Cambodia’s transition towards a green economy requires a financing boost, with the National Bank of Cambodia and IFC joining efforts to support climate-friendly projects.

The National Bank of Cambodia (NBC) and IFC have signed a cooperation agreement to address the financial aspect of Cambodia’s climate change challenges and create a favourable environment for the growth of green finance.

A lot of the country’s green finance potential is still untapped, due to several regulation issues. For example, Cambodia still lacks clear guidelines as to what qualifies as green finance. Moreover, local firms need more transparent reporting and disclosure requirements on green lending and environmental, social, and governance (ESG) risks.

Therefore, existing green policies amongst local financial institutions to innovate and introduce sustainable finance practices and products are very limited. That eventually affects Cambodia’s businesses that aim to transform their activities into more climate-friendly operations.

“The financial sector plays a pivotal role in helping unlock capital for climate-friendly projects, but this will require the right policies and creation of an enabling environment. We are committed to crafting a robust green finance policy framework to create a supportive financial ecosystem to channel and incentivize investment into green projects in Cambodia in support of the government’s climate ambition as outlined in the Nationally Determined Contribution under the Paris Agreement.”

Yim Leat, Deputy Governor of the National Bank of Cambodia

With support from the Facility for Investment Climate Advisory Services (FIAS), the project will be implemented over the next three years. A national taxonomy in line with the best international practices, which will help define assets and projects that qualify for a green investment, is expected as soon as 2025.

The integration of Environmental, Social, and Governance (ESG) factors into investment strategies is quite challenging due to the lack of clear regulations and transparent reporting. Transition finance that focuses on enabling a climate-change strategy in challenging industries is one of the hardest parts of global sustainability efforts.

While investors willingly support the projects promoting renewable energy, high-emission businesses that wish to transit to a greener operational model often face a lack of funding. Thus, countries around the world taking the Paris Agreement goals seriously must thoroughly revise their green finance and transition finance incentives.