Launching of Study Reports on Cross Border Investment in Agriculture and Environmental Impact Assessment (EIA) Compliance with Banking Sectors in Cambodia

On 28 April 2021, the NGO Forum on Cambodia organized a launching of two research study reports on 1) “Cross Border Investment in Agriculture & 2) Environmental Impact Assessment (EIA) Compliance with Banking Sectors in Cambodia”. These two reports are very interrelated on cross cutting issues especially on the impact to environment and society caused by the investments and development. Thus, the workshop organizers decided to make the two launching together.

Dr. Tek Vannara – Executive Director of The NGO Forum on Cambodia said that EIA is very important to assure sustainable development that could contribute to our National Strategic Development Plan and the Cambodian Sustainable Development Goals up to 2030 and also the Cambodia Vision 2050 and the UN Sustainable Development Goals (UN SDG). Sustainable development imposes the three unique pillars – economy, social, and environment. The EIA report is one of the mechanisms to ensure proper development and engage all stakeholders in reviewing and approving the projects with an expectation to optimize the benefits of EIA practices. For instance, EIA provides sufficient information for investors to properly plan and develop their projects in a way that still can maintain income and at the same time reduce risks over the environmental and social resources. EIA also help investors to assure their project sustainability in responding to their long-term benefit. For banking and financial institutions, if the investors look for fund from banks, then the banks are also secured because of EIA. It promises that the project will lower risks for its own operation – gaining more revenue and build capacity of borrowers to return pay the loans. For government, when EIA is properly practiced, then laws and regulations are being complied and communities are protected and livelihood is improved through the investments. This could lead to better engagement of government, communities and private sector to assure the sustainable development – fulfilling the needs of the investors and communities. These are positive feedbacks of the EIA that has built up an involving mechanism for all stakeholders. If EIA is well practiced, all positive and negative aspects of the project are shared, discussed and addressed. One other good thing about EIA is that stakeholders are more alerted to any negative risks and are well prepared to tackle and respond effectively. The collaborative engagement is a true work to lively come together for the environmental management, restoration and livelihood development. Again, EIA is a pro-people and investors and impacts are managed to a level that lowers the costs and minimizes the benefits. Banks are more beneficial if the projects come with EIA and look for financial assistance. The regional practices like ADB or World Bank show the requirements for EIA and environmental management-related assignments prior to their loan approval. This is to assure that borrowers or clients must adhere to their safeguard policies to assure the financial and project sustainability. The implementation of EIA offers huge benefits to all stakeholders and secures the sustainability.

Mr. Men Pheakdey, Representative of National Bank of Cambodia: The National Bank of Cambodia encourages banking and financial institutions to practice impact assessment in approving loans. This is what those institutions are being considerate. Beyond this, they also comply with other regulations in Cambodia. I have three remarks on the study findings – 1) the declamation in the report mentions clearly that ideas and views expressed in the report only support the claims and conclusion of the author – this means that author writes what he knows and experiences during the study, 2) The objective of the report is to identify policy gaps in environmental and banking sectors that hinder the good resource governance. In this meaning, the focus on the policy gaps is a very good starting point, and 3) The recommendations are classified into short, medium and long-term. Some recommendations as I have observed are being exercised based on the MoU of NBC, ABC and MoE in September 2019. What we cannot make concrete move is that in the late 2019 and early 2020 and till now we are facing COVID-19 challenges in achieving our plan.

I have also observed that the study is in the right time for Cambodia and the world to modify the ways we protect our environment and achieve our development goals.

Mr. Heng Koy, Representative of Association of Banks in Cambodia (ABC): ABC understands that banking and financial sector has started strongly in working towards to environmental protection. ABC and members including private banks and financial service providers have actively engaged in the work of environmental and social protection. ABC has established a special committee with participation of our key members as frontiers to comment and consult on environmental and social protection. What ABC is doing is the voluntary work, not yet a legal promise or request to members for the work. Though we are volunteers, ABC has been supported by NBC, MoE and Development Partners – US Green Invest Asia, IFC, and other partners. As Mr. Men Pheakdey from NBC mentioned that though ABC has been working with its partners and members on a voluntary basis on Sustainable Financial Principles, but ABC has gained official support from Ministry of Environment, NBC as witnessed through the joint-MoU.

Mr. Sok Khim, Representative of Oxfam Cambodia: Oxfam observes the progressive growth of Cambodian economy for the last decade. Such growth attracts more investments to come and brings both negative and positive impacts. Investment and investors need capital and finance from banks or other financial institutions so that they could invest in Cambodia. Oxfam with Sustainable Finance Alliance has initiated a local network called Fair Finance Cambodia with 6 members. We have some NGOs and other stakeholders as members and we will extend to other members to discuss the fair and sustainable finance and financial development in Cambodia and to reduce risks of loans for investments in Cambodia. As noticed, Cambodian financial system has evolved progressively as mentioned by earlier speakers that NBC as policy-makers enacts relevant regulations to assure smooth performance of our banking and financial systems in Cambodia. Some principles and guidelines have been established to ensure smooth process and development. ABC initiates the Sustainable Financial Principles with 9 points that are parallel with international guidelines of ESG that has been approved and used by international banks in the world and region. This guideline assures that loans or credits from banks are not harming the environmental and social resources and inspires more social responsibility.

