Strengthening Cambodia’s Financial Sector for a Sustainable Future: The Role of IFC and ABC
In a world increasingly aware of the impacts of climate change, the need for sustainable finance has never been more pressing. The International Finance Corporation (IFC), a member of the World Bank Group, is taking significant steps to enhance the capacity of local financial institutions in Cambodia to address these challenges. In collaboration with the Association of Banks in Cambodia (ABC), the IFC is working to create a robust financial ecosystem that supports climate-friendly initiatives.
The Urgent Need for Climate Investment
According to the World Bank-IFC Cambodia Country Climate and Development Report (CCDR), Cambodia faces a daunting challenge in achieving its climate goals. The report highlights that the country will require an additional $36 billion in investments from both the private and public sectors between 2023 and 2050 to reach its target of carbon neutrality by 2050. This staggering figure underscores the urgency of mobilizing financial resources to combat climate change and foster sustainable development.
Training for Financial Institutions
To address the pressing need for capital in climate-friendly projects, the IFC organized a comprehensive training program on October 17, aimed at equipping over a hundred bankers with the necessary knowledge and tools to drive sustainable finance initiatives. This training is part of a broader collaboration between the IFC and the National Bank of Cambodia (NBC) to enhance green finance through the development of capital markets in the country.
Facilitated by IFC experts and key stakeholders, including the NBC and the Securities and Exchange Regulator of Cambodia, the training sessions covered a wide range of topics. Participants learned about Sustainable Finance Taxonomy, Environmental and Social Risk Management Systems, and the latest trends and opportunities in sustainable finance. This knowledge is crucial for local financial institutions to innovate and introduce sustainable finance practices and products.
The Importance of Sustainable Finance
Towfiqua Hoque, the newly appointed IFC Resident Representative for Cambodia, emphasized the significance of sustainable finance in her remarks. "The importance of sustainable finance cannot be overstated. It is not just about mitigating risks associated with climate change, but also about seizing opportunities that come with the green transition," she stated. By integrating environmental, social, and governance (ESG) considerations into financial systems, Cambodia can create a more resilient and inclusive economy.
In her new role, Hoque will lead IFC’s initiatives to strengthen the country’s financial sector, advance renewable energy, promote green transport and logistics infrastructure, and expand climate finance. Her leadership will be vital in navigating the complexities of sustainable finance in Cambodia.
Challenges Facing Green Finance in Cambodia
Despite the potential for green finance in Cambodia, several challenges hinder its growth. A lack of clear guidance on what qualifies as green finance and limited green policies among local financial institutions pose significant barriers to innovation. Dith Sochal, a Council Member of the ABC and Chairperson of its Sustainable Finance Committee, highlighted the urgency of building capacity and expertise within the financial sector. "The training provided participants with valuable insights and practical strategies that they will take back to their respective institutions," he noted.
With Cambodia’s vulnerability to climate-related disasters such as floods, droughts, and rising sea levels, the CCDR warns that without proper adaptation and mitigation measures, climate change could cost the country up to 9 percent of its gross domestic product by 2050. This stark reality further emphasizes the need for immediate action in the financial sector.
A Vision for the Future
The World Bank Group’s recently approved Country Partnership Framework for Cambodia for 2025-2029 aims to promote the nation’s human capital to enhance competitiveness and foster resilience. Hoque reiterated the IFC’s commitment to supporting a strong and competitive private sector, which will play a pivotal role in driving Cambodia’s next phase of low-carbon and sustainable economic development.
The IFC is not only focused on Cambodia but operates in over 100 countries, leveraging its capital, expertise, and influence to create markets and opportunities in developing nations. In fiscal year 2024, the organization committed a record $56 billion to private companies and financial institutions in developing countries, demonstrating its dedication to mobilizing private capital for sustainable development.
The Role of the Association of Banks in Cambodia
The Association of Banks in Cambodia plays a crucial role in promoting the development of the Cambodian financial system. As a non-profit local association, it works closely with local and international authorities to protect the interests of its members and facilitate communication between institutions and the banking community. The ABC’s collaboration with the IFC is a testament to its commitment to fostering sustainable finance practices in the country.
Conclusion
The collaboration between the IFC and the ABC marks a significant step towards building a sustainable financial ecosystem in Cambodia. By equipping local financial institutions with the necessary tools and knowledge, this initiative aims to unlock capital for climate-friendly projects and drive the country towards its climate goals. As Cambodia navigates the challenges posed by climate change, the importance of sustainable finance will only continue to grow, paving the way for a more resilient and inclusive economy.