Improving Environmental, Social and Governance (ESG) Potential in Cambodian and Vietnam Banking Sector

Banks are well-positioned to harness and disburse the capital required to change business as usual, and they are increasingly being called upon to support sustainable development and enable a country's transition to a greener economy. Environment, Social, and Governance (ESG) policies are essential for banks to manage ESG risks and opportunities, and to ensure that their lending practices are aligned with sustainable development goals. However, local banks in Cambodia and Vietnam tend to lack ESG systems in place, whereas international banks have more developed ESG systems. This disparity creates a need for tailored training and advisory services to support local banks in developing their ESG capabilities. USAID Green Invest Asia has been working to improve ESG potential in the Cambodian and Vietnamese banking sectors through a tailored training and advisory service. The organization has developed a range of tools and materials to support banks in developing their ESG capabilities, including an Environmental and Social (E&S) management system (ESMS) that can be tailored to the context of Cambodia and Vietnam. The ESMS is a well-designed and properly implemented system that can add value to the bank and its stakeholders by ensuring ESG factors are part of decision-making, risk assessment, and investment monitoring processes throughout the lending cycle. The ESMS also provides a framework to manage ESG risks at both the bank and client levels, and provides clarity for all stakeholders on ESG standards and sustainable business performance that the bank intends its clients to meet. USAID Green Invest Asia has provided training and technical support to banks in Cambodia and Vietnam to help them develop their ESG capabilities. The organization has worked with banks to develop E&S policies, risk management systems, and monitoring frameworks, and has provided training on topics such as climate change, gender, and impact assessments. The organization has also provided one-on-one bespoke training to support the development of E&S policies, risk management, and monitoring directly into banks. In Cambodia, the organization has worked with the Cambodian Sustainable Finance Initiative (CSFI) to develop and strengthen the finance sector's social and environmental safeguards, and related risk management standards. The CSFI has led to the adoption of sustainable finance principles by 27 banks in Cambodia, and has improved banks' awareness of sustainable finance. The organization has also provided technical support to the Cambodian banking sector through sector-wide engagement, including organizing and providing training workshops on various aspects of sustainable finance. In Vietnam, the organization has developed an ESMS framework for banks that includes an E&S policy, E&S procedures, and an E&S risk assessment framework. The ESMS is aligned with the State Bank of Vietnam's circular on internal risk management systems, and provides a framework for banks to manage ESG risks and opportunities. The organization has also provided direct bank trainings to support the development of E&S policies, risk management, and monitoring directly into banks. Overall, USAID Green Invest Asia's work in Cambodia and Vietnam has helped to improve ESG potential in the banking sectors of these countries. The organization's tailored training and advisory services have supported banks in developing their ESG capabilities, and have helped to promote the adoption of sustainable finance principles.