Over the last decades, Asia has witnessed rapid economic growth which has contributed significantly to poverty reduction. Foreign direct investments and the banking sector have largely filled financing needs for this fast pace of development. However, negative impacts on the environment and society have been observed, which could undermine sustainable development efforts.
Financial institutions – such as banks and investors – can potentially play a big role in enabling social and environmental change by driving capital towards companies that are creating long-term value for societies, and away from projects which pose excessive social or environmental risks .
Key policies and governance approach
In 2016, the Cambodian Sustainable Finance Initiative (CSFI) was launched and the Association of Banks in Cambodia (ABC) made its first public commitment to embark on its sustainability journey . The initiative aims to establish best practices and educate its members on sustainable banking practices . The ABC also released Cambodian Sustainable Principles, supported with Implementation Guidelines . The purpose of the Implementation Guidelines is to serve as a basis for the Cambodian banks and microfinance institutions (MFIs) in developing their own sustainable finance approaches, in line with the Cambodian Sustainable Finance Principles .
Cambodian Sustainable Finance Principles state “We believe there is a role for the private sector when it comes to safeguarding the future of Cambodia. When making business decisions, we commit to prioritise the environment, protect our people and preserve our cultural heritage by actively assessing, managing, mitigating, offsetting or avoiding potential risks or negative impacts arising from our clients’ business activities, standards or practices. With these principles, our aim is to create a level playing field and raise standards across the sector” .
In implementing the Principles, banks/MFIs will incorporate into its decision-making processes an approach that systematically identifies, assesses and manages the environmental risks and potential impacts associated with its clients and transactions, and will determine whether relevant environmental standards have been adequately applied. Where avoidance of environmental impacts is not possible, they should seek to engage with their clients to minimise the identified risks and impacts. Banks/MFIs will consider whether its Business Activities contribute to potential negative impacts to the environment, particularly relating to: climate change; pollution (including soil, water and air); waste management; and the protection of Cambodia’s critical natural resources (water, natural forests & habitats, biodiversity) .
As of 2019, 45 banks had adopted the Cambodian Sustainable Finance Initiative .
SUCCESSES AND REMAINING CHALLENGES
Although Cambodia has made a lot of progress in adopting sustainable finance practices, a lot of work remains, including the need to safeguard future investments .
In addition, Cambodia currently lacks a standardized approach to green lending, which would make it easier for banks in Cambodia to originate and structure green loans and increase wholesale/international funders’ confidence to lend to Cambodian banks. In support of the Association of Southeast Asian Nations’ (ASEAN) expected release of its official definition of green lending, USAID Green Invest Asia is supporting the ABC to define and classify green lending, in coordination with the National Bank of Cambodia .
Initiatives and Development Plans
The French Development Bank (AFD) commits up to $150 million euros ($175 million USD) to Cambodia annually with a goal to ensure that at least half its commitments go toward projects with positive environmental benefits, including reduced greenhouse gas emissions.
A growing source of climate finance in Cambodia has been through the carbon market, where companies in Cambodia with emission-reducing schemes have generated carbon credits, which are then sold to companies and countries seeking to offset their carbon emissions. The U.S. government has facilitated more than $13 million in carbon credit sales to U.S. companies, including The Walt Disney Company and Delta Air Lines, according to U.S. Ambassador to Cambodia, W. Patrick Murphy .
- Small and medium enterprise with business activities which promote environmentally sound management should be encouraged and supported.
- Project financing, management, and transparency needs to be flexible with strong support from all line ministries.
- Sustainable financing will need to progress from the project-by-project approach to long-term financing through the banks and government support for carbon trading under the UNFCCC.
 Oxfam. Fair Finance Cambodia (2018-2022). [Online]. Available: https://cambodia.oxfam.org/what-we-do-inclusive-green-economy/fair-finance-cambodia-2018-2022.
 Green Finance Platform (2019). [Online]. Available: https://www.greenfinanceplatform.org/policies-and-regulations/sustainable-finance-principles.
 Green Finance Platform (2016). [Online]. Available: https://www.greenfinanceplatform.org/policies-and-regulations/cambodian-sustainable-finance-initiative.
 International Finance Corporation 2020, as the Secretariat of the Sustainable Banking Network (SBN) (2020). Sustainable Banking Network NECESSARY AMBITION: How Low-Income Countries Are Adopting Sustainable Finance to Address Poverty, Climate Change, and Other Urgent Challenges.
 USAID (2021). [Online]. Available: https://greeninvestasia.com/usaid-focuses-on-mobilizing-climate-finance-in-cambodia-climate-change-summit/.