We will, therefore, spend some time understanding theframework, do a standard application, and then conduct a detailed and complicatedapplication to again evaluate the compliance strategy of Southern Company (A).


Main Topic: Real Options - The Framework for Valuing Flexibility

Purpose:To understand the fundamental underpinnings of the real optionsframework. This will require both of todays sessions.

Readings:

Introducing a Hybrid: An Example. I have adapted this example from a case datingback to the early 80s about a company faced with the decision to introduce a PC. It isapplicable to any corporate decision made under a lot of uncertainty. It is supposed toexcite your imagination about the potential value of the Real Option Framework. Readthis carefully.

Burton A Weisbrod, Collective-Consumption Services of Individual-ConsumptionGoods, (1964). This is a very nice piece on option value in the context ofconservation.

A Note on Option Pricing. This is a note that we will cover in detail in class,after we have motivated the value of the real options framework.

Note on Basic Option Properties (2005), (R). This is an article that is similar tothe note above.

Note on Option Valuation (2005) (R). This article lays out some of the morepractical aspects of option valuation.


Main Topic: Externalities - CASE: Southern Company (A & B) [P].

Purpose:The main purpose of this case is to use financial tools to figure out the leastcost way for a particular firm to comply with the new regulationcontained in theAmendment to the Clean Air Act of 1990. This can be done based on just case (A).But we also want to understand the implications of the regulatory complexities ofClean Air Act compliance planning for electric utilities. Case (B) forces such a


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discussion, which is of even greater importance now that we are confronted with amuch more serious carbon dioxide (and other greenhouse gases) emissions problem.

Questions:

Main question:What is Southern Companys least cost alternative? In answeringthis question, you shouldfocus on the two high-sulfur coal options (i.e., with andwithout a scrubber).

You should look at the present values of both scenarios. In doing your analysis, pleasedo not take the 10% discount rate given in the case as the truth. Do your presentvalue calculations twice: (1) first using 10%, and (2) using a discount rate (or cost ofcapital) for the company based on your own calculation/estimation based on real datafrom the internet or wherever. You may assume that there is no tax-advantage to debtand that the probability of bankruptcy is close to zero. [Since you may have troublegetting data at the time the case was written, you should feel free to calculate the costof capital using even post-1992 data. Remember that although it is the process that isimportant; but, in the case of the discount rate, so is the magnitude.]

Background Reading:

This case again will require some understanding of the background of the economicsof pollution control, and the strengths and weaknesses of different policy options.

I recommend the following reading:

Tom Tietenberg, Environmental and Natural Resource Economics (2003), Chapters 15&17.

Also, is very important to understand that the actions of the government can affectmultiple parties, including those seemingly unrelated to the issue at hand. In thiscontext, please read the following case as well (that also includes a good description ofthe acid rain problem):

CASE: Burlington Northern, Inc. (A) [P].The acid rain problem is approached from

the perspective of a railroad whose principal product is the transportation of low-sulfur coal. Executives of Burlington Northern understand that their productscompetitive position depends, in part, on the form of acid rain legislation that ispassed by the Congress. [You do NOTneed to analyze this case; just read it tounderstand the issues.]


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Questions:

Main Question:What is Southern Companys least cost alternative? In answeringthis question, you should againfocus on the two high-sulfur coal options (i.e., with andwithout a scrubber). But, this time, you should allow the introduction of the scrubberin any year (starting in 1995).

Helpful Simplifying Assumptions:

To simplify your analysis, you may make the following assumptions (and/or othersthat you can justify):

(1) Decision point, 1995. Do all your analysis as if you are in 1995.

(2) There is no time-to-build. This implies that you can buy the scrubber for ~$800million and start using it right away (that is, you do not need three years tobuild up the equipment). The depreciation schedule is the same as in theoriginal case/analysis. Arbitrarily assume there is no investment in the last

year.

(3) The price of scrubber increases at 10% per year. This assumption is realistic andactually makes the flexibility option unattractive.

(4) Risk-free rate. Assume a risk-free rate of 5%.

(5) Allowance Prices. This is the toughest part; hence I will make your life easy.Assume that it starts at $250; and also that u = 1.35 and d = 0.74. [Note:Consistent with typical usage in many books, these are gross and equivalent to(1 + u) and (1+ d) in the Options Note, p. 23. Also, please drop the *p at the end

of the equation on p. 26 of the note. Finally, if u and d are defined as in this note,the left hand side of the equation on p. 26 will need to have a 1 added to it.]This,along with the risk-free rate, will give you risk-neutral probabilities of ~0.50. Ateach node, start with the price you project and assume that there is a 10%increase every year after that till 2010 (as you did in the static PV analysis).