This is a starting point for financial management in Cambodia. The 9-point of the principles remains voluntary basis. We hope that bank members as I know there are more than 20 have adopted these points. We hope that those bank members will implement the guideline when they assess and approve loans to investors to assure that investments are with more responsible and could achieve the reduction of the risks on surrounding environment and communities. As mentioned, when the guideline is well exercised, we will gain larger benefits for both banking and private sectors and the local communities. Also, the government could assure the legal compliance and enforcement too. Good ESG can be effective and attainable.

Presentation by Mr. Chansen Sovanneath, Independent Researcher: This study is to study and understand the challenges and best practices of the banks in promoting the application of the requirements of Environmental Impact Assessment (Sub-Decree No. 72) to its clients to be responsible for performing environmental-social governance in a sustainable manner; to study and understand the policy gaps in the banking and environmental sectors which promote good environmental and social governance, and propose some policy and implementation options for the Ministry of Environment and for the banking sector to ensure good governance in a sustainable manner. Moreover, the study also aims to compile a case study on the best practice of a selected bank and its clients’ performance in improving environmental and social governance in Cambodia

This study uses a qualitative approach for collecting information and data in order to analyze and understand the research aim. Data collection included (A) key informant interviews (National Bank of Cambodia, Association of Banks in Cambodia, Ministry of Environment), (B) documentation of case studies on best practices of banks, and (C) consultative workshop with other key relevant stakeholders.

The provision of loans or credits in any amount enables clients or project owners to develop a number of large-scaled projects that could pose significant risks and impact on the environmental and social resources of the communities in which they are located. Due to financing that provides clients with sufficient capacity to clear, build, utilize resources, and operate their projects on a large scale, which may cause disruption or conflict with resources and livelihood activities of people in and around the project areas.

Financial and banking institutions in Cambodia have not exercised the requirements of environmental and social impact assessment in their loaning. There have been some challenges, for instance low motivation, high market competition, and limited awareness of the benefits of environmental and social protection among banking and financial operators and the public. Immediate fulfillment of such obligations may be an additional constraint or complication for both operators and clients wishing to seek loans from banking and financial institutions

The best practice of this assessment process in the finance and banking sector was not available during this study period, as the Ministry of Environment as well as the National Bank of Cambodia has not yet identified a legal requirement for the current banking and financial institutions doing businesses in Cambodia.

Responding to these shortcomings, the report identifies a number of solutions and measures that are needed to promote the joint implementation of environmental and social impact assessment needs for loans or credits that may pose a risk to environmental resources and socio-cultures.

National to regional linkages: How can these initiatives strategically position Cambodia as a key player in the Asian sustainable finance landscape? presented by Bernadette Victorio, Fair Finance Asia,

The Asian Web: Tracking Regional Financial Flows 2020FFA STUDY WITH PROFUNDO
• Between 2014 to 2019, FIs from Asia, North America, and Europe provided US$556 billion in loans and underwriting services to the biggest companies (by market shares) across FFA countries that are active in key high-risk sectors. Focus on 4 sectors with high ESG risks: fossil fuels, power, agri-business and infrastructure.

Financial flows to agriculture sector in Cambodia
• Selected large agro companies active in Cambodia attracted US$2.1 billion in loans and underwriting services between 2014-19, 78% of these were underwriting services, 22% were loans.
• FIs from Vietnam provide more than half of the identified loans and underwriting services with US$ 1.1 billion in credit, followed by FIs from Thailand with US$ 546 million, and Malaysian FIs with US$ 159 million.
• The top 15 creditors of the selected agri companies include 15 from Vietnam, and 4 from Thailand. The largest creditor was the Bank for Investment and Development of Vietnam (BIDV) which provided loans and underwriting services worth US$ 655 million, second was Siam Commercial Bank with US$ 347 million, and third was the HDBank with US$ 180 million.
• Investors held shares worth US$ 15.3 million in companies active in agribusiness in Cambodia that were exclusive shareholdings in the Vietnam Rubber Group and Hoang Anh Gia Lai that are Vietnamese-listed companies. No investments in the bond and shares of the agriculture companies active in Cambodia from ASEAN-based financial institutions were identified.

Compliance with ESG standards generally low
• Low average scores on 4 key themes: climate change 4%, gender equality 9%, labor rights 13%, and transparency & accountability 16%.

