This policy paper is a derivation of the key study results and discussion in the research on the Environmental and Social Impact Assessment (ESIA) Compliance in Cambodian Finance and Banking.
The finance and banking sector has played an essential role in and is one of the mechanisms for promoting sustainable economic growth. Ensuring cash flow and currency circulation is a primary task in increasing economic activity for the nation and the people earning a living. The proliferation of many banking and financial institutions in Cambodia is a clear testament to the growth of economic activity, including a rise in investment or development projects proposed to comply with the Development Policy of the Royal Government of Cambodia. These banking and financial institutions are a source of essential capital for investments. While financing development projects are economically beneficial, these projects’ ecological and social impacts require serious scrutiny.
Cambodia’s legal framework has not yet paid attention to ecological and social issues and natural resource protection in the banking and finance sector. Past legislation aimed at sharpening technical work and improving the efficiency of managing ESIAs, with specific guidelines from the Ministry of Environment. There is no legal basis or provision for the inclusion or integration of this assessment in Cambodia’s banking and financial institutions’ policies and practices. This shortcoming demonstrates the current need to begin considering the potential social and environmental impacts from financing development projects.
Customarily, project owners or clients who have received funding from international or regional banks (such as the ADB, the WB, or the IFC) have diligently studied and prepared ESIAs to comply with the rightful conditions of those banks. The requirements of these banks reflect the recognition of concerns about environmental-social issues and long-term sustainable development that are becoming active topics in the context of development. The provision of loans or credits in any amount enables clients or project owners to develop several large-scale projects that could pose significant social and environmental risks. It provides clients with sufficient capacity to clear, build, utilize resources, and operate their projects on a large scale, leading to the depletion of resources and disruption of livelihoods of local populations.
In the volatile context, bank financing has boosted the momentum of industrialization, urbanization, agriculture, and tourism through development projects. However, those momenta have led to changes in land use and human settlements, resulting in declining water and land quality, degradation and loss of biodiversity, encroachment on forests and protected areas, increased pollution, and harmful consequences on human health. It is imperative that Cambodian banking and financial institutions begin to understand the role of loans or credits in damaging the environment and socio-cultural resources, the consequences of which may prove detrimental for their clients and development projects.
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About Fair Finance Cambodia
The Fair Finance Cambodia (FFC) coalition aims to reduce the negative impacts of cross-border investments on human rights, the environment and climate change, particularly those made by multinational financial institutions, banks and insurers while increasing inclusive economic development. FFC is operational in Cambodia – wherein the Fair Finance Cambodia Civil Society Organization (CSO) coalition leads research and engagement with key stakeholders, including financial regulatory and policymaking institutions, banking and investment associations, multilateral development banks and academia. FFC is a member of Fair Finance Asia, a regional network of CSOs committed to ensuring that financial institutions’ funding decisions in the region respect local communities’ social and environmental well-being.