USAID Convenes Bank CEOs in Cambodia for Climate Risk Talk
BANGKOK, October 22, 2020 – The United States Agency for International Development (USAID) Green Invest Asia and the Association of Banks in Cambodia convened more than 60 senior representatives from Cambodian banks on October 20 to examine climate risks and opportunities for the lending community.
Richard Chen, the head of USAID Cambodia’s Food Security and Environment Office, noted banks’ frontline role responding to climate change. “As the toll of climate hazards grows in Cambodia, it is becoming increasingly critical to finance climate change mitigation and adaptation. As the country’s biggest funder of business, the banking sector is key to supporting Cambodia’s journey to achieve sustainable development goals.”
FMO, the Dutch Entrepreneurial Development Bank, shared its business case for investing 34 percent of FMO’s global $12.3 billion portfolio in “green”, or sustainable, investments that reduce greenhouse gas emissions, increase resource efficiency, preserve and grow “natural capital” and support climate mitigation. FMO called on Cambodian member banks to decrease their exposure to climate risks by pivoting toward more sustainable investments – starting at the board level.
“[Responding to climate change] is a board responsibility because it is a strategic and financial risk. The board should be climate literate to ask right questions of management and to steer the bank,” said Nicci Bouwman, a Senior Corporate Governance Advisor at FMO, who called climate change a systemic risk that “touches many parts of an organization” requiring finance, risk and sustainability departments to agree on roles and responsibilities.
She described scenarios where physical risks become credit risks when houses/collateral are destroyed in floods leading to more loan defaults, for example. Or credit risks increasing from stranded assets as a government moves away from, for example, fossil fuels.
Yves Jacquot, chairman of ABA Bank Cambodia, one of Cambodia’s largest banks said: “Whereas in the past evaluating environmental risks might have been a preferred skill set for mainly front-line loan officers, now that ability is indispensable across the organization to protect our investments from climate change fallout. Our bottom line suffers if our investments are not climate-sensitive.”
Tin Ponlok, Secretary of State at the Ministry of Environment noted how “Cambodia is still seen as a frontier, risky market. In the context of climate change, business as usual is not an option.” Cambodia has high vulnerability and low readiness to respond to climate change, according to the ND-Gain Index, which measures a country’s vulnerability to climate change, along with its readiness to respond and improve resilience.
Taking advantage of climate-smart investment opportunities “requires stepping outside the zone of comfort for both banks and entrepreneurs. Those who do will come out on top…The banking sector is only one piece of the puzzle, but it is an essential piece,” said Ponlok.
In 2016, the United Nations Environment Programme estimated that adapting to climate change can cost anywhere from $280bn to $500bn annually, which presents banks a chance to create more resilient asset classes, said Prashant Murthy, FMO’s Sustainability Finance Officer. “Think about where industries are moving. Be a forerunner and introduce concepts to clients that are more commercially sustainable in the long run. ” said Murthy.
Twenty percent more of the participants expressed interest to design bank climate change policies and processes after the talk than before it, based on a survey USAID Green Invest Asia conducted pre and post-event.
USAID Green Invest Asia is supporting the Cambodian government along with Green Climate Fund to design and launch what will become Cambodia’s first national green financial institution, intended to catalyze more green investments nationally. The government has organized the launch of the official design phase of the green finance institution on October 23.