A banking sector initiative launched yesterday aims to advise Cambodia’s financial sector on best practices for sustainable lending while capitalising on the growing pool of international funds that could flow into green and socially responsible projects.

The Sustainable Finance Initiative will conduct two years of research to identify best practices that can be applied by financial institutions when formulating their lending policies, such as ways to mitigate the damage associated with infrastructure, energy and large-scale agribusiness projects.

The initiative is being carried out under the management of the Association of Banks in Cambodia (ABC), which includes 50 member financial institutions. Its supporting partners include the USAID-funded project Mekong Partnership for the Environment, which is managed by the international NGO PACT, the Wildlife Conservation Society, and the private investment firm Mekong Strategic Partners.

Charles Vann, acting chairman of ABC, said that with rapid economic development, private sector lending needs to be underpinned by a sense of conservation.“The ABC understands that it needs to support sustainable financial principles,” he said. “We need to create more green-oriented funding through the private sector.”

Vann added even ahead of the two-year study’s findings, it is hoped that Cambodia’s commercial banks and microfinance institutions (MFIs) will adopt environmentally credible lending platforms that would boost the Kingdom’s investment reputation.

Julie Chung, charge d’affaires at the US Embassy in Phnom Penh, said that not having sustainable financial safeguards in place “runs the risk of damaging” the country.

John McGinley, managing partner at Mekong Strategic Partners, said that the initiative aims to influence the financial sector through risk management to avoid “social risks, financial losses, reputational risks and harm to the environment”.

“Bank lending helps the economy grow,” he said, “but finding environmental outcomes is a major shift globally and the future of developing a sustainable growth path.”

He added that with the recent ratification of the Paris Climate Agreement by China and the US recently ahead of the G20 summit held earlier this month, “sustainable finance has reached a new level”.

“The Cambodian banking sector needs to adopt better environmental safeguards to attract international finance from investors that are trying to balance social and environmental impacts,” McGinley said. “Cambodia can take a lead in the region in terms of climate financing, but banks need to talk about current lending practices that pose risks to the environment.”

This program, he said, would help position banks for more foreign funding down the line. Eang Sopalleth, undersecretary of state for the Ministry of Environment, said that with global concerns over environmental protections growing, “the ministry will capitalise on this momentum by taking measures to stronger protect and manage natural resources”.

Companies that harm the environment will be “removed”, he said.