(6) Conduct the Real Options Analysis. First, calculate the no-scrubber versusscrubber-immediately present values as you did earlier, but this time in 1995.

Then, construct the options tree and come up with the present value, again in1995, of the flexible alternative where you can introduce the scrubber at anytime in the future.

(7) Sensitivity Analysis. Since there is a lot of uncertainty even in the starting(1995) allowance price, redo your analysis in (6) above starting with allowanceprices ranging from $0 to $600. Create a table that lists the present values ofall three alternatives as a function of the allowance price in 1995; useincrements of $50 to do this. If you write a macro, this should not be a problem.


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Wednesday, December 7, 2005 (5:30 pm 8:30 pm, in WYLY 2760)

Main Topic: Real Options - CASE: Southern Company (Revisited) [P] (Cont.)Presentation by Qin Lei: The analytics of real options.Presentation by Ed Chao: The Global Emission Problems.

Purpose:To continue our discussion of the real options application to the case. Also,to understand the analytics involved in conducting a real options analysis. Finally, todevelop an understanding of the issues involved in confronting the more complexglobal warming phenomenon.

I think you also need to be exposed to the tools underlying the real options analysis sothat you can use it in many different domains. We will therefore also have apresentation of the technology used to conduct the real options analysis of the leastcost alternative for compliance by Southern Company (A). The presentation will beconducted by my PhD research assistant, Qin Lei.

Finally, Ed Chao has kindly agreed to make a presentation about the emerging issuesresulting from fossil-fuel-based emissions across the world. This is important becausethe world is now in the midst of confronting a more complicated issue than therelatively localized acid rain problem. Fortunately, as you will see, we can transfer alot of the knowledge gained by studying the acid rain issue in detail.

MODULE IV: GLOBAL ISSUES OF SUSTAINABILITY

The final module will address the issue of sustainability in the global context. As wemove from sulfur emissions (a relatively localized phenomenon within the US) to the

world of carbon emissions and global warming (literally world-wide phenomena), weneed to wrap up the course by developing some understanding of the challenges tosustainability in a global context.

Monday, December 12, 2005

Main Topic: Global Sustainability - CASE: The Equator Principles: An IndustryApproach to Managing Environmental and Social Risks [P].

Purpose:The main purpose of this analysis is to understand the big picture as far asglobal sustainability issues are concerned. We will do so discussing a very newinitiative by a group of leading financial institutions in the face of global NGO

pressure.

Questions:

1) What problem are the banks trying to solve by adopting the Equator Principles?How do banks contribute to the problem? Will the Principles solve the problem?

2) Why are NGOs criticizing the Equator Principles? Is their criticism valid?


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3) What should the Equator banks do now; marketing (encourage other banks andECAs to adopt the Principles), implementation (develop policies andprocedures), or damage control (respond to the NGO criticisms)?

Background Reading:

The following reading will help you understand the form of financing that is typicallyused to finance large infrastructure projects with big economic, but usually significantenvironmental/social impacts.

Benjamin C. Esty & Aldo Sesia Jr., An Overview of Project Finance 2004 Update,(2005), (P).

Wednesday, December 14, 2005 [5:30 pm 8:30 pm, in Wyly 2760]

Main Topic: Global Sustainability - CASE: Nghe An Tate & Lyle Sugar Company(Vietnam) [P].

Purpose:The main purpose of this analysis is to attempt to understand and measurethe private andsocial returns to a large investment in a developing country. Asecondary purpose is to introduce you to project financing. Since this case involvessome background reading and some new concepts, which need to then be applied to acase, we will spend both of todays sessions on this topic.

Background Reading:

Benjamin C. Esty, Frank J. Lysy & Carrie Ferman, An Economic Framework for

Assessing Development Impact, (2003), (P). Read this carefully before attemptingto analyze the case.

Questions:

1) How attractive is the project from the sponsors perspective? What are the majorsources of risk facing the project? [Assume that the appropriate real, risk-adjusted discount rate is 10%, the inflation rate is 3%, and the nominaldiscount rate is 13.3%.]

2) Are farmers likely to convert to cane?3) Will the government support the project? Who will be affected by the project,

and how large are the costs and benefits to each group?

4) Would you, as IFC management, finance the project? How compelling are thesocial returns?


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Note:I have included two interesting cases in your materials that are related to thiswhole issue. These are the Chad-Cameroon Pipeline and the International RiversNetworkcases. Please read these cases at your leisure to understand the complexityand richness of all the issues involved in the development of large-scale projectsacross the world (and particularly in the developing world).

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Finance and the Sustainable Enterprise