Environment focused forward-looking scenarios in 2030
• Impacts of climate change & environmental degradation
• Continued fossil fuel energy/GHG emissions: more frequent heatwaves, sea & river level rise and intensifying rainfall
• More frequent droughts and water crises
• 7% reduction of global GDP by 2030 according to NGFS scenario
• Social impacts include:
– destruction of large coastal cities, people’s livelihoods & housing, infrastructure,
– heat affects health/survival, open air workers, ecosystems & biodiversity, harvests
– more poverty, migration, land grab, potential conflicts
– adaptation to climate change: change in consumption & production/value chains, transport
– Widespread pollution of air, water, land, rivers & seas

Worsening human rights and other social issues
• Various political human rights abuses: less alerts and resilient society
• Serious labour rights violations: child labour, vulnerable employment, gender discrimination, forced labour and modern slavery
• Significant number of informal workers
• Abuses against small farmers
• Exploitative practices at multinationals
• Challenge of ageing population, new technologies
• COVID-19 impact worsens the problems: few ‘build back better’
• Increased gender inequality  

Presentation on experiences of environmental implementation under ADB-financed projects in Cambodia by Ms. Ouk Sokha, Senior Environment Officer

I. Safeguards: Involuntary Resettlement (IR); Indigenous People (IP); and Environment. The ADB Safeguards Policy Statement (SPS) 2009 covers IR, IP, and Environment. The SPS 2009 is currently under Reviewed and Updated. The objective of the SPS 2009: Policy Delivery Process; and Roles and Responsibilities of ADB and Borrowers/Clients.

II. Environmental Safeguards. Objective: to ensure the environmental soundness and sustainability of projects and to support the integration of environmental consideration into the project decision-making process.

A. Key Principles:
– Project Screening and Classification
– Impact Assessment
– Planning/Management Plan (Environmental Management Plan)
– Information Disclosure
– Meaningful Consultation
– Grievance Redress Mechanism
– Monitoring and Reporting

B. Government Policies/Royal Decree/Sub-decree/Regulation/Prakas
#1. Sub-decree # 72 on Environmental Impact Assessment Process
#2. Prakas #21 on Classification of Environmental Impact Assessment for Development Project (issued on 3 February 2020)
#3. Law on Prevention of COVID-19 Pandemic (issued on 12 March 2021)

Presentation on benefits of doing EIA report for private sector, citizen and state by Mr. Ham Kimkong, Managing Director of E&A Company

Importance of Environmental Impact Assessment (EIA)?
– “EIA” is study to predict the environmental consequences of major development projects.
– “EIA” is to examine, analysis and assess of projects to ensure environmental sound and sustainable development.
– “EIA” promotes environmentally friendly and sustainable development by identification of appropriate mitigation measures and EMP.

Why do we need to study EIA?
– is to inform the process of decision making by identifying the potentially significant environmental effects and risks of development project proposals and investments.
– is to promote sustainable development by ensuring that development proposals do not undermine critical resource and ecological functions or the well-being, lifestyle and livelihoods of the communities and people who depend on them.

Benefits from EIA report to stakeholders
– Environmentally sound and sustainable design
– Better compliance with EIA Standards
– Savings in capital and operating cost
– Increased project acceptance by the public
– Better protection of the environment and human health, social and natural resources
– Reduced time and cost for approval projects
– Purchasing order accepted by Client-Environmentally sound and protection.

Closing Remark by Mr. Hong Reaksmey, Country Director of ActionAid Cambodia

Many thanks to panelists and representatives of ABC and NBC, NGOs, and the researchers. As a result, there are two outputs – benefits and compliance for investments in responding to EIA requirements are very essential. Another point is that it is necessary to work with banking and financial institutions and regulators i.e., NBC to start considering the environmental requirements, monitoring and managing the legal compliance for the loans.

We, as Fair Finance Cambodia, have many limitations. Based on these two report findings and the spirits of our discussions in this workshop, will continue our collaboration with NBC and other stakeholders. There is limited capacity of the bank officials and cannot identify the environmental impacts. We cannot blame the loan officers for not having environmental background, but because they are not well capacitated. These are the responsibilities of both Ministry of Environment and NBC/ABC and the investors too. From today workshop, we find the entry point to start strategizing our work towards better environment and cooperation among NBC, ABC and related stakeholders including MoE and CDC to dialogue what we call can do together to draft additional regulations and especially the practices of EIA in banking and financial institutions.

We as civil society and working group facilitated by NGOF will continue to provide feedbacks and recommendations/inputs into those related regulations being drafted. From such regulations, we can recommend to policy-makers to stimulate some roles and duties for better engagements of the banking and financial institutions.

We as Fair Finance Cambodia alone cannot handle everything but would take this opportunity to invite you all to join our network. You can contact Dr. Tek Vannara or Mr. Mar Sophal or Oxfam Representative. We also have our limitations too within our network and we learn and share with each other some lessons, knowledge and experiences as share by our colleagues from Fair Finance. We hope that we can strength ourselves and extend our good cooperation with NBC and ABC.

I thank everyone and wish you good health and free from COVID-